Manufacturers utilizing manual processes to source the direct materials that comprise their products have an extraordinary opportunity to leverage automation and drive great value across the enterprise. And yet, while the value proposition of an eSourcing solution is straightforward, articulating and presenting a business case for a solution can be complex, time-consuming, and difficult. To help procurement and sourcing executives and their teams accelerate this process, Ardent Partners has developed a robust “Business Case Framework” that includes eSourcing specific content, independent research, and easy-to-follow directions. Click here to read our “Introduction”, “Executive Summary”, “Problem and Opportunity“, and “Current State” articles.

Project Overview

This section should outline the proposed solution and its scope – what it will do, how it works, and a list of major capabilities that the team would like to deploy. This section should also include an impact analysis that discusses the business, process, stakeholder, IT, and financial impact of this project. One of the most important aspects of any business case is the financial analysis that supports it. While competing projects can have very different requirements and benefits, “Return on Investment” is one measure that allows enterprises to compare projects in an apples-to-apples way. ROI is a performance measure used to evaluate the efficiency of an investment and is helpful for use in comparing the relative efficiency of a number of different investments.

While the inclusion of an ROI calculation in a business case is standard, the scope, details, and complexity of ROI models required by different enterprises can vary widely. It is important that the ROI model used in the business case meet enterprise requirements. If those requirements are unclear, the project team should confer with the finance department (or a third-party expert) before finalizing the business case.

Proposed Solution

Our proposed solution to address the numerous problems discussed above is to automate the sourcing process by deploying an eSourcing solution. The scope for this project is at an enterprise-level and will affect all business units in the US and globally. The project team will review and analyze several potential solutions and select one that will meet our specific functional and technical requirements while staying within our approved budget. The solution requirements and design will be determined collectively by a group of internal stakeholders including project engineers, IT, and line of business professionals and the project will be led by the sourcing organization.

Business Benefits

We strongly believe that the benefits to the business will far outweigh the costs. Here are a few primary opportunities that can be realized by an investment in the right eSourcing solution: (1) Drive greater savings by creating more competitive bid situations and expanding the overall volume of direct materials sourcing (2) Streamline processes through reduced sourcing cycle times, (3) Improve internal communication and collaboration, (4) Develop stronger relationships with strategic suppliers by improving communication and reducing tactical activity on both sides, (5) Improve compliance via enhanced visibility and controls, (6) Improve sourcing decision-making by centralizing supplier bid information and the communication of project team preferences, (7) Reduce product and overall costs by enabling a quantifiable, total cost view into sourcing decisions, and (8) Capture sourcing best practices.

Enterprise Impact

The larger enterprise will benefit from eSourcing by a reduction in product costs and a gain in expanded productivity from the sourcing team enabling greater sourcing activity and/or a deeper focus on current/planned sourcing projects which may include helping to rationalize bid specifications and expanding supplier bid panels with new and more, qualified suppliers. The enterprise will also benefit from the development of improved communication and stronger collaboration across the entire product development lifecycle. eSourcing will also enable improved communication and stronger collaboration across the supply chain, resulting in potential savings and efficiency gains and innovations that improve products, reduce costs, or both. eSourcing solutions offer a relatively light level of integration which means that the proposed solution will not disrupt the current IT infrastructure nor require significant IT support.

Financial Impact

Based upon our detailed analysis, the introduction of an eSourcing solution will generate a Three-year Return on Investment (ROI) of X%.

The calculation we have used to determine this ROI value is:

[Increased Savings ($) + Net Income Impact ($) + Risk Avoidance ($)]

Divided by

[Total Solution Investment Cost ($)]

In the above equation, “Increased Savings” equals our estimate of the extra savings generated from the increased sourcing activity that the tool will enable over the first three years; “Net Income Impact” captures the additional income gained by bringing products to market faster and at target cost over the same three year period via improved sourcing results; “Risk Avoidance” considers the potential fines and losses from regulatory and contractual non-compliance and the potential losses caused by compromises in Intellectual Property that will be avoided with superior sourcing process and information management in the three year window; and “Total Solution Investment Cost” equals the total estimated funds paid over the first three years to access and use the eSourcing tool.

RELATED RESEARCH

Creating a Business Case for Sourcing Automation – An Introduction

Creating a Business Case for Sourcing Automation – Executive Summary

Creating a Business Case for Sourcing Automation – Problem and Opportunity

Creating a Business Case for Sourcing Automation – Current State

Tagged in: automation, Business Case, Chief Procurement Officer, CPO, Sourcing, Technology