Spend Matters- 10 Ideas That Go Beyond Basic Sourcing (IASTA webcast)

10 Ideas that Go Beyond Sourcing

IASTA hosted Webinar

May 2, 2012
Presented by: Jason Busch

Copyright © 2012 Azul Partners Inc. All rights reserved. Not for distribution. | www.spendmatters.com - spendmatters.co.uk - www.agmetalminer.com 1

10 Spend Matters ideas that go beyond basic sourcing
to enhance procurement’s value to the business

• Given the current market context, it’s critical to
think beyond the basics to deliver value to the
business
• Improving procurement’s value to the business
requires embracing new sourcing-related tools
(contract management, supplier management,
etc.) wrapped around basic strategic sourcing
activity and services spend knowledge to drive
additional savings
• There are ten ways (outside of transaction-
related focus areas) that we see to deliver this
new value


1: Go beyond basic eRFX and reverse auction
capabilities

Advanced sourcing/optimization
•Fluid RFI/RFP process
•More flexible data collection
•Supplier creativity/alternative
specifications/alternative proposals
•Ability to fully explore – not just weight –
all price and non-price factors in a tender
•Create and apply constraints
•Ability to run scenarios based on
constraints and present a menu of
outcomes for stakeholders to consider


2: Connect sourcing activity to contracts – implement
savings faster and manage compliance
Sourcing and Contract Management
•Link sourcing outputs to implemented savings
•Move from a static view of contracts as “papers in
a vault” to dynamic usage and reference
•Use contract management as an opportunity to
create greater trust and transparency with suppliers
and shareholders
•Looking at contract management as an opportunity
to locate additional savings and cost avoidance
opportunities
•Ability to integrate with – and fully leverage –
sourcing, spend analysis and related information to
create an integrated contract lifecycle solution
•A user experience built around procurement and
legal together to drive the contracting – and
contract management – process

3: Go beyond the contracting basics

Advanced contracting philosophies
•Pursue an active compliance approach that
leverages internal systems and marketplace Contract
information (e.g., commodity pricing trends,
currency rates)
•Make your contract management system a
repository for the entire organization to rely on
(procurement, legal, etc.)
•Rethink the notion of a contract
– Make the contract a living document designed to manage
and govern the relationship versus serving as a static piece
of paper to refer back to for re-sourcing or legal purposes
– Influence up front – introduce contract terms (e.g.,
indemnification) into the negotiation phase of a relationship;
this can result in material savings and can foster a basis of
mutual understanding and trust
– Think long-term – the ownership and transference of risk is
often as important as the exchange of physical goods


4: Invest in capabilities to support basic supplier
management activities
Supplier Management Activities
•Supplier on-boarding (i.e., the need to efficiently
electronically enable suppliers for eProcurement and
invoicing)
•Supplier portals (i.e., basic portal capability designed to
capture supplier information for a range of initiatives:
eProcurement, supplier diversity, green/CSR, e-sourcing)
•Supplier performance and quality management (i.e.,
tracking qualitative and quantitative supplier performance
metrics such as on-time performance, escapes, PPM;
surveys such as ISO, QS, TS to qualify suppliers and
ensure claimed credentials were real)
•Supply risk management (i.e., monitoring supply risk
factors including financial data, operational data,
compliance information)
•Spend visibility/supplier enrichment at the item level (i.e.,
creating a common – or virtual – vendor master with
detailed and accurate information into spending data to
drive sourcing strategies)


5: Leverage supplier management initiatives to drive
advanced cost and risk reduction
Advanced Activities Risk Exposure vs. Cost per Supplier
$ Carbon Footprint
Cost
(High)

•Go multi-tier Factory Audit

Cost per Supplier
•Embrace approaches that leverage the
intersection of different datasets to drive visibility Catalog Supplier
Toxic Substances

and predictive analytics (supplier performance
Enablement

Supplier Diversity

information, supplier financial risk, geospatial, On-boarding
New Supplier
Ape-Invoice
Enablement

country risk, etc.) $
Cost
Insurance Certificates

(Low) 1 2 3 4 5 6 7 8 9 10

•Invest in supply chain traceability to support the Risk Exposure

business in new ways Source: Aravo

– Market entrance/new product introduction
– Avoidance of “conflict” items such as conflict
minerals
– Certification that products do not contain
restricted or hazardous substances
•Consider network, BPO and other approaches


6: Hunt for big category game (even if anti-poaching
types are defending their territory)
Next Level Categories
•Combine sourcing, contract management,
compliance and transactional management
•High visibility (and high-value) services
categories
– Marketing
– Legal
– Accounting
– Consulting
– BPO and outsourcing

•Pursue direct materials spend in new ways
– Alternative specifications
– Demand aggregation
– Commodity management/hedging
– Supplier-generated innovation


7: Embrace specialists and specialty tools for
advanced services categories
Supplier Management Activities
•Consider specialty advisors (just as you would
when buying BPO)
– Focus on knowledge transfer and building
internal self-sufficiency
– Identify internal/external candidates to lead
efforts for larger opportunities
•Understand the importance of generating trust
within the business and winning executive
support
•Use advanced (standard) toolsets when
possible for sourcing activities, but leverage
additional solutions as needed in specific
categories (marketing spend intelligence,
matters management/legal, etc.)
•Leverage a VMS for SOW/project-based
engagements when required

8: Partner with suppliers in creative ways including targeting
total cost
Focus on the total relationship cost
•Understand the TCO of doing business with
global suppliers
– Balance of global sourcing and regional sourcing
– Re-shoring
•Embed cost models at all stages of the sourcing
lifecycle
•Put on your operational efficiency hat
Source: Chainlink
– Joint cost take out programs
– Put waste in the crosshairs
– Just-in-time (JIT), vendor management
inventory (VMI) and related programs for
direct spend
•Understand “sweet spot” for preferred services
suppliers and pooling the right set of business for
them

9: Track implemented savings, cost avoidance and
results from a finance-driven perspective
Savings Implementation
•Savings tracking and forecasting systems help companies
drive savings opportunity identification in a way that goes
beyond spend analysis
•They can accelerate the execution of savings implementation
initiatives and objectives and reduce savings leakage by
pinpointing and documenting specific areas where lost savings
occurred
•For tracking information, users can get extremely granular with
the inputs they want to report against on a high level including
market indexes, rebate structures, baselines, currency rates,
cost structures, dimensionality, target costing/pricing, budgets
and forecasts
•On the actual reporting side, procurement leaders can define
specific savings tracking mechanisms and fields (e.g., price
savings, market/commodity/index fluctuation savings, currency
fluctuation savings, substitution savings, batch size savings,
spend reduction savings, external savings, realized savings)
they wish to measure against

10: Deploy commodity management programs
alongside sourcing activities
Get Serious About Direct Spend
•Develop a point of view and explain to management and
shareholders the underlying reasons driving commodity
volatility and forecasting uncertainty
•Reduce commodity exposure
•Understand how to best price the underlying risk elements of
contracts
•Explore how suppliers price (and potentially misprice) risk
•Lower overall costs (potentially) despite upward pressure on
raw material inputs
•Build more collaborative relationships with suppliers that help
make us a customer of choice
•Aggregate the buy (to enable hedging, to buy forward in rising
markets, to create more effective
budgeting/planning/forecasting, etc.)
•Statistical modeling for demand planning and forecasting, plus
more to correlate factors on the supply side. Gathering
intelligence and building tools around it (looking for
correlations)

Contact details

Jason Busch
Managing Director, Azul Partners, Inc.
Founder and Executive Editor, www.spendmatters.com
Email: jbusch@azulpartners.com
Phone: 773-525-7406


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