This week I attended a webinar by Ariba and ISM on collaborative sourcing. And in this case, the collaboration ended up being not with the competition or others in the supply chain, but with between procurement and internal stakeholders. Not what I had thought (thanks a lot, Google. We'll talk later...) but still a valid topic and just as tricky.
The following are some of my notes on the webinar. Click here to connect to the archive.
One of the ideas that I liked starts as a matter of terminology. There are enough titles and labels for us: procurement, sourcing, purchasing, etc. And regardless of which of those we select to work under, one of the key activities is spend management. So a new possibility is to take that as a label. There may be some benefits to the way we are perceived internally as well as to our own focus.
Managing spend as a focus has a way of leading to value creation versus savings. It also suggests a reliance on data as a common point of fact that can be agreed upon by both sides: procurement and internal stakeholders. Of course, clean well organized spend data is an absolute must, but how effective can we really be without that anyway? Allow the data to speak for itself sort of a neutral third party.
While "sourcing is the promise of savings" and "procurement is the realization of savings", savings is no longer the primary driver of many projects we undertake. Shifting the focus to value creation (value = quality / price) can also help with our own performance metrics. Rather than being evaluated strictly on how much we save - which is so limiting and is getting harder and harder - perhaps the focus should be on the amount of spend brought under management. Once those spend under management targets are identified, the responsibility should be shared by procurement and the business as another incentive for collaboration.
A few great questions came up and were answered at the end:
Q: How do you ensure that you (and not the business owners of the category) retain control of the negotiation?
A: Not easily - the best approach is to fight that battle once at the executive level and then put a system in place to make sure the process is followed. For example, in the case study presented by BB&T Enterprise Spend Manager Rohan Rahadive, a letter was sent to all suppliers by the CFO informing them that the commercial management team was the only legitimate interface for them to negotiate and contract with on behalf of the company. Internally, any major project requires comments and sign off from enterprise spend management, explaining what approach was used to sourcing and negotiation.
Q: What is the best practice for measuring 'soft savings'?
A: Using caution with regard to soft savings (like cost avoidance due to switching suppliers or changing specifications) is the best way to safeguard your results credibility. You need to articulate how you plan to measure them before claiming them towards targets. There should also be a consensus about the approach internally.
When you subscribe to the blog, we will send you an e-mail when there are new updates on the site so you wouldn't miss them.