by Josh Dials, Solutions Consultant
Robert A. Rudzki, contributor to the Spend Matters blog, brings up a great point in a recent post. “’Strategic’ is perhaps one of the most overused (and misused) terms in business today,” he says. “Simply adding a few bells and whistles to conventional purchasing and then slapping the word strategic onto the process … is not the same thing as adopting the process as it is intended.” This holds especially true when companies are seduced by the “quick fix,” rocked by changes in leadership, or lulled back into conventional purchasing practices.
We couldn’t agree more. In conversations with companies interested in a strategic sourcing solution, we hear the same pain points over and over. “We’ve tried sourcing events in the past, but they never gained traction.” “We don’t really know where to start with a sourcing event.” “Things tend to just fall apart after we’ve collected bids.” “We select the lowest price, but the savings often aren’t realized.” “It could take us months after an auction to actually award our business.” And so on.
What these companies are missing is a true front-to-back sourcing strategy. They have the middle parts strategized – selecting suppliers, running an auction, evaluating the results of the auction – but the most vital aspects of sourcing may actually take place before and after the bids are solicited and collected. The front end of a strategic process is Spend Analysis, and the back end is Decision Optimization.
Having a powerful sourcing team and tool means nothing if you don’t have an effective strategy for what to source, and that means knowing your current spend patterns. You have to know what you’re buying, from where, from who, and so on in order to save money and make the investment in sourcing tools a good one. You can ensure stakeholder buy-in and an increased chance for savings success if you focus on correcting documented issues — sourcing items that have too many suppliers with a high amount of spend, items that don’t have buying consistency across distribution centers, and so on. Spend analysis gives you this type of visibility into your areas of need.
Award decisions can cripple a sourcing effort after the fact, unless you use decision optimization techniques to guide your decisions. Lowest cost may not always be the optimal award scenario for your business. Freight issues, quality issues, and so on can wipe out any projected savings you were expecting unless you factor these issues into your award decisions. An optimization tool can automatically calculate how different scenarios affect your award decisions, based on supplier attributes, award constraints, and so on. Considering this vital stage can mean the difference between dragged out, lackluster events and quick savings realization.
Don’t, as Rudzki advises, become stuck in conventional purchasing practices because you aren’t factoring in spend analysis and optimization into your sourcing decisions. These tools may be the key to putting “strategic” back into your sourcing.