Amidst the recently announced merger and acquisition activity in the procurement applications space, "the show must go on" for those in strategic sourcing roles: sourcing plans must be executed, supplier bids collected, and decisions made to determine who is best suited to be awarded the business. Supply chains simply can’t wait for the dust to settle – and even more, the pressure keeps growing to find new areas of savings and innovation.
Yet despite investments already made in sourcing products from SAP, Ariba, Oracle, and others, procurement organizations largely report that only one-third of total spend is put through those e-sourcing tools. This reveals an opportunity for a better e-sourcing solution to help you get better results.
In this webcast, learn how advanced sourcing technology is used to create new value, quickly, and in the presence of existing investments. You'll hear:
What defines "advanced sourcing" and "sourcing optimization" -- and when these solutions should be added to or replace existing tools.
From Aberdeen Group, highlights from their annual strategic sourcing benchmark report, published June 2012, regarding advanced sourcing and optimization practices.
How Aberdeen's Best-in-Class compare to Industry Average and Laggards.
Real-world examples of how CombineNet's cloud-based advanced sourcing product is used in the presence of SAP, Ariba, Oracle, and sourcing suites.
10. Aberdeen Thoughts on SAP & ARIBA
News provides an opportunity for organizations to
reassess their current strategies
Creates a new alignment of competitive marketplace
Glaring redundancy and duplications of sourcing and
contract management platforms for both on-Demand
and on-premise components
Hesitation on further deployment of existing sourcing
platform
Competitors reacting by providing discount to programs
for signing up
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11. Aberdeen’s Research Methodology
Web-based / online benchmark survey (35 to 40
questions)
Analysis of data aggregate
Dissection into Maturity Framework (Best-in-
Class, Industry Average, and Laggard)
Benchmark research reports
5-to-7 page research derivatives (Analyst
Insights, Sector Insights, etc.)
Follow-up discussions with select end-users for quotes
and case studies
Webinars, assessment tools, social media, etc.
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12. Latest Benchmark - Advanced Sourcing:
Maximizing Savings Identification
Job title: The research sample included respondents
with the following job titles: Manager (40%); Director
(28%); VP / EVP / SVP (4%); C-level / executive office
(3%), Consultants (8%), and Others (7%).
Industry: The research sample included respondents
from the following industries: health/medical/dental
(11%); industrial equipment/products (10%); financial
services (8%); education (6%); consumer packaged
goods (5%); and 28 others.
Geography: The majority of respondents (55%) were
from North America. Remaining respondents were from
the following regions; Europe (25%); Asia / Pacific
(10%); Middle East and Africa (3%); and South / Central
America (3%).
Company size: 25% of respondents were from very
large enterprises (annual revenues above US $5 billion);
27% were from large enterprises (annual revenues
between $1billion and $5 billion); 22% were from
midsize-large enterprises (annual revenues between
$50 million and $1billion); and 17% of respondents were
from small businesses (annual revenues of $50 million
or less).
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13. Importance of Strategic Sourcing in your
organization
Neutral role No role
4% 3%
Moderately
significant Critical role
role 34%
25%
Prominent
role
34%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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14. Formal Strategic Sourcing program
40% 37%
35%
30% 29%
25%
20%
15%
15%
10% 9%
5% 3% 3% 3%
0%
More than 5 3 to 5 years 1 to 2 years Less than one None yet, but None yet, but None planned
years year budgeted to under
start within 12 consideration
months
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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15. Top Benefits recognized with Strategic Sourcing
Increased level of cost savings 72%
Better alignment of sourcing and business
54%
objectives
More robust management of key spend
49%
categories
0% 10% 20% 30% 40% 50% 60% 70% 80%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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17. Problem of eSourcing with just Traditional Means
Evolution of Strategic Sourcing from being a
savings concept to strategic importance
Selection of suppliers beyond just cost criteria;
need to adapt to complex, multi-variant scenarios
Sourcing has been pulled into understanding the
wider-organizational challenges
Globalization creating inherent risks for managing
supply chain
Sustainability & CSR becoming more important
factors in the context of strategic sourcing
17
18. Pressures related to Strategic Sourcing
Corporate mandate to reduce cost / increase
69%
savings
Need for more effective category management
36%
strategies / knowledge
Need to improve sourcing performance 21%
Need to mitigate supplier risks due to supply
18%
disruptions
Stakeholder pressure for measuring against
14%
sustainable sourcing initiatives
0% 10% 20% 30% 40% 50% 60% 70% 80%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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19. Key Capability Gaps in Strategic Sourcing
Proactive data analytics for future 27%
sourcing projects 50%
29%
Optimization of ideal suppliers Currently Implemented
50%
Plan to Implement
33%
Supply risk assessment
43%
0% 10% 20% 30% 40% 50% 60%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
19
20. The Best-in-Class Maturity Framework
T able 1: Top Performers Earn Best-in-Class Status
Definition of
Mean Class Performance
Maturity Class
76% - percent of total spending sourced using
Best-in-Class: a formal strategic sourcing process
T op 20% 32% - percent total spending sourced based
of aggregate on sustainable strategic sourcing approaches
performance scorers 16% - average yearly savings identified by
sourcing team
54% - percent of total spending sourced using
Industry Average: a formal strategic sourcing process
Middle 50% 21% - percent total spending sourced based
of aggregate on sustainable strategic sourcing approaches
performance scorers 8% - average yearly savings identified by
sourcing team
29% - percent of total spending sourced using
Laggard: a formal strategic sourcing process
Bottom 30% 11% - percent total spending sourced based
of aggregate on sustainable strategic sourcing approaches
performance scorers 4% - average yearly savings identified by
sourcing team
Source: Aberdeen Group, May
Source: AberdeenGroup, May 2012
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21. Organizational structure to address strategic
sourcing
Centralized sourcing team that manages all 46%
strategic sourcing projects 20%
Centralized or shared services sourcing team in 21%
conjunction with business unit or regional teams 17%
Formal company-wide sourcing or supply 21%
management group 16%
Centralized or shared services sourcing team 8% Best-in-Class
with power users dispersed across the enterprise 12%
All Others
Formal sourcing or supply management group 4%
resides within individual business units or regions 18%
No formal sourcing organization 0%
11%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Source: AberdeenGroup, May 2012
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22. Groups collaborating with Sourcing Team
Finance (CFO) 92%
68%
Operations (COO) 79%
72%
Product development (VP PD) 67%
43%
IT (CIO) 63%
57%
Best-in-Class
Manufacturing (VP SCM) 63%
49% All Others
Executive office (CEO) 58%
42%
Sales / Marketing (CSO/ CMO) 58%
44%
Sustainability office (CSO) 33%
27%
0% 20% 40% 60% 80% 100%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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23. Capability Gaps with Best-in-Class
Cross-functional coordination with line of 88%
business and sourcing groups 67%
33%
Cross-functional coordination with 83%
63%
finance, product, and sourcing groups 30%
Ability to collect spend data from multiple 79% Best-in-Class
55%
sources 28% Industry Average
Laggards
67%
Ability to enrich spend and supplier data 37%
24%
Commodity councils actively engaged in 63%
33%
sourcing process 15%
0% 20% 40% 60% 80% 100%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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24. Top Six (6) Stated Sourcing Strategies
80% 75%
71%
70% 67% 67%
63% 63%
59% 58%
60%
54%
51%
50%
42%
40%
31% Best-in-Class
30% All Others
20%
10%
0%
Total Cost of Matrix or tiered Payment terms Optimization Multi-stage Total Landed
Ownership pricing sourcing Cost
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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25. Strategic Sourcing versus eSourcing
62%
IT hardware
27%
51%
Transportation / logistics services
23%
40%
Temporary labor
15%
Strategically-Source
21%
Legal services Using eSourcing
8%
0% 10% 20% 30% 40% 50% 60% 70%
Source: AberdeenGroup, April 2012
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26. Percent of Spend through eSourcing
40%
35% Best-in-Class
35% 33%
29% Industry Average
30% 29% 28% 27% 28%
Laggards
25% 22%
20%
15% 12%
9% 9% 10%
10%
5%
0%
% of total spend % of direct materials % of total non- % of total services
spend production / indirect spend
materials spend
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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28. Preferred Deployment Approach for
eSourcing
Deployed on-demand, Software-as-a- 46%
Service (SaaS) 36%
29%
Installed on-premise
25%
Best-in-Class
13% All Others
Hosted by a 3rd party provider
13%
8%
No preference
17%
0% 10% 20% 30% 40% 50%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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29. Key Criteria for eSourcing Selection
42%
Ease of use (usability)
39%
Ease of integration with back-end 42%
systems (ERP, MRP, PLM) 23%
38%
Core functionality 37%
Ease of integration with upstream 29%
spend areas 21% Best-in-Class
25% Others
Advanced functionalities within the
eSourcing application 28%
Solution provider experience (i.e. 25%
industry) 16%
Complementary sourcing services 25%
available from solution provider 6%
0% 10% 20% 30% 40% 50%
(Percentage of survey respondents, n=146)
Source: AberdeenGroup, May 2012
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30. Recommendations for Action
Continue to invest in diverse skills and capabilities on the
strategic sourcing teams
Improve supplier assessment capabilities for strategic
sourcing efforts
Develop the ability to enrich spend and supplier data for
use in sourcing
Improve the usage of optimization tools and techniques
Increase the use automation in strategic sourcing tools
particularly for complex spend
Implement sustainable/csr sourcing strategies across
more categories
30
50. Reach Out!
Twitter: @ABG_SpendMngmt
LinkedIn: http://www.linkedin.com/in/climberakis
Aberdeen Group GSM Research Group
Aberdeen Group GSM Research Advisory Council (RAC)
Aberdeen Research Blog: blogs.aberdeen.com
50
Whether it is compliance, cost- or a supplier-focused initiative, sourcing provides an opportunity to identify true spend requirements for an organization. As a discipline that has become more sophisticated over the past decade, sourcing is also becoming more vital in aligning procurement organizations with the best suppliers and supply channels for delivering the highest possible savings opportunities. But what makes sourcing "strategic" is the ability to adapt and adjust sourcing approaches that reflect these needs in an ever changing and increasingly global and competitive marketplace.
Based on the slide, it is clear that many have already adopted a strategic sourcing program - for instance we can that 37% have been using a formal process for more than 5 years, 29% 2/3 of the respondents having experience – many of them have also implemented eSourcing as part of this – for those in this category we see that a higher utilization of core sourcing technologies such as an ability to execute an event or run a reverse auction, with the former being a much more frequent occurrence.However we also see a small group less than 10% that do not have a formal process
Furthermore Figure 2 reflects the benefits of strategic sourcing. With a majority of respondents (66%) having a strategic sourcing program in place for at least three years, 72% of these organizations noted the key benefit of strategic sourcing was increased level of cost savings, followed by better alignment of sourcing and business goals (54%) and better management of key spend categories (49%). These stated benefits demonstrate that strategic sourcing approaches can help organizations move away from tactical short-term cost cutting to value creation that considers wider organizational objectives. But as an ongoing process, strategic sourcing today also requires the flexibility for adjusting to a more uncertain economic future.
So as we mentioned before we would visit the concept of formal sourcing - ……….Like many aspects of the procurement or sourcing world there are no set methodologies that everyone uses – case in point we can see an example that I used for the report that shows a seven step process – others use a six step process. One of the most noted ones was developed by AT Kearney was a seven step – above is a condensed example of this methodology. Moreover, as you can see the chart above shows a linear progression of typical steps in the “formal sourcing process”, however strategic sourcing is an institutional process that continuously improves and re-assesses the activities within the organization. For every new category of spend or supplier onboarding process this process is tweaked and re-tweeked. Regardless of how you specifically define each step, the whole process also invariably involves multiple disciplines – so when we say “strategic sourcing” – what do we really mean. For instance in looking at the process beyond technology or modules per se, we become well aware that sourcing is part of larger process that must include spend analysis, contract management supplier management, something Emily will talk about more in her presentation. If we look at the chart for instance – Step 1 – represents the need for spend analysis- this is a critical starting point to understanding what you are currently buying and how categories are defined.Step 2 – represents the importance of supplier management based on what data/intelligence you may already have and what market dynamics or trends exist within the universe of suppliers that will be evaluated – for instance are you dealing with a monopoly market, a competitive market or a commodity (unlimited number of competitors)?Steps 3 – 6 - Further demonstrates the reliance on eSourcing tools for generating eRFx or Reverse auctions – but it is in Step 5 that is also showing the usage of advanced techniques. For instance the different approaches used to evaluate cost and non-cost factors in making decisions comes here like using bid optimization - when evaluating bids here is where Total cost can be broken down into Material Cost, Transportation Cost, Labor Cost, etc… instance Step 6 is also where flexibility in the sourcing process allows suppliers to adjust to pricing, etc.Step 7 – Finally with Step 7 this takes us to the execution of sourcing through a contract and downstream from there.
- Procurement professionals are increasingly relying on strategic sourcing to help avoid supply disruptions
Perhaps driven by concerns over diminished returns from repeated sourcing events on the same set of categories or lack of skills to execute on internal strategies in more complex categories, sourcing organizations continue to be pressured to find new approaches for reducing cost and identifying savings. External pressures from global markets are also increasingly adding a new dimension that force organizations to reassess their sourcing efforts. An example of this is how organizations today must reconsider global risk in Europe due to the Euro crisis, or the changing landscapes for low-cost competitiveness shifting from places like China to newer markets such as Vietnam or Indonesia. Given these pressures, Figure 3 shows organizations indicate that the corporate mandate to reduce cost / increase savings is the leading pressure for 69% of survey respondents. As many organizations reach a level of maturity and saturation point in achieving their goals with mature categories (i.e. low hanging fruit) they may lack knowledge for expanding into more complex ones due to insufficient category knowledge or the inability to improve sourcing performance required in this dynamic global environment. Furthermore, organizations today are becoming more aware of sourcing sustainability (i.e. ethical, environmental, social issues) as a critical aspect for sourcing and a theme of the advanced sourcing concept.
Mitigating these pressures requires an ability to improve supplier insights and improve sourcing performance. Based on this survey, however, it is clear that barriers to strategic sourcing revolve around the lack of advanced techniques such as supplier optimization and the inability to integrate sourcing initiatives with spend analytics and supplier management. For example, Figure 4 shows only 33% of respondents indicated a capability around supplier risk assessments, 29% indicated optimizing ideal (preferred) suppliers and 27% indicated the use of use of proactive data analytics for future sourcing projects. In recognizing the importance of better understanding the impact critical suppliers have on organizational spend and for improving techniques in these areas, 50% of organizations indicate they plan to implement proactive analytics for future sourcing projects, 50% plan to optimize ideal suppliers, and 43% plan to implement supplier risk assessments
Clear pattern where centralization follows a key pattern for Best-in-Class – and follows a center-led approach with a centralized souricng tram that managing all strategic sourcing projects.
As part of the functional criteria for getting the job done in sourcing, it is important that organizations align themselves with that of the wider organization. It is clear that Best-in-Class organizations demonstrate leadership here in their ability to coordinate both with the lines of business and areas like finance. Again when we look at the least collaboration it is no surprise that the Sustainability Officer is still an emerging area for most, where only 1/3 of Best-in-Class and 27% of All Others are collaborating here.
Best-in-Class shows the largest capability advantages with a majority of these being related to organizational factors such as the cross-functional coordination with various groups and the use of commodity councils.Yet two areas that also show gaps is in the ability to collect spend data from multiple sources and the ability to enrich spend and supplier data – a critical element in the initial stages of the formal sourcing process we shared earlier.
Advanced Sourcing Approaches - Total Cost of Ownership - a strategic sourcing approach that offers award scenarios by incorporating all elements of cost related to different suppliers, including cost of poor quality, cost of inspection and long lead times.Matrix pricing - used when price depends on a factor other than quantity (i.e. delivery date or geographic locations). Tiered pricing - used when price depends on purchasing volumeOptimization - used as part of advanced analytical tools to simultaneously negotiate and evaluate complex bid structures against a wide range of interdependent sourcing objectives, variables, constraints and potential scenarios Total Landed Cost – Tries to track all the costs (both costs of good sold, as well as supply chain and logistics costs) from the moment of purchase the raw material until it ships to the customer including all steps in the middle (and including inventory in different stages)______________________________________The importance of these areas is helping organizations better align their needs – an example of this is in the low-cost sourcing to places again like China where prices are rising and may not be a low-cost source. Through the use of Total Cost of Ownership and Total Landed Costs, organizations are better prepared to understand their true costs
It appears that on average the Best-in-Class are demonstrating an edge in the percentage of spend going through an eSourcing tool for all categories in both direct and indirect spend areas. The largest maturity differentials for direct, indirect materials and services spend is also revealing when looking at specific categories. For example, IT hardware is a mainstay commodity area and typically a low hanging fruit where many organizations have already seen the benefits of using e-sourcing. Based on the survey results, 50% of the Best-in-Class indicated using e-sourcing for IT hardware compared to 33% of Industry Average, but only 7% of Laggards. What is also revealing is the use of e-sourcing for services spend, where Best-in-Class show 3-times the use of automation in comparison to Laggards. A services spend category that showed the largest difference between the maturity classes was travel, where 42% of the Best-in-Class are using an e-sourcing tool compared to 26% of Industry Average and only 4% of Laggards.
Looking at what feature sets are automated within an e-sourcing platform also provides insights into where the Best-in-Class are demonstrating advantages with their use of e-sourcing technology. The Figure shows six key features of e-sourcing tools today. In examining the figure it is clear the Best-in-Class are demonstrating advantages in their use of areas that can be considered more advanced. The Best-in-Class are 2 times more likely to be using sourcing optimization and bid analysis as a part of their strategic sourcing processes. A highly-automated aspect to strategic sourcing, sourcing optimization and bid analysis provide a potentially powerful combination of artificial intelligence to understand “what if” scenarios. By providing suppliers with a wider opportunity and freedom to express their bidding and preferences in a more sophisticated response for quotes, Best-in-Class sourcing organizations are better able to establish an enhanced ability to analyze disparate bids from their suppliers.
Finally – the last slide gives and idea of where organizations stand in their current perceptions in using eSourcing platforms. This shows Ease of Use at the highest level – but differences begin to show –for instance Best-in-Class are more likely to be concerned about the ease of integration with back end systems and up stream areas, and the ability to access complementary sourcing services available from the solution provider.