Expand your category coverage to include non-traditional “sacred cows”


Even with signs of improvement, the effects of a recession as impactful as this one will continue to linger. Banks and other financial institutions have implemented stricter lending policies that will limit resources for both corporations and consumers. This will continue to impact overall demand, especially for many indirect services, which companies might not consider a necessity. This decline in demand creates great opportunities for buyers of indirect services, and Ariba has seen a shift in focus from direct to indirect spend categories. Ariba’s customers are focusing on opportunities in their indirect spend categories, executing sourcing efforts in categories such as temp labor, MRO categories and consulting services. Additionally, categories that have typically not been addressed through sourcing programs are now receiving attention; examples of this include legal services, relocation services and other HR-related projects.


A large number of procurement organizations have not only identified millions of dollars in savings, but also worked with the spend owners to get a majority of the identified savings to reach the bottom line—contributing significantly to the profitability of the organizations they serve. But in a recessionary period where CFOs conservatively estimate either flat or negative growth, it is now possible for Procurement to play a direct role to become a “silver lining” by contributing even more to growth by expanding category coverage to include offlimit sacred cows like legal, marketing, professional services and employee benefits/ healthcare. While in the past where it was difficult to convince spend owners to strategic source these categories, the “new normal” provides an immense opportunity for Procurement professionals to place these categories under a competitive strategic sourcing process.

 

 

Procurement's Top Priorities
  • Strategic sourcing efforts
  • Reducing Risk
  • Driving price concessions
  • Upgrading talent and skills

 

 

Leverage automated supplier discovery tools


According to Aberdeen Research, “Enterprises dedicate the most time to—and are challenged most by—sourcing activities that occur before and after the negotiation with suppliers”. Supplier discovery is the unaddressed pain point in the sourcing process and consumes significant resources—nearly 30 percent of cycle time. Both in good times and bad times, sourcing professionals acknowledge that savings opportunities are missed when too few suppliers are involved in the sourcing process. To drive increased savings, often sourcing teams have to search farther, wider and deeper to identify and invite new global sources of supply that can participate in the strategic sourcing projects. The good news is, new suppliers eager to win your business are everywhere. The challenge, however, is finding and preparing them in time for your negotiation. While many tools exist to help buying organizations find suppliers, discerning whether those suppliers can meet their needs often poses a significant challenge. Search engines such as Google generate plenty of names, but supplier information may be inaccurate or out of date. Attending tradeshows is time-consuming and expensive. The unique requirements of each working relationship can make peer recommendations uncertain. Lack of knowledge about new markets or categories can put buyers at a disadvantage, resulting in costly mistakes during supplier selection and negotiations. Hence the need to use automated supplier discovery tools with access to a large number of active high-quality suppliers across multiple spend categories becomes all the more critical in driving competition for your business from suppliers—thereby resulting in sustainable savings to the organization.

 

Employ information to be more agile


One of the effects of a recessionary downturn is that there will never be unlimited resources to use on any initiative. Instead, organizations will need to increase both their agility and access to information to respond more quickly and effectively to situations as they arise. Organizations will enable this agility by better anticipating fluctuations in market conditions.


Agility: With the over-used "do more with less" mantra only accelerated by the recent economic downturn, it's increasingly difficult to support keeping in-house a host of different resources that, while valuable, may only be needed sporadically. Instead, organizations need to be able to have "on-demand" access to additional resources (human, knowledge and technological) to deal with new categories, event-driven projects, spikes in workload, and internal knowledge gaps. By maintaining cost-effective access to the incremental help your organization needs, you can have the tools you want at the price you need. Leading companies will enable this agility by better anticipating fluctuations in market conditions. They will balance internal capabilities with external solutions and expertise delivered via flexible, technology-enabled service models, such as SaaS and business services delivered in the Cloud.

 

Information: The dramatic swings in most commodity markets over the last 12- plus months are only the most -visible reminder that all the technology and process in the world is no match for understanding where a market is going. Rather than quarterly market reports that are outdated before their ink is dry, Sourcing professionals need to tap into the many online resources available to track markets, get strategy advice, find new suppliers, and generally stay on top of things. Combining this on-demand access to both information and agile resources with their existing capabilities in both technology and process, best-in-class sourcing organizations can create the opportunity to drive additional value on every project and maintain their lead over the competition. They will balance internal capabilities with external solutions and expertise delivered via flexible, technology-enabled service models, such as SaaS and business services delivered in the Cloud.

 

Reexamine existing sourcing tools and processes


Though the current global downturn has affected all different industries irrespective of where they are located and how big or small they are, it also provides a tremendous opportunity to re-ignite sourcing and other cost containment initiatives. Cost reduction initiatives are prudent in good economic times. But in the current environment, they are critical to survival. Companies that recognize and accept this and implement solutions and processes that enable them to effectively manage every dollar they spend will be well-positioned to weather the storm and effectively compete in the new state of normal—whatever that may be. Secondly, as planning cycles shrink and future growth trajectories are harder to predict, it becomes all the more relevant for Procurement organizations to leverage strategic sourcing tools and design processes that prioritize speed to implementation as much as savings.


Mitigate risk and manage supplier performance by implementing an enterprise-wide supplier management program

 

Sourcing does not end with the contract and compliance activities. As a supplier and buyer begin to build their relationship, both parties need to remain satisfied with the other’s performance. For suppliers, this means maintaining service levels, committed timelines and quality metrics. For buyers—especially in the case of direct materials procurement—this means living up to promised levels of quantity and accurate and timely demand forecasting. By bringing together both qualitative and quantitative performance data, buyers and suppliers can engage in meaningful reviews and planning sessions. Though creation of the contract is one of the foundational elements for all supplier management interactions, achieving operational excellence, however, would require a robust performance monitoring process of key suppliers. Though the economy shows sign of improvement, supply risk caused by rising input costs, swings in energy prices and insolvency of partners or suppliers are unlikely to go away in the near future. Hence it is imperative to have a comprehensive supplier management program that not only builds risk management into everyday performance management processes, but also provides additional benefits ranging from better visibility into key supplier information and performance to lowering costs of ongoing supplier management.

 

Work more collaboratively with key suppliers to jumpstart innovation


As the Hackett Group points out, stronger relationships with strategic and critical suppliers are needed especially coming out of the recent downturn. Best-in-class procurement organizations realize that driving sustainable cost reduction in the supply chain would require a morecollaborative relationship with their strategic suppliers who can help with innovation, demandgeneration and creative cost savings projects. It is also important to note that suppliers can pick customers they serve and it is imperative for buying organizations to become valued customers to their suppliers.

 

Consider the benefits of an integrated spend management platform


Something that many organizations fail to realize is the benefit that a cross-functional spend management platform can deliver. When building a business case, most organizations turn to analyst metrics and benchmarks in order to attempt to quantify the value of implementing technology to assist in their strategic sourcing initiatives. However, what most fail to realize is that the best-in-class metrics provided assume an integrated platform across spend management functional disciplines. For example, most sourcing and procurement organizations are interested in monitoring compliance in order to assure that negotiated savings are hitting the company bottom line in the form of savings. It is usually understood that in order to assure this compliance, procurement and even contract management systems are required in order to track negotiated terms, record those terms in a contract, and assure that contract is adhered to in the procurement-to-pay business cycle. In order to do this effectively, however, technology that is integrated is a baseline requirement—unless you are interested in often- complex third party integration that materially changes the cost equation of the ROI model. Therefore, when turning to technology in spend management, whether going with a small niche provider, a best-in-class vendor, or a monster ERP, think beyond your requirements today. Think about longer-term goals and the provider’s ability to address them in order to build an optimal model.

 

Previous: Ariba Knowledge Nuggets: Strategic Sourcing - Lessons Learned from the Recession Pt.1

 

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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.