Seven Habits of Effective Sourcing Organizations

It was common in the past for companies to consider strategic sourcing as an activity reserved for large spend categories. But emerging technologies and processes have made it possible for this approach to be applied to smaller spend categories, with tremendous opportunities for additional savings. Sourcing should be viewed as an ongoing, iterative process that does not end.

1. Always start with a thorough assessment of spend patterns. Prior to the advent of today's automated eSourcing tools that capture spend data, looking at historical spending was an arduous and back looking task that could not be repeated very often. Once data has been cleansed and normalized, the impact of off-contract and maverick spend can be analyzed.  The truly low-hanging fruit can be identified through this process and harvested.
 
2. Use the appropriate sourcing strategy and cost model for each category. Sourcing methodologies must be applied to all externally purchased goods and services. The correct strategy depends on the category.  For example, spend categories with a large supply base may benefit most from the use of leverage. It's important to look at the total cost of ownership of everything that is purchased. Service parts often have significant costs in the form of delivery and warehousing. Direct materials have fixed costs such as tooling which must be included in the total landed cost. Globally sourced items may have taxes, tariffs, and significant and varying freight charges that need to be included. Even indirect goods and services can have significant total costs. It's important to understand all the details behind each spend category.
 
3. Engage stakeholders every step of the way. Including stakeholders at the beginning of the process, but not throughout the process will create a lack of ownership, and as a result, compliance may suffer.  Spend data needs to be validated by key personnel in each category.  This will help achieve buy-in.
   
 
4. Source everything that can be strategically sourced and follow through on all sourcing decisions. Automation makes it possible to source many more things than was once possible.  Internal customers can generate basic RFPs and auctions. It's also important to follow through with all vendors, as they deserve to learn the outcome of their efforts.  There are now numerous technology tools which can streamline this process.
 
5. Drive an upfront contract compliance plan for realized savings. It's important to set up terms and procedures for buyers and vendors to follow at the beginning of the procurement cycle. Terms and conditions included in the RFP can be automatically loaded into a contract.  Vendors can flip purchase orders directly into invoices, eliminating the risk of manual errors which can ultimately erode savings.
 
6. Work with suppliers for performance assessment and new savings ideas. Suppliers need to maintain service levels, committed timelines and quality metrics. Buyers need to live up to promised levels off quantity and accurate and timely demand forecasting. Buyers and suppliers need to bring together both quantitate and qualitative performance data, in order to have meaningful reviews and planning sessions. Joint cost cutting processes can be very effective. Suppliers are often the most familiar with their cost drivers, and can find savings in logistics improvements such as packaging, handling, warehousing and inventory management, transactional interactions, and better product cost management. These conversations need to be held, however, or these savings will never materialize.
 
7. Measure and market for momentum. New performance tracking tools are making it easier to monitor processes and to increase day-to-day visibility of activities, projects and team results. The savings produced by the sourcing team can be proactively marketed to the rest of the organization which will help with buy-in and positively influence savings. Results tracking tools can draw attention to the procurement organization as a bottom line enabler, which will help to boost morale.

Adapted from: http://bit.ly/9C68mQ