Daily Archives: December 11, 2017

How Many Platforms Do You Need? How Many Platforms Should You Need?

Sourcing is not simple. Finished goods. Made to order goods. MRO products and services. Services. Tail Spend. An average organization, if they need best of breed, might need an indirect, direct, MRO, services, and tail spend solution. Especially since most current platforms only support one such type of (strategic) sourcing project well.

Think about it. Especially in North America, the typical platform was built for indirect. Finished goods and cookie-cutter one-price services. The deep bill of materials (BoM) support required for direct sourcing or Statement of Work (SoW) for services sourcing is not present. And then MRO, which is mainly the re-ordering of parts and maintenance services to keep production lines or distribution humming. And, of course, the management of tactical tail spend as part of an overarching strategic initiative to never pay more than market for anything not worth strategically sourcing.

But an organization that ignores any of this spend is losing. Most organizations are not able to source more than 1/3rd of spend strategically a year, and if the organization only has an indirect or direct sourcing platform, that’s 1/3rd of product spend, or maybe 1/4th down to 1/5th of total spend. Even if you identify a savings of 10%, that’s only 2% to 3%, max, that can go straight to the bottom line.

Considering that, on average 30 to 40 cents of every negotiated dollar of savings does not get realized, that’s only 1% to 2% savings to the bottom line. That’s not enough. Procurement needs to be delivering 5% or more to justify it’s place as the undisputed value king of the organization. To do that, it needs to be identifying 7% to 8% savings, and to do that it needs to be sourcing not 1/5th to 1/3rd of spend, but 2/3rd to 3/4th of spend.

This means that if the solution it has only supports indirect, but it’s product spend is roughly evenly split between indirect and direct, then it also needs a direct platform. And then, depending on what the next biggest category of spend is, it will also need a platform for services spend or tail spend.

But should Sourcing need three different solutions to be the value king? That seems extreme! Especially when the sourcing process in all cases typically revolves around RFX, online bidding, optimization and analysis, award, and contract. It’s not like each type of spend uses completely different processes. The difference is just that direct uses a bill of material and extensive cost models, and services use detailed multi-line statements of work. Couldn’t one build a direct solution that could also do indirect by simply allowing the BoM to be a top line finished product? And couldn’t the grids, models, and analysis adapt to that lack of detail?

And when you think about a statement of work, isn’t that just a bill of materials for a service. Instead of raw materials, it’s individual task components. The grids are similar, it’s really just the realization of the abstraction.

So, we know how many sourcing platforms you typically need (at least three). But how many sourcing platforms should you need?

(Hint: The answer is ONE!)