Over the past couple of months, Ardent Partners has featured analysis from The State of Strategic Sourcing 2014: Connecting the Dots, which published in Q4 last year and is currently available. Interested readers can find the report here, and here, and here.
This research report analyzes the strategic sourcing programs of almost 250 distinct procurement departments and presents the Best-in-Class competencies for improving the sourcing function and its results while also highlighting the market trends that shape strategic sourcing today. This report also utilizes market statistics to quantify and examine what leading sourcing organizations are doing to outperform their peers.
Today’s article will highlight the importance of collaboration as both a strategy and a key Best-in-Class capability for strategic sourcing success. Although we’ve talked at length about each of the four pillars of the modern strategic sourcing program (spend analysis, eSourcing, contract management, and supplier management), and how important it is to “connect the dots” between them, collaboration is the mortar that binds these pillars together. Business stakeholders and suppliers can be valuable partners in the strategic sourcing process. Here are a few examples of how sourcing teams regard these relationships and how strong internal and external collaboration is a Best-in-Class capability.
Strategies for Sourcing Success
One of the findings from our State of Strategic Sourcing 2014 report was that 53% of procurement departments made improving collaboration with line-of-business leaders a top strategy for the year. They did so for a couple of reasons:
First, although procurement is led by a Chief Procurement Officer (CPO) or equivalent title with executive reporting lines, many procurement departments still lack a seat at the budgetary, operations, or planning tables. Thus, sourcing teams need to develop and foster relationships with influential line-of-business leaders and other key budget holders to gain access to important sourcing opportunities and influence spending decisions.
Second, as procurement’s mission and responsibilities continue to expand and converge across the enterprise, it’s in a sourcing team’s best interest to collaborate and communicate early and often with other internal stakeholders that have a role in the sourcing process, such as product development teams. The earlier sourcing teams get involved in a project, the more influential and effective it can be to drive greater value through strategic sourcing. There’s more work to be done here as 35% of sourcing teams also indicated that greater internal collaboration remained a top challenge for them, which is perhaps why a majority of respondents made it a top strategy for 2014.
Another one of our findings was that 46% of sourcing teams consider greater collaboration with their suppliers a top strategy for 2014. Suppliers are frequently overlooked as “partners” in the strategic sourcing process, but nearly half of all respondents seemed to recognize that there is value in more and better supplier collaboration. Over time, product innovation and shifts in supply that are not tracked can be significant competitive threats. Nonetheless, many sourcing teams do not regularly analyze and track specific category markets or more broadly consider all of their sourcing options (i.e., should we move some or all of our business from the incumbent). Being more collaborative with suppliers – rather than purely transactional – can help sourcing teams stay current on market trends, as suppliers often have rich market knowledge and insights to share. Collaboration can also help sourcing teams offload some of the burden of managing supplier information and risks. Here, suppliers can be true assets that generate value (rather than liabilities).
Best-in-Class Sourcing Teams Collaborate and Succeed
In this year’s study, we asked respondents to rate their sourcing team’s performance along a series of process capabilities. Overall, Best-in-Class sourcing teams consider themselves to be more collaborative – internally and externally – than their peers. Specifically, Best-in-Class understand that:
- Influencing without authority is critical as procurement’s mission and priorities expand across the enterprise and converge with other departments and processes. It becomes even more important for sourcing teams to align their people, processes, and technologies with other departments that have skin in the sourcing game – like Product Development, HR, Legal, and IT.
- Collaborating with line-of-business and functional budget holders is vital to the health and success of not just sourcing projects, but the business as a whole. Best-in-Class sourcing and procurement teams understand that although they have a CPO in their corner, they need powerful friends in high places to promote procurement’s value to the rest of the enterprise, and win support for sourcing projects, as well as resources for the CPO – like headcount and technology.
- Suppliers can be valuable – if frequently overlooked – partners in the strategic sourcing process. Best-in-Class teams more effectively leverage their suppliers to stay abreast of new commodities or products, emerging market trends, as well as price fluctuations and volatility. As a result, suppliers can be effective change and risk management partners.
- Suppliers can also help sourcing teams keep their houses in order by conducting a needs-wants analysis to determine what the enterprise truly needs now versus what it can source later, saving logistical and other expenses. Greater collaboration with suppliers can also ensure that their information is current, allowing greater contract compliance – particularly to terms and conditions and service level agreements – and faster, more accurate remittance.
There are clearly many rewards for stronger internal and external collaboration during the strategic sourcing process, and that is before even getting into the potential impact on financial and operational performance metrics, like spend under management and savings. While visibility and strong business process execution are foundational for strategic sourcing success, collaboration is the glue that holds this foundation together.
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The Four Pillars of the Modern Strategic Sourcing Program