Tag Archives: purchasing processes

Building an effective team category sourcing strategy

rowingteam

It often surprises me that many purchasing organizations lack an effective process for building a team-based strategic commodity sourcing plan. Typically plans built with key stakeholders are more successfully executed, deliver high results and encounter less resistance in the organization when change is required. By working with a team, you can assure the greatest sum of knowledge, get a better understanding of the project complexity, increase creativity and assure acceptance and ownership of the project by all members of the team. While many purchasing professionals have trouble engaging stakeholders, I have found when you can engage stakeholders, you will improve and increase the opportunities for your organization.

Who should be on the team? Before I start a program, I typically engage a steering group. The steering group’s role is to approve the project, make recommendations and remove any resistance or roadblocks that stand in the way the team. If the steering committee is comprised of senior leaders of the multiple disciplines required for the project, it has a better chance of success. If the sourcing leader can engage the steering committee as champions, the project is primed for success. All sourcing professionals should understand the stakeholder in terms of how much interest they have in the project and how much influence they have in the organization; a stakeholder with high interest and high influence would be a good one to engage as a steering committee member. This process will also work for the selection of team members. Other criteria to consider for team members are their ability, availability, knowledge, experience and overall willingness to contribute energy and time. The team’s responsibility will be to develop both short term (tactical) and longer-term (strategic) category strategies and sourcing plans. The team is also responsible for effective communications, information control and internal briefing of the project progress. If the team is committed to success, you will likely have a great project and outcome.

How should the team kick-off?  I suggest that the team build a charter. The charter identifies the mission, focus, objectives and scope of the project. It is an essential tool for keeping the team on track and focused. If things start going off the rails, the charter will bring the team back in focus. It is also necessary early in the sourcing strategy process to build a plan with timelines and milestones to measure the team’s productivity.

What are some important tasks?

  1. The first step in developing a strategic plan is to understand the historical situation and trends for the category. Ask the question “why has the organization sourced this category this way in the past?” If your organization can standardize the way “what we’ve done in the past” is reported, the more time the team has to explore future options and to focus on the strategy for the category.
  2. The team must evaluate the current situation, new opportunities and forecast the future trends to consider when sourcing this spend category. It is essential that the team take a deep dive into business needs and requirements, including things like receiving constraints at each facility, personalized service, inventory requirements, pallet markings and anything else that is currently being done by the incumbent supplier. Once the team has identified all of the business needs, it must look at the category and make the determination if the category should be managed tactically or strategically. Key tactical or strategic decision influencers are the number of suppliers in the industry with the capability and capacity to supply, the value-add contribution of the supplier and uniqueness of the specifications.
  3. Part of the planning process is to take a look at the sourcing history, price analysis and do a detailed analysis of the cost. Every buyer should have the capability to break out materials, labor, overhead and develop some idea of the supplier’s profit margin. Without this data, it is impossible to quantify the opportunity available in the project and determine the return on investment. This is a key checkpoint and milestone of the project: the ROI will determine if the project should go forward.
  4. After validating the ROI for the project, the team should evaluate the risk, global or local sourcing, technical opportunities, supply chain implications and supply market trends. The team now has the data to decide the way forward and determine the best strategy–should it be RFI/RFQ/RFP, auction, buyer’s offer, contract extension, logical negation with the incumbent, make or buy, or acquisition or joint venture? I have worked with teams that have developed and implemented all of these options.

The sky is the limit if a team can present a good strategy with a high ROI and build a convincing fact-based case. It requires discipline, process, strong leadership and the right people.

Do you have what it takes?

Managing Procurement in a Digital World

robot

5 tips for operating in a digital world

Many of you may find this hard to believe, but years ago the buyer’s best resource was the green, multi-volume set of the Thomas Register of American Manufacturers that was proudly displayed on the credenza. This was THE way to search for new suppliers. Today, you recognize ThomasNet.com and their web-based platform for supplier discovery. Things have come a long way since the hardcover green volumes, but I see many companies who, while using web-based searches, are still basically operating in the same way as the “look up a supplier for my item” process. Procurement exists in a world where social media, cloud computing, transition to mobile devices and the internet of things can simplify processes and free up valuable time to focus on more strategic, value adding work.

E&Y in its analysis of Megatrends 2015 reports that “Digital disruption is taking place across all industries and in all geographies. Enormous opportunities exist for enterprises to take advantage of connected devices enabled by the “Internet of Things” to capture vast amounts of information, enter new markets, transform existing products, and introduce new business and delivery models. However, the evolution of the digital enterprise also presents significant challenges, including new competition, changing customer engagement and business models.”

While the E&Y report highlights many megatrends, I want to focus on the digital impact on the procurement leader of the future. It’s obvious that the future for procurement will include connectivity from customer through to the lowest level supplier. It’s also not hard to envision models where computers on routine purchases have the ability to solicit quotes for business, analyze the quotes with decision-support artificial intelligence, place the order based on key rules and complete the transaction when goods and services are received. It’s also not hard to envision the costs and benefits of such systems, leaving procurement to develop longer-term strategies, supplier relationships, new products and work across the supply chain to deliver increased levels of value.

Here are five tips for managing procurement in a digital world:

  1. Align all low spend, low value categories so that they can be managed automatically.
  2. Develop order points, Kanban, blanket order releases, etc., so that they can be automated.
  3. Think about developing intelligence for timing, decision-support and rules for automating the RFX process.
  4. Automate supplier performance reporting and analysis.
  5. Reduce complexity of low spend, low value expenditure by establishing controls and removing human touch points.

These tips are just some of the things that procurement leaders should be thinking about as more and more human work is being transferred to machines and software. Automation of purchasing should be no exception!

Are you automating processes?