The Why, What and How of Strategic Sourcing

The Why, What and How of Strategic Sourcing

Part 3 of the Procurement Performance Elevation Series

With businesses always on the brink of facing a new disruption, be it technological, natural disaster, political, economical, emerging economies, etc., the procurement landscape is highly volatile and complicated. Organizations today need a unique set of processes and technology for successfully carrying out a sourcing project and identifying savings opportunities. Why is eSourcing gaining focus? Let's understand the growing significance of strategic sourcing with the help of the two figures below . Figure 1 highlights the importance of strategic sourcing at 68% (34% prominent role and 34% critical role). Figure 2 shows the growing role sourcing plays in best-in-class organizations. At 78% (crucial to prominent role), strategic sourcing is the life blood of procurement in these organizations, as highlighted in figure 2. Figure 1: Importance of Strategic Sourcing

Neutral role

No role

4%
Moderately significant role

3%

25%

Critical role

34%

Prominent role

34%

(Percentage of Survey respondents, n=146)

Source: Aberdeen Group, May 2012

Figure 2: The Role of Strategic Sourcing at Best-inClass Companies

Critical Role Prominent Role

22%

Moderately Significant Role

52% 26%

(Percentage of respondents, n=23)

Source: Aberdeen Group, May 2013

Another study by Hackett Group shows that 88% of the organizations cite strategic sourcing as a major or critical issue in 2013 as opposed to 71% in 2012. What are the driving forces for automating the sourcing process? The top pressure that organizations have been continually facing is the corporate mandate to reduce cost and increase savings. As pointed out by the Aberdeen study, in 2011 60% agreed to cost reduction and increased savings being the biggest challenge. This sentiment was further echoed by 69% in 2012 and 72% in 2013. Figure 3: Top Pressures Facing a Strategic Sourcing Program

Corporate mandate to reduce cost / increase savings Need for more effective category management strategies / Knowledge Need to improve sourcing performance Need to mitigate supplier risk due to supply disruptions Stakeholder pressure for measuring against sustainable sourcing initiatives

69% 36%

21% 18%

14% 0% 10% 20% 30% 40% 50% 60% 70%

Source: Aberdeen Group, May 2012

The other driving forces are;

n Need for better category management strategies n Rising sourcing risk due to supplier performance, fluctuating currency rates,

supply chain disruption etc.

n Increasing complexity in supply chain due to outsourcing, globalization etc. n Legal obligations to make the supply chain transparent n Need for better visibility into sourcing-related data

Figure 4: Top Strategic Sourcing Pressures

2011
Top-down directives to increase cost savings

60%

Need to improve sourcing performance

40%

Need to mitigate overall sourcing risks

32%

Need to improve supplier relationship management

19%

0% 15%

30%

45%

60%

75%

Percentage of Respondents, n=315

2013
Corporate mandate to reduce cost / increase savings

72%

Need for more effective category management strategies / knowledge

61%

Increased pressure for regulatory and internal compliance to contract

34%

Increased stake holder pressure for establishing / measuring against sustainable sourcing initiatives

30%

0% 15%

30%

45%

60%

75%

Percentage of Respondents, n=121 Source: Aberdeen Group, May 2013

The most common hurdles in achieving smooth eSourcing

n Lack of investment in a holistic change-management program to drive technology

adoption
n Lack of sufficient training at the time of technology implementation leading to

underutilization of the eSourcing technology and thus sourcing team is unable to extract the maximum that technology has to offer
n Gap in sourcing and business objectives leading to management overlooking

sourcing teams achievements

n Complicated user interface leading to executives opting out or circumventing the

technology
n Supplier pushback preventing eSourcing technology rollout n Inability to carry out bid optimization for specific scenarios that the sourcing

project may need. For instance, evaluating only those suppliers with whom the organization has worked before and are located in a particular region
n Unable to carry out high load sourcing events. For instance, a sourcing event

involving 10000+ line items and 200+ suppliers

Structured process leading to shorter sourcing cycle time by 25%-40%

Increased level of cost savings

Increased visibility into sourcing projects

Better alignment of sourcing and business objectives

Enhanced data reporting/analysis leading to informed and better decisions

Benefits of Sourcing Automation

More robust management of key spend categories

Higher level of accountability while executing sourcing projects

Supply risk assessment Optimization of ideal suppliers

Here are some implementation best practices for eSourcing

n Design program metrics, tied to individual performance

metrics, which clearly communicate expectations

n Create a pilot pipeline for categories

with detailed specifications and with suppliers willing to compete in the eSourcing event
n Management announcement explaining

the rationale behind the technology adoption. Mandate from top management especially for spend above X value must be sourced via e-sourcing route
n Ensure that message is sent across the organization about merits of e-sourcing

process and convincing users that e-sourcing is not ONLY REVERSE AUCTION
n Mapping of AS- IS process n Identification of the access rights of user groups based on profile and commodities

/service being handled

n Sign-off from key stakeholders to avoid costly re-work n Well-documented standard operating procedures based on phase 1 experience n Documenting best practices and demonstrating how they can be facilitated by e-

sourcing
n Celebrating success and ensuring it is replicated at every procurement group n Defining the proper commodities / services which are most amenable to e-sourcing

process during the initial events

n Defining templates in sync with the business which can be globally used across

procurement groups
n Clearly highlighting the benefits of eSourcing technology to all the users n Continuous Training till adoption is close to 100% and certification of trainers n Get internal customers actively involved in the decision-making process

Let us understand the significance of eSourcing with the help of a success story A USA-based leading global organization with over 3,000 worldwide locations, more than 30,000 education professionals and over 300,000 students. Sourcing Challenges:
n Complex sourcing categories with multiple non-pricing based decision making

parameters
n Large number of stakeholders managing sourcing categories across the globe n Low adoption of incumbent sourcing tool by both buyers and suppliers

The iSource Advantage:

n Flexibility to source all categories enabled by flexible event modeling and supplier

evaluation features
n Robust, multilingual application that supports large number of buyers and suppliers

from across the globe

n High user adoption because of very easy to use and intuitive interface

Conclusion
The procurement technology landscape has evolved to provide cutting-edge technology for meeting the requirements at different levels in the procurement cycle. Organizations have to invest a lot in terms of time and money to carry out large-scale sourcing events, and so it is necessary for them to receive an optimum level of ROI. Technology increases accountability in sourcing projects and identifies the bottlenecks. Leveraging advanced features of eSourcing helps organizations reduce costs and attain a higher level of visibility, and to carry out the sourcing projects more efficiently.

To read more on strategic sourcing you can download the following assets.
n Elevating sourcing process to the next level n Stepping up the sourcing game with project management

About Zycus

Zycus is dedicated to positioning procurement at the heart of business performance. With our spirit of innovation and a passion to help procurement create even greater business advantages, we have evolved our portfolio to a complete Source-to-Pay suite of procurement performance solutions which includes - Spend Analysis, eSourcing, Contract Management, Supplier Management, Financial Savings Management, and Procure-to-Pay. Behind every Zycus solution stands an organization that possesses deep, detailed procurement expertise and a sharp focus on being responsive to customers. We are a large 600+ and growing company with a physical presence in virtually every major region of the globe. We see each customer as a partner in innovation and no client is too small to deserve our attention. With more than 200 solution deployments among Global 1000 clients, we search the world continually for procurement practices proven to drive competitive business performance. We incorporate these practices into easy-touse solutions that give procurement teams the power to get moving quickly from any point of departure and to continue innovating and pushing business and procurement performance to new heights.

FINANCIAL SAVINGS MANAGEMENT PROCURETO-PAY SPEND ANALYSIS

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CONTRACT MANAGEMENT E-SOURCING

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