Last week, I participated in a webinar – Strategic Imperatives of Procurement: People, Process & Technology – (you can view it by clicking here – registration required) that was sponsored by Zycus. In our last two articles I’ve been answering the following question that arose during it:
Do you have any advice for more tenured strategic sourcing teams? What should these teams be doing to prepare for the next 5-10 years?
Today we will continue our recommendation to
Think Globally, Act Globally (Part Two)
Our view is that the impact of globalization on enterprises is not nearly as dramatic today as it will be in the future. For some enterprises (and sourcing professionals), this is a scary thought or a harsh reality – for others, this is an opportunity to find or create a sustainable advantage. Sourcing teams that are prepared to analyze global markets and identify the best suppliers within them stand to drive extraordinary value and become extraordinarily valuable along the way. The recommendations today, on what sourcing professionals should be doing (if they’re not already) is based on some of our consulting work with large sourcing teams nearly a decade ago and from some more recent work this fall.
(1) Expand scenario analysis and expand the analytical capabilities (staff and tools) to conduct this analysis – With more potential suppliers located in a much wider range of locations, the different cost, currency, and logistics considerations begin to grow exponentially. Sourcing teams need professionals who can identify all of the different considerations and begin to quantify and/or model different scenarios. Additionally, optimization-based sourcing tools like the ones offered by BravoSolution, Iasta, and CombineNet allow sourcing teams to process an extraordinary amount of bid and price information and model different scenarios to determine the optimal award strategy.
(2) Develop and expand logistics expertise – When some of the “first-movers” decided to start sourcing from low-cost countries China, they often focused their savings calculations on a per piece/tonnage/item/etc. advantage over current contract pricing while completely ignoring any impact on increased logistics costs. Two clients of mine in the early 2000s did just that. in the midst of new reports of huge savings from low-cost country sourcing at each company, I met with the logistics directors at each company. Both complained that their budgets had been completely crushed – more than doubling in one case. And this was back when oil was much cheaper. Yes, a total cost of ownership view needs to be taken on all sourcing decisions but, beyond that, a global supply chain requires much more sophistication in the sourcing and management of logistics. [Sidebar: the sourcing of this category also benefits from the use of optimization-based sourcing tools.]
(3) Improve supplier on-boarding – Make it faster and cheaper and ensure that it can scale globally – do this while maintaining its current quality and scope of activities. Globalization makes it more likely that, over time, more new suppliers from new locations will offer great value. As such, teams looking to do business with suppliers in different regions will need to have global capabilities to qualify new/prospective suppliers. And, they will need to do be able to qualify these new suppliers quickly and efficiently. A colleague and I once spent four months (not full-time) working with the supplier qualification team of a Dow Industrial Component in the development of an 80+ step supplier qualification process. [Sidebar: Even though my team was contractually bound to map a specific set of processes to an electronic sourcing / project management tool, we should have been more aggressive in streamlining the process. The tools, the processes themselves, and the process owners were all pretty new, so it was hard to gauge how much of what we mapped was process overkill.] While supplier qualification (or on-boarding) teams are not technically part of the sourcing team (at least not in many cases), the two teams, nonetheless, work hand-in-hand. I am reminded of a large global manufacturer that knows it is greatly exposed to risk because of the single source strategy it has adopted for several key direct materials. One constraint this team feels that it has is the inability of the business to qualify new suppliers in a timely fashion, and so it focuses on other thing. [11/10/11 12:39 pm – Reading this last section with fresh eyes, I did not address the obvious fact that suppliers are also heavily involved in the qualification process. Not mentioning it, is different than ignoring it – there are things that the buying enterprise can do to facilitate the process for new suppliers. More on this soon.]
Think Global – Act Global
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