Why do cost savings estimates differ from actual cost savings achieved?
Often it is due to the fact that cost savings estimates are based on the assumption that 100% compliance will be achieved. But, sadly, the 100% compliance assumption is rarely accompanied by an actual plan to achieve compliance.
One of the techniques used to ensure compliance is building a sourcing team consisting of stakeholders from throughout the organization. This results in more awareness of the contracted supplier as well as a sense of ownership over the supplier selection.
So who is on the sourcing team?
The size and composition of a sourcing team will vary from company to company and even from project to project within the same company. However, these four roles are typically included in larger sourcing teams…
• The Procurement Specialist is typically the leader of the sourcing team
• The Procurement Specialist is a specialist in the sourcing process, as she has usually conducted many sourcing initiatives over her career
• The Procurement Specialist drives criteria for supplier selection, making sure that the team knows what combination of characteristics would make the “right” supplier
• The Procurement Specialist is keenly focused on the goals of process. Her performance is usually judged on her teams’ performance vis-à-vis their goals (e.g., cost savings).
• One characteristic of the Procurement Specialist that some find peculiar is that she may have just finished sourcing an unrelated category. Today, she may be starting a sourcing initiative for fleet management services. Last week, she may have just finished a sourcing initiative for telecommunications equipment. Two months ago, she may have wrapped up a sourcing initiative for enterprise-wide office furniture. So while the Procurement Specialist is a specialist in the sourcing process, she is a generalist in the technical aspects of each category.
• The Technical Specialist is the person in the organization that knows the product or service best.
• The Technical Specialist is usually responsible for writing the specifications for the product or service.
• The Technical Specialist can have a variety of titles from engineer, to fleet manager, to director of telecommunications, etc.
• The Financial Analyst calculates bottom-line impact of the options available to the sourcing team to ensure that the savings estimates are credible and that the profitability of the company will be maximized.
• The role of the Financial Analyst becomes more important in more complex purchases, such as those involving payments over time that must be converted to present value, those involving lease vs. buy decisions, and/or those where other financial factors, like depreciation rates, must be considered.
• End Users are the people who work most closely with the purchased product or service.
• End Users can have a variety of roles, from salespeople who drive a company car to the janitor who uses the trash bags purchased by the organization.
• All End Users want a problem-free day-to-day experience where the purchased product or service allows them to do their job in the most hassle-free manner.
• For large, enterprise-wide contracts, establishing a formal or informal executive oversight committee consisting of high-ranking executives from key business units can be helpful.
• The Executive Overseers won’t be doing sourcing work. Their role is mainly to be briefed throughout the process.
• The Executive Overseers will be keenly interested in ensuring that there is transparency in the sourcing process. And former Procurement critics among the Executive Overseers will likely be delighted to learn that the sourcing process is being conducted fairly and with the broader interests of the organization in mind.
• Executive Overseers have the authority to mandate compliance within their areas. So, in many cases, winning them over with a well-done, transparent process will give you powerful allies in your quest for compliance.
So if you aspire to that elusive 100% compliance goal, make sure you have assembled a team that represents the interests of the broader organization. Lone Rangers are rarely successful in modern sourcing.