Market Brief: Overcoming Internal Roadblocks to Sourcing Transformation

Transcription

1 Market Brief: Overcoming Internal Roadblocks to Sourcing Transformation

2 Procurement teams today must focus on more than reducing costs they need to build supply networks that contribute to value and profitability. This transformative shift can begin most readily in the discipline of sourcing. E-sourcing, especially, can play a more strategic role in the greater business context adding even more to the proven value it delivers as a strategy for cost cutting. The challenge lies in fundamentally changing how organizations as a whole, and procurement teams especially, view e-sourcing. For it won t be an easy path. While the majority of organizations recognize the value that e-sourcing can deliver in lowering costs, there are roadblocks to leveraging it to drive profitability and growth. In today s highly competitive business environment -- when every consumer dollar is up for grabs -- driving more value from procurement needs to be a top priority for CFOs and CPOs. In this market brief, we ll identify the most vexing roadblocks to transforming sourcing operations, and provide prescriptions to help even the most entrenched naysayers move beyond them. E-sourcing can play a more strategic role in the greater business context adding even more to the proven value it delivers as a strategy for cost cutting. Getting to the Value-Add of e-sourcing: What s in the Way? The ability of e-sourcing to reduce supplier costs, especially on basic categories, is well documented. What visionary procurement leaders see now is that there s a bright horizon, where decisions regarding who and where to source from, and what trade-offs are worth making (like sustainability vs. materials vs. packaging) can have a powerful impact on larger initiatives. For example, here are three scenarios where e-sourcing can make a greater contribution to the top line: 1 Enabling companies to quickly collect information on how suppliers are innovating with new or existing products e-sourcing s Contributions: 23 Having alternative supplier prices and contract terms on hand to avert supply disruptions when disaster strikes a primary supplier Aggregating purchases within the supply base lowers internal costs and prevents product price inflation 1 Market Brief: Overcoming Roadblocks to Sourcing Transformation Intesource, Inc.

3 What s likely to hold organizations back from reaching these lofty shores? From the fear associated with adopting new practices to the cold, hard reality that procurement organizations are running skinnier and skinnier every year, there are plenty of reasons that organizations haven t broadened the use of e-sourcing. Let s explore 5 common roadblocks: 1 Service providers and solutions vendors always over-promise and under-deliver. The deep-seated skepticism about the ROI of various service providers and stand-alone tools has the powerful ability to delay or even kill investment in a solution. Nearly everyone has a horror-story or has read one about a partnership gone awry and few are ready, willing or able to risk their careers on something that might or might not be a success. It s an especially relevant challenge with e-sourcing, as the promise of savings is almost always double-digit percentages, per category. Research group Aberdeen reports that companies using e-sourcing save 16% annually. 2 Our categories are too complex for e-sourcing to manage. Today s supply networks are complex. Supply chains made up of hundreds or thousands of suppliers, many around the world, are not unheard of. Category requirements are so nuanced that it takes an experienced procurement professional to understand the complexities of defining what s needed, evaluating what s offered and negotiating the pitfalls. In many cases, these products and services are strategic to the company. This roadblock often arises at the same time as roadblock #1 and is accompanied by the question: Are you sure you want an outside sourcing team or technology application to handle something that critical? 3 I know my category and my suppliers are giving me the best price. Really good procurement professionals know their markets, the best and worst players in the market and how to work their contacts. They ve spent years nurturing and growing relationships, believing that s the best and only way to get what s needed from suppliers lowest cost, improved service levels or better terms. There s absolutely no other way to do it, period. 4 Sourcing is tactical, there s no need to tie it to business goals. When it comes to e-sourcing many buyers are measured tactically (e.g. by the number of events they run). This tactical view of e-sourcing sends a strong message to those who run the events that there s not a lot of criticality to what they do within the context of business goals, reducing motivation to do more. Often accompanying this 2 Market Brief: Overcoming Roadblocks to Sourcing Transformation Intesource, Inc.

4 roadblock is that the leadership team doesn t fully understand the contributions e-sourcing makes to the company s overall performance and won t back investment in improving the situation. 5 We simply don t have the skillsets and resources to do more. The talent drain in procurement has been covered extensively. In retail and grocery markets, 22 percent of companies report that they don t have a dedicated e-sourcing team, and 65 percent report relying on e-sourcing teams of just one or two people. To gain the advantages we re talking about here, companies need to run more events and run events across more categories and that takes more people. Best Practices for Overcoming Roadblocks No matter where an organization is in their evolutionary path with e-sourcing, these roadblocks are common. Identifying those which are most entrenched is a major step. The prescriptions to removing them are straightforward, and at the heart of change management. The imperative for change comes from the top E-sourcing s impact on top and bottom line performance puts the decision to adopt strategic sourcing and invest in technology and partnerships squarely in the C-suite. Making awareness of the tangible and sustainable business benefits that e-sourcing can deliver a part of the mindset of CEOs, CFOs, and CPOs is a powerful antidote to reluctant buyers perceptions. Establish and enforce clearly articulated policies and goals Procurement leaders can spur buyers into action by tying the procurement team s compensation and performance goals, in part, to e-sourcing, and by strongly articulating and enforcing e-sourcing policies. For example, mandating that a certain volume of spend be subject to e-sourcing auctions drives buyers to take a second look at their categories, and identify opportunities to put business up for bid. 3 Market Brief: Overcoming Roadblocks to Sourcing Transformation Intesource, Inc.

5 It doesn t have to be only a top-down mandate. Employee recognition programs, rewarding buyers that hit particular goals such as sourcing the highest amount of spend and recognizing the most successful savers can be huge motivators. Promoting not only what money was saved, but also how that money was used elsewhere in the company emphasizes the value delivered to the whole organization, and reinforces the company s commitment to supply chain value. Recognize Success to Boost Results: A Million Dollar Savings Club, recognizing the company s elite savers with a plaque and celebration. Explore more ways to boost buy-in. About Intesource: Companies are caught between two opposing goals: drive cost savings or invest in innovation. Both require people, technology and expertise in a time when resources and the skills and time required to source effectively are scarce. Intesource eliminates operational headaches from the sourcing equation by offering the industry s only enterprise wide, unlimited, full-service e-sourcing package. Intesource s turnkey approach to e-sourcing consistently drives double-digit savings without requiring additional staff or process overhauls an approach that saves valuable time and frees up staff to focus on strategic initiatives. With a history of success in the most challenging sourcing climates, and expertise in both direct and indirect categories, Intesource ensures that buyers are getting the best value every single time. Learn more at Contact Us: Intesource, Inc E. Highland Ave, Suite B-375 Phoenix, AZ Kelly Deacon Marketing Director kdeacon@intesource.com (800) Apply lessons learned to drive continuous and sustained improvement Leveraging experience from past e-sourcing events when sourcing new categories is a great way to continually improve results, and help buyers find new ways to source higher amounts of spend and increase the savings secured. Example: If a grocer is looking to put their plastic grocery bags up for auction, e-sourcing makes it easier to look through its company-wide spend to see if its current supplier is providing any other supplies i.e. produce bags or deli bags. The grocers procurement team can put all three items up for bid in a single auction, dramatically increasing the amount of organizational purchasing power and ultimately increasing the overall savings and improving contract terms. Overcome obstacles to drive growth and profitability Regardless of where your organization is in its sourcing maturity, there s room to make a bigger impact. There will always be hurdles when trying to transform and improve -- as we stated earlier, change is hard. But by identifying the root causes -- and putting a plan in place for corrective action -- you can set the stage for an easier and quicker journey to sourcing excellence. Are you ready to remove the obstacles to gaining a business advantage with e-sourcing? It s a no-risk arrangement that may just uncover a few million dollars in savings opportunities. Schedule a free-trial with Intesource today. 4 Market Brief: Overcoming Roadblocks to Sourcing Transformation Intesource, Inc.