In a recent LinkedIn post by Celia SGAR, she made a very important point on a key requirement for good Procurement advice.
Now, her advice, governance, assessment, and relationship breakdown was focussed on Supplier and Vendor Management, because otherwise you’re wasting your time reviewing the same suppliers over and over again, but the reality is that it’s good advice that should be applied across the Source-to-Pay and Category Management lifecycle and the only way you’re going to get good results in today’s turbulent trade tussles.
Right now, the typical focus when analytics is first implemented is to find the top suppliers and top categories. Then, you’re supposed to measure those suppliers and source any of these categories not currently under contract or coming up for contract in six months. Then you’re supposed to track those over the next year, match all of the invoices, and report on the savings. Which will end up being less than you expect because the reality is that most organizations know 8 to 9 of their top categories and 8 to 9 of their top suppliers without any analysis, those are the suppliers they are managing, and those are the categories that are being “sourced”, “spot bought”, or a combination of both based on what the organization feels is best.
But this typically isn’t where the biggest opportunities are! The biggest opportunities are in the suppliers providing critical components who aren’t being managed, the categories from the next tier that are not managed because the organization doesn’t realize they’ve went from tail to mid-tier, and the categories where extensive market research has not been done to not only understand market price but should cost.
Contract Management needs to focus on reviewing contracts that don’t have standard terms and conditions, don’t have risk management clauses for emerging and newly identified risks, and don’t have regular measuring, monitoring, and reporting clauses from both sides.
In other words, teams start off on the wrong focus, and continue on the wrong focus all the way through sourcing, contracting, and supplier management because they focus on spend, not impact.
And when it gets to supplier management, by not identifying which suppliers present the most risk due to supplier instability, part criticality, regional uncertainty, trade wars, sanctions, etc, the organization is overlooking, the organization is exposing themselves to risks with severe impact potential by not managing those suppliers first and foremost.
So, if you want to get Source to Pay right, focus on impact, not spend. Not only will you save more, but you’ll be more efficient, and more resilient, overall.