As we mentioned yesterday, Zycus held its annual user conference, Horizon, earlier this week at the Ritz Carlton in (on?) Amelia Island, Florida and I was pleased to attend. It was another very successful event for the supply management solution suite provider and its largest ever. Over the next week or so, I’ll cover a few of the keynote presentations, including one by Zycus’ CEO Aatish Dedhia. Today, I begin with Martin Karlsson, Ericsson’s Group Sourcing – Head of IT Tools and Systems and his group’s advances to what he calls Sourcing 3.0.
Sourcing 3.0 – How Strategic Sourcing Adds Value to the Customer
There are many ways to show the advances in consumer technology and general connectivity. Martin Karlsson of Ericsson chose three. The first was a video focused on what Ericsson calls “Capturing the Networked Society,” which I have included below. The second was a growth of networks stat – i.e. “it took a very long time to get to 1 billion connected homes… soon we will be at 50 billion connected devices.” The third was an interesting contrast of pictures taken in St. Peter’s Square in the Vatican as the new pope was announced in 2005 and 2013 and the vast difference in smart phone/device usage that has occurred in just less than 8 years. Anyway, three great hooks to show that the world is changing fast and that the world is really, really changing fast for the sourcing team at Ericsson.
With the audience hooked, Karl began his discussion of his team’s progression from what Martin referred to as “Sourcing 1.0 to Sourcing 3.0.”
For Karl and Ericcson, the sourcing maturity curve (which we’ll review below) can be described like this:
- Level 1: Sourcing 1.0 where the foundation for sourcing begins. This includes an ability to execute RFPs and contracts and pay suppliers competently.
- Level 2: Sourcing 2.0 where the sourcing team begins to develop capabilities in category and supplier management.
- Level 3: Sourcing 3.0 where the sourcing team’s efforts are directly impacting frontline value (often thought of as the ‘holy grail’ of sourcing)
To successfully climb this maturity curve, the Ericsson team focused on four key area (1) focus and efficiency (2) frontline capabilities (3) superior supplier value and (4) category excellence.
Ericsson – Sourcing 1.0: Foundation for Sourcing
As Ericcson reached the first stage in its sourcing evolution with basic competence across the source-to-settle process, Martin noted that it had a team of 1,400 sourcing professional who managed 35,000 suppliers that were paid 5 million invoices annually. Martin noted that supplier spend at this point accounted for more than 60% of total revenues. He also noted that the company was organized into five business units within ten regions and that there was a single global procurement support office and a single global sourcing process.
Ericsson – Sourcing 2.0: Develop Categories and Suppliers
[Sidebar: this is not to be confused with our own eSourcing 2.0 definition] With a solid ability to execute across core processes, Ericsson continued its journey by developing a strong category management capabilities and a strong set of supplier management capabilities.
Ericsson’s key activities in establishing its category management included optimizing its supply base, stressing cross-functional collaboration, developing category strategies, and sophisticated commercial development where the sourcing team began to look deeply into how the business is actually run and the types of sourcing models and supplier contracts that are needed to best support it.
Likewise, in this stage, Ericsson began to view and manage its suppliers differently, using a new SRM framework to do so. The team also began developing different supplier strategies including better segmentation and a focus on value creation.
Ericsson – Sourcing 3.0: Operating as a Commercial Function
According to Martin, the Ericsson sourcing team has reached this pinnacle where the group operates by “increasing profitability by adding value to the business process and understanding the business.” Martin highlighted a case study where the sourcing team was critical in driving the execution of a nine-figure contract. To get here, Martin identified several key drivers of sourcing success:
- Leadership and competence: It is only when these two things are in place that the sourcing team can contribute to the business.
- Responsible sourcing: Possessing a strong consumer awareness and understanding customer requirements became a huge asset for the sourcing team and enabled it to establish trust and a great relationship with the different business units.
- Partnering: This became the new approach for the sourcing team to help it navigate what Martin called an exceedingly diversified and competitive environment. As tru business partners, the sourcing team has been able to contribute to the top-line by adding value to customer relationships.
The maturation of an enterprise sourcing team can pay huge dividends and in the case of Ericsson has enabled the company to thrive in the “Networked Society.”
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