While the past 12 months represent the most-trying economic climate since the Great Depression with hardships experienced seemingly around every turn, from a strategic sourcing perspective the recession can best be summed up in one word—opportunity. With commodity prices plummeting almost across the board and suppliers desperate for business, the strategic sourcing environment has been primed like never before in most of our lifetimes. But how long will these conditions continue? Experts disagree, but most concede that the shoots of a recovery continue to become more prominent. No one can be certain of when we will come out of this recessionary period and move back into times of economic prosperity.


The question is—what have we learned?
As of early 2010, unemployment was exceeding 10 percent and Hackett Group research suggested that less than half of these lost positions will be re-staffed—meaning that enterprises will have to do more with less . Those who embrace this new normal state of affairs will prosper through what will almost certainly continue to be an uncertain economy.

 

 

Spend Management Transformation goes beyond sourcing status quo
    • Leaders across all industries realize that they must move beyond status quo sourcing to a complete transformation of how they manage spend.
    • New Normal requires a paradigm shift on how “Sourcing” needs to be approached and executed.

     

     

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    10 Lessons Learned

     

    Based on external research and input from Ariba customers and prospects, presented here are 10 ways to re-examine your strategic sourcing organization. In some areas, you may be well positioned to succeed. In others, you may have work to do.

     

    1. Bring more spend under management
    2. Reconsider “best-in-class” spend analysis
    3. Align your organization with your goals
    4. Expand your category coverage to include non-traditional “sacred cows”
    5. Leverage automated supplier discovery tools
    6. Employ information to be more agile
    7. Reexamine existing sourcing tools and processes
    8. Mitigate risk and manage supplier performance by implementing an enterprise-wide supplier management program
    9. Work more collaboratively with key suppliers to jumpstart innovation
    10. Consider the benefits of an integrated spend management platform

     

    Bring more spend under management

     

    Given economic conditions, many organizations sought ways to bring more spend under management during the recession. However, this effort often became a catch-22 since many companies were concurrently dealing with layoffs and did not have the process and technology infrastructure in place to capitalize on the opportunity.


    Ask yourself, what is your primary source of fuel for your sourcing pipeline? For example, if the answer is that expiring contracts drive which commodities to source next, this is clearly not a best-in-class process. Instead, sourcing pipeline building must have a component targeting new commodities to source resulting in additional spend under management beyond the lowhanging fruit that is easily identified. Aberdeen Group research states that each new dollar of spend brought under management results in 5% to 20% savings—a compelling statistic. Such an effort requires visibility into spend data across often-disparate business units and data sources. This complex effort requires either manpower to manually aggregate and compile spend data or an automated spend analysis tool that makes sourcing opportunity identification and prioritization a repeatable, standardized process.

     

    Reconsider "best-in-class" spend analysis

     

    While sourcing savings identification continues to be the number one objective of organizations deploying spend analysis programs, the information best-in-class solutions can provide today extends far beyond commodity classifications. In fact, leading spend analysis solutions today offer “one-stop shopping” when it comes to the information needed for strategic sourcing decision-making including supplier enrichment attributes that offer a myriad of information on a company’s supply base including financial information, risk ratings, diversity details and, more recently, suppliers who are certified as green due to proenvironmental practices. Possibly even more importantly, spend analysis today should include information providing visibility into sourcing market dynamics. This information can include price indices, peer benchmarks, or results-oriented savings figures as well as the ability to load custom information that may be applicable to certain industries. The addition of these components makes not only savings opportunity identification possible, but also savings prioritization. Before engaging with a spend analysis provider, be sure to assess their capabilities not only in commodity classification, but also these other areas.

     

    Align your organization with your goals


    As stated earlier, The Hackett Group research states that of all the jobs lost during the recessionary period, less than half will be replaced. This requires strategic sourcing organizations to do more with fewer resources. But is your sourcing organization aligned with your goals? If not, reaching those goals will undoubtedly be far more difficult if not impossible. To illustrate this point, think again about your sourcing pipeline building approach and goals. Many organizations have business objectives to bring ‘x’ percent of additional spend under management, but fail to reach this goal year after year, or in actuality fail to meet the goal, but claim that they do through creative accounting that results in managing more spend in the same categories. Quite often, these organizations are destined to fail due to their strategic sourcing organizational make-up. An organization will not discover new and different categories to manage by chance when commodity managers are given a finite number of commodities to manage. Even when these individuals are tasked with identifying new categories to manage strategically, they are often not provided the tools and training to do so effectively. Therefore, they continue to focus on the areas that are in their comfort zone. Instead of this bottoms-up approach, someone in the organization must have the goal of increasing spend under management as a primary goal. This individual is charged with identifying new commodities to manage and will seek the processes and technology required to make this happen. Another area for potential sourcing savings often ignored or underutilized is the opportunity in indirect services and goods. The complexity here is that organizational alignment with commodities is suboptimal since indirect categories tend to be smaller in general, and because the commodities/opportunities are from a larger pool that is more dynamic. This requires a more-flexible and agile organizational structure focusing resources where they are needed on a weekly, daily or even hourly basis.

     

    Next: Ariba Knowledge Nuggets: Strategic Sourcing - Lessons Learned from the Recession Pt.2

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    Beverly Dunn is a Customer Success Manager with Ariba. All customers are invited to join the private Customer Success group on Ariba Exchange, where you can access the Customer Success   Spotlights, Lunch 'n Learn Webinar calendar and replays, and the Ariba Knowledge Nuggets.