The Four Pillars of the Modern Strategic Sourcing Program

We’re gearing up to launch our annual benchmark study on the state of strategic sourcing and the excitement is….. palpable. The topic is so rich and exciting that throughout the month, we’ve been featuring articles on the subject – some from the archives, and some new ones, like this one – that highlight key facets of a truly “strategic” sourcing program.

Although “sourcing” and “strategic sourcing” have over time come to mean largely the same thing, no sourcing program can truly be considered “strategic” if it neglects business process automation and related tools – particularly eSourcing. The business world moves too fast for sourcing teams to solely rely on manual, multi-touch processes for the bulk of their work. For many industries, customer expectations are too high, commodities are too variable, and market conditions are too volatile to continue doing business the old way. Sourcing teams need to be agile in order to adapt to quickly-changing, high-impact market conditions.

As a result, manual processes are out – automated systems are in, and they’re doing more of the heavy lifting for sourcing teams that remain short-staffed but hard-pressed to cut costs and deliver greater savings to post-Recession enterprises. But what are these automated processes and tools, and how do they add value to sourcing teams?

• Spend analysis is both the process and the tools by which sourcing teams gather spend data, analyze it, and derive smarter spending decisions from it. When you understand your historical spend – where you spent it, how you spent it, with whom you spent it, whether you paid in cash or leveraged favorable financing terms, etc. – you can make better spending decisions on future purchases. Automated spend analysis tools pull all this data in a repeatable way into a regular reporting format in a that can be analyzed by sourcing professionals for faster decision making.
• Automated sourcing (eSourcing) allows companies to complete the entire source-to-settle process within one consolidated system, wherein they can identify, evaluate, negotiate, and implement goods and services needed for a given sourcing project. Enterprise procurement and sourcing teams can pull in spend intelligence to help them inform sourcing decisions, and increase the likelihood that they will receive the optimal mix of goods and services for the best possible price. Reverse auctions allow vendors to bid down on contracts, and help sourcing teams ensure that they are getting the best possible value on the goods and services to be delivered.
• Contract Management systems act as a single system of record for all contractual documents and enables easy retrieval for fast reference by internal stakeholders. Contract management as a process is central for contract compliance, as procurement staff can reference service-level agreements to ensure that suppliers are providing the goods and services as defined by the contract, and are charging the the agreed upon price for the goods and services delivered. Contract management systems help preserve the value derived by procurement through the sourcing process. These tools also allows contract managers to maintain templates for future use, which also aides in compliance and can also enable faster processing times on future contracts.
• Supplier Performance Management as a process helps sourcing teams ensure that their suppliers are consistently delivering their share of the bargain, on time, within budget, and that the goods and services meet the specified quality. Sourcing teams can leverage supplier performance score cards whereby they rate their suppliers along predefined performance metrics. Everyone loves data, and sourcing teams, category managers, and end-users in the business can all can leverage that data to help keep their suppliers’ performance on track. Supplier performance management tools can also serve as a repository for supplier information, which enables quick access among disparate sourcing teams, or for knowledge transfer when there is turnover.

Together, these four pillars of a modern strategic sourcing program enable Best-in-Class companies to identify and realize greater cost savings, greater contract compliance, greater spend under management, greater on-contract spend, and greater spend through sourcing. There are clear advantages to automating strategic sourcing business processes, and savvy sourcing teams have already caught on how they can do better with same in the post-Recession economy.

Be sure to check out Andrew’s State of Strategic Sourcing 2014 report to learn more.

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