Daily Archives: February 5, 2018

For Those Who Recently Adopted Sourcing, Start Thinking About Next Generation Sourcing Now!

SI has been about next generation sourcing since the day it began. No matter how good you think you have it now, it’s not good enough. Why? Most of you are still on last decade’s sourcing platforms which, especially if you never had anything like them before, is a great start (and maybe beyond your wildest dreams if you were in e-mail and spreadsheet world), but not good enough. What you are going to find out, as SI told the Procurement leaders seven years ago today in its post on Next Generation Sourcing, all good things come to an end.

As we noted for those of you with first generation and early second generation systems,

  • Once you institute RFX, the manpower savings from automating bids can only be claimed once.
  • By the time an organization gets to the third auction, there are no more savings to be had as the fat from supplier margins has been squeezed out.
  • Once the allocation has been optimized across the supply base in a way that minimizes unit costs, transportation costs, (interim) storage costs, etc., re-running the optimization won’t lower costs further unless something changes — such as the identification of a new supplier, an alternate material (that is cheaper), additional demand (that increases the economy of scale), or a more powerful optimization model is provided.
  • Once contract management and monitoring is put in place and no invoices are paid that are not for delivered, defect-free products, at contracted rates, there is no little on-contract leakage to be stopped.
  • Once controls are put in place to stop off-contract purchases that should be on-contract (through integration of the e-Procurement system with the Contract Management system), there is no little off-contract leakage to be stopped.
  • Once spend analysis has identified all the opportunities, the savings won’t actually materialize until something is done about them. This something cannot be appropriately identified unless the appropriate information is available to the knowledge worker

And, more importantly, for those of you with later second generation systems:

  • Once a SIM with a powerful supplier portal and information / (compliance) documentation monitoring and alerting system is put in place, there is no additional time savings from information maintenance offloading.
  • Once a SPM which automatically collects organizational data and metrics is put in place, there is no additional time savings from automating supplier scorecard production.
  • Once a SRM with proper corrective action requests / corrective action monitoring and integration system is put in place, there is no additional time savings from quick-and-easy semi-automated resolutions.
  • Once an audit recovery system is put in place that not only 3-way matches invoices but identifies when rebate or discount targets are hit and automatically applies the discounts to current and future invoices, there is no more savings from high-priced audit recovery services.
  • Once integrated contract negotiation and e-Signature is implemented, there is no more process time savings from being able to track all updates by both parties and do sign-offs quickly.
  • … and so on

At some point, your year-over-year returns will start to trail off … somewhere between the three and five year mark, depending on how much spend you are able to put through managed sourcing events every year and how much you are able to use the system to support it. So don’t stand still. Start identifying your biggest weaknesses and looking for the next generation system to address them when the opportunity costs of not taking advantage of the opportunities you are missing gets too high.

So where do you start? Stay tuned.