September 2014
Strategic sourcing within the transportation industry includes many variables and complexities. Variables can include the type of business utilizing the services, the goods being transported, the environment in which the goods must be transported within, the route of the shipment, and much more. Each organization utilizing these services has its own set of requirements; these compounded with those within the industry and specific segment create additional complexities, not to mention the inclusion of carrier specific requirements. Transportation services is a science in itself that demands a deep level of expertise to manage. In the same respect in order to effectively source the category one needs to understand the market, the industry overall, and specific requirements and client based complexities. 

Within an organization’s portfolio, transportation services is segmented by some of the above parameters, such as goods transported, shipment routes (for example global versus domestic), and shipping conditions. Furthermore the transportation category should be defined by a particular portfolio’s spend segmentation, supply base, and service levels. Once these designations are made shipping categories can be developed and defined. One particular transportation category that I would like to cover in this article is specialty courier services. This designation may be defined differently depending on the industry and needs of the organization, but typically this refers to a highly specialized shipping process – examples include high end goods, live animals, and perishable goods. Industries can span from manufacturing to healthcare and life sciences. The level of risk associated with these shipments is typically very high in that the goods require extraordinary care throughout the end to end shipping process from the packaging of the goods throughout the shipping process until the products reach their end destination. While each organization’s transportation portfolio will vary there are some key elements to consider when sourcing specialty courier services: 

• Prior to engaging with any suppliers, including incumbents, the organization should have well documented requirements for each type of product, service type, and route. Wherever variations might exist in the shipping requirements this should be very clearly defined and agreed upon by the internal logistics team, management, and any end users that might impact the shipping of the product (including customs documentation, for instance). Again, these should be well documented and kept on file not only for the sourcing process but for compliance controls on an ongoing basis. 

• Another preliminary step prior to soliciting proposals is to have a clear understanding of the existing rate structure including any and all ancillary costs. Ancillary cost components and derivations should be well-defined as well. This is important so that when going to market you have sound baseline pricing for future comparisons. 

 • When it comes time to engage the market, ensure that you cast a wide net within the supply base so that you include a vast array of providers. This will include regional and national, as well as specialized and more general suppliers. 

• Another tip for the proposal solicitation process is to provide comprehensive bid information including full route details, shipment specifications by lane, and total volume. The more information provided upfront the more accurate the bids will likely be. 

• When evaluating the returned bids be sure to evaluate multiple options for route assignment. This may mean not always going with a sole source option, more than one carrier based on shipment types or region may present a better opportunity from a cost perspective as well as from a route optimization standpoint. 

Whatever method is utilized for sourcing specialty courier services it is important to have in depth knowledge of the market including who the top players are, how costs are typically developed and driven, as well as a thorough understanding of industry trends. Third party consulting firms such as Source One have this knowledge and can make a significant impact to the achievable savings.
GMOs and the rise of insecticide

For many U.S.-based farmers, procuring insecticides and herbicides to combat evolving diseases is quite a common practice.

The farmer's perspective 

Fending off diseases in this manner is a yearly process that strengthens supplier relationship management practices in the agricultural industry - growers across the nation are increasingly relying on chemical producers to make more effective substances. 

This situation has spawned a question to which many environmentalists already know the answer: How come the pesticides produced 50 years ago are no longer useful? The fact of the matter is that nature is much more resilient than one would think. 

Although a large contingency of farmers don't possess degrees in environmental science, many have deduced that succeeding generations of insects and plant diseases have made subtle biological adjustments that render outdated chemicals incompetent.

The scientist's confirmation 

Ramon Seidler, a former senior scientist at the Environmental Protection Agency, would have to agree with the aforementioned assertion. He argued that the overuse of pesticides - as opposed to ad hoc usage as is preferred - on genetically modified crops has spawned pesticide-resistant weeds and insects. 

Seidler also noted a gross conflict of interest. Most chemical companies are now firmly rooted in the development weed-resistant and pest-resistant seeds, which contradicts their mission to sell more pesticides. He cited a report from the U.S. Department of Agriculture, which discovered glyphosate use has grown nearly twelvefold since 1996, rising to more than 500 million pounds. This has coincided with documented cases of weed resistance increasing on nearly 60 million U.S. farm acres. 

Government intervention the solution? 

Public legislature may send a rift through the agricultural industry's procurement process. Scott Smith of The Associated Press noted chlorpyrifos, a chemical used to treat grapes and almonds, has tarnished water supplies, threatened California's fish population and sickened a significant number of farmer workers. 

New state regulations would require trained, accredited experts to acquire permits with their county's agricultural commissioner to use the pesticide. 

A new definition of responsible use

The short answer to this problem is that farmers simply need to look toward alternative means to deterring weeds and crops. However, this is easier said than done when a small-time grower's livelihood is on the line. Yet, the fact of the matter is that chemical companies are profiting off GMOs and substances that are simply ineffective. 

The best solution? Seek advice from other environmental experts. For large-scale grow operations, procurement services could direct farmers toward agriculturalists who are knowledgeable of natural insect deterrents that may be more difficult to implement, but are more effective in the long term. 

How health care providers can benefit from a lackluster wearables market

Widespread integration of Web-connected devices into the global health care industry will have a profound impact on the day-to-day operations of hospitals, care clinics and other such facilities. 

However, many medical organizations are wondering whether procuring such sensors is going to be worth the cost. Having a market research analyst to scrutinize the following factors is advisable:

  • When the average price for wearables and other Internet-connected devices is low
  • Which manufacturers will provide the highest quality sensors for the best markup
  • How other hospitals are using the Internet of Things to improve or transform their operations
  • Best practices for leveraging IoT technology and what additional infrastructure is required to support it

Adding a few Web-connected machines to a hospital's supply list isn't as simple as some would think. Pre-existing IT assets need to be prepared for the introduction of these devices, as disorganized implementation can result in grievous security flaws. 

How great of an impact will IoT have on hospitals? 

As far as how much of an effect IoT technology will have on care centers depends on what kind of sensors facilities employ and how personnel intend to use them. To provide readers with a specific example, Forbes contributor Charlie Isaacs detailed three examples of how an Internet-connected magnetic resonance imaging machine can affect logistics, maintenance and patient care:

  1. The machine can be diagnosed and assessed by technicians remotely. Whenever an MRI experiences a disruption or fails, a specialist can troubleshoot issues without having to go on-site. From there, an order of needed components can be sent to administrators. 
  2. As MRIs require helium to operate, whenever levels start to get low, a report will be sent to materials acquisition officers to order new canisters. 
  3. Multiple MRIs can communicate with one another to balance patient scheduling. This ensures wait lists don't accrue and allows hospital visitors to receive scans as quickly as possible. 

The need for marketing analysis 

As far as wearables are concerned, pricing typically depends on how expensive certain raw materials are. Hanover Research noted that rising demand for such devices will incite a greater need for silicone, stainless steel and glass. The cost of these materials will also be influenced by surpluses and shortages. 

Overall, the industry shows no signs of slowing down. The source noted the wearable sector is anticipated to increase at a compound annual growth rate of 18 percent, reaching $8.3 billion in 2018. As investment grows over the next four years, it's likely innovators will find ways to make such devices cheaper and more powerful. 

How healthy is India's business climate?

India's large population can be a significant resource for enterprises in need of affordable labor, but how much red tape will said businesses have to cut through? 

A culture of contradiction 

When scrutinizing India's economy, procurement services acknowledge contradictory policies, practices and realities. For example, Harvard Business Review noted how several administrative programs are designed to micromanage the private sector, eliminating businesses from capitalizing on all available strategies and resources. 

Why so many regulations? The source alluded to the possibility that the Indian government is attempting to make the distribution of wealth more equitable, an objective that has so far proven to be an abject failure - a huge gap between the country's rich and poor persists. 

Working to make progress 

The nation's public sector isn't ignorant of these factors, either. IndustryWeek noted that Prime Minister Narendra Modi's right-wing Bharatiya Janata Party recently scaled back several mandates that restricted foreign investors from starting operations in the country. The political body believes repealing many regulations will create jobs for the millions of Indians who enter the workforce on an annual basis. 

This move is a positive step forward, as the World Bank recently ranked India as 134th easiest economy to do business with among 189 nations. China, India's manufacturing rival, placed 96th. As China possesses a closely regulated market (despite the fact that it's grown more flexible with its restrictions in the past 20 years), this goes to show just how arduous it is for enterprises to make a profit in India.

"Costs of production in India increase because of various government policies, procedures, regulations and the way some of the laws are implemented," said Maruti Suzuki executive Kenichi Ayukawa. 

Not only manufacturing potential 

The Economic Times recognized that India isn't just a huge repository of unskilled labor. There's a large contingency of well-educated Indian citizens with experience in engineering, IT and other skill sets global organizations find particularly valuable nowadays. 

U.S. Secretary of Commerce Penny Pritzker and Secretary of State John Kerry, who wrote the piece for ET, maintained encouraging collaboration between American and Indian innovators is imperative for the economic success of both countries. The two politicians maintained that loosening India's tight restrictions on foreign labor is the first step that must be taken. 

Whether or not India becomes a significant participant in global sourcing depends on how well the nation dissects its current mandates and defines which are progressive and which are hindering advancement. 

How to manage a relationship with a colocation provider

Building connections with tech companies typically involves employing vendor resource management strategies. 

When it comes to managing IT hardware, colocation services are often feasible options. What these companies do is relocate servers purchased by their clients to their own data centers, undertaking maintenance, uptime and service responsibilities. Businesses with limited IT resources typically outsource to colocation providers. 

What to look for 

Before signing a service-level agreement with such an enterprise, it's important for organizations to look at the resources data center management companies have at their disposal. Data Center Journal contributor Bob DeCoufle outlined several questions that businesses must ask colocation specialists: 

  • What measures are taken to ensure business continuity in the event unscheduled downtime or natural disasters occur?
  • Are power and cooling options provided, or are such processes predefined? 
  • What infrastructure configurations are employed? Stem-and-leaf? Tree plots? 
  • Does the prospect use up-to-date temperature management techniques or leverage legacy designs?
  • What steps are taken to ensure energy efficiency is employed? Are green resources accessed to lower electricity expenses? 
  • How does the provider exercise security practices? Are cameras prevalent around the facility? Which employees have access to the servers? How is authorization granted? 
  • Are equipment expansion options available in the event more applications or storage are needed?
  • Does the colocation company offer software-defined administration such as virtualization? Are these provisions included in the SLA or regarded as additional services? 

These are all assessments to make during the RFP process. If comprehensive answers are given, then this signifies the vendor is reliable and good at what it does. 

A different option 

There's also the option of purchasing dedicated servers from colocation experts. As opposed to purchasing hardware and having another company deliver it, the latter process involves renting equipment from data center management companies. 

Why would this be considered more appealing than co-locating? Upgrading hardware is the vendor's responsibility, as opposed to the client's. This eliminates the need for in-house IT teams to travel to facilities and implement new equipment whenever updates are necessary. In addition, scaling environments is much easier, as more expenses are simply added onto the monthly fees. 

However, there are some downsides to renting servers from colocation businesses. According to MyHostNews, even if the leasing fees cover the initial hardware investment, the cost of the server will never change. Also, there's the possibility companies are using low-end equipment that requires frequent maintenance, which may cause colocation providers to tack on costs when upgrades are necessary.

With these two options in mind, it's important for those in strategic sourcing to assess whether expenses will decrease as time progresses, or slowly accumulate over the course of a relationship. 

Procurement services offering risk, compliance expertise

Rooting out vulnerabilities among supplier and vendor relationships is becoming imperative. 

The more intricate overseas distribution and manufacturing connections become, the greater companies are at risk of sustaining major disruptions. A break in the logistics process isn't the only concern - procurement services often encounter poor labor practices, questionable sourcing tactics and even affiliations with businesses that are indirectly connected to criminal enterprises. 

Abiding by Western standards

Advisors specializing in supplier relationship management are heavily involved in financial auditing. Why? Because Western consumers demand it. The European and North American markets are arguably the most influential economics in the world because their participants set standards for what defines quality goods. 

The problem is, manufacturing products of the highest condition at an affordable price isn't necessarily easy when "quality" is not only defined by usability, but by whether the products were made in regard to sustainability. While satisfying these demands can be frustrating, doing so is imperative. 

Assess before request 

Contemporary enterprises acknowledge that haphazardly conducting reviews of potential suppliers before moving into the RFP process isn't going to cut it. Thorough assessment and scrutiny must occur before a partnership is even considered.

Han Kieftenbeld, CFO of United Kingdom-based bakery technology developer AB Mauri, spoke with The Wall Street Journal about his responsibilities, citing the following tasks:

  • Settling agreements between AB Mauri and contractors, giving the former company the authority to conduct qualification surveys and audits whenever Kieftenbeld or his subordinates deem it necessary. 
  • Sending people to facilities and supplier-owned properties to thoroughly determine whether quality standards (including sustainability goals) are being met. 
  • Ensuring that constant communication is being maintained with overseas vendors, contractors, subcontractors and partners. 

Four necessary steps 

Manufacturing Business Technology Magazine contributor Donna Fritz advised her readers to follow a four-step process to meet consumer quality expectations and reduce supply risks:

  1. Start with regulations: Not only should a company comply with standards set by domestic agencies, it should ensure its suppliers' practices are meeting those defined by foreign authorities. 
  2. Look at the accounts: In order to eliminate fraud, enterprises should strongly consider automating their accounts payable processes, which will also help them better abide by the Sarbanes-Oxley regulation.
  3. Move toward procurement: Create a scorecard of a logistics provider's and suppliers' practices. Are there any red flags that are going unnoticed?
  4. Look at the environment: Surveying the political, economical and cultural atmosphere of areas where an enterprise does business allows it to anticipate any demographic shifts that may affect operations. 

The global market is one entrenched in complexity, which can make it easy for unfavorable practices to fall through the cracks. Putting every effort forward to dismantle such endeavors is incredibly important. 

Adam Cooperman, ConvergeOne
This month, Source One's PartnerCast features Adam Cooperman, Vice President of ConvergeOne--a leading integrator of best-in-class communications and IT solutions. Adam, who leads the ConvergeOne Program Management team, discusses the synergies between IT and Procurement and how a strategic sourcing process can lay the foundation for successful IT project management.

Cooperman's insight comes at a time when sourcing and IT are seeing greater collaboration and engagement among their groups. In fact, he points out three key trends in IT program management that have been directly impacting the strategic sourcing process:

1) Consolidation of suppliers: Companies are evaluating IT suppliers and see if there is a way to consolidate for efficiency and economies of scale.
2) Outsourcing Transition: Companies are becoming more strategic in their transition plans to outsource certain IT services.
3) Increased Demand for Skill: Companies are turning to suppliers for specific tech skills and resources.

Throughout this PartnerCast, it is clear that sourcing play a significant role and directly influence its impact on IT. To listen to the PartnerCast, visit SourceOne's iTunes channel and select episode 15, "PartnerCast: Interview with Adam Cooperman of ConvergeOne."

Scrutinizing the spider web structure of strategic sourcing

Companies are on their way to achieving corporate cost reduction by centralizing procurement, but are they forgetting about their contacts halfway across the globe?

Centralized, but alienated?

When regarding strategic sourcing, one may conceive of a roundtable comprised of professionals, each of whom  represents a different department. They express needs pertaining to business processes, materials, labor capabilities and so forth.

While they may have realized that consolidating time and resources is conducive to eliminating redundancies, the question is: Are they forgetting about the experts scrutinizing supplier practices?

The spider web structure

Revisiting the spider web analogy, it's important to think about the center of the web as the procurement team. Each member has business contacts throughout the world, enabling the enterprise as a whole to benefit from these connections if need be. Like all professional relationships, some connections are stronger than others, and a few may even operate behind a facade.

According to IndustryWeek contributor Tom Bianculli, each supplier relationship affects distribution and customer satisfaction. The more transparent connections are, the better procurement services can deduce whether or not overseas partners are detrimental or beneficial.

As one can imagine, technology plays a critical role in helping businesses achieve this level of visibility. However, clarity is only valuable when human insight is applied. For example, how does an African miner's tungsten production methods tarnish or benefit the reputation of a computer chip-maker?

What's fabricated? What's legitimate?

When engaging in conversation, it's not uncommon for some people to exaggerate or misrepresent situations to enhance their own image or manipulate others' perceptions. Unfortunately, the same can be said about a few businesses.

This doesn't mean companies are something to be feared or are harboring malicious intentions (some do, but they're few and far between). However, hiring global financial analysts and other such professionals to scrutinize each supplier connection is imperative.

A fault in the web

When an enterprise's reputation is damaged due to a fabricated or faulty connection, this could also result in unforeseen losses that impact its bottom line in a negative way. One only has to look at Apple's iPhone 6 panic, which was noted by Supply Chain Digital.

Apparently, two Apple suppliers asserted the backlight that helps illuminate the touch screen needed to be revised because it was too thin. This seemingly minor oversight sent the tech developer into a frenzy in an attempt to reconstruct the devices for a September 9 unveiling.

While manufacturers may receive most of the blame, it actually belongs to the development team - an often overlooked part of the procurement process.

Accounting for every relationship when sourcing is irrefutably important, as it can ultimately reduce a number of risks.

Does it make sense for businesses to procure solar panels?

Whether a data center colocation provider, a health care center or business park, organizations are regarding the benefits associated with solar energy with a grain of salt. 

Integrating renewable energy into the procurement process is admirable, but deducing how profitable such a move would be requires thorough analysis. While some specialists have asserted natural gas and oil prices will remain lower than the expenses associated with installing solar panels, others assert the latter power source will become more competitive in the years to come. 

Which energy source is cheaper? 

For enterprises, it's a simple question: "Should I continue to pay my utility bill or not?" Forbes contributor Chip Register acknowledged how five years ago, companies concluded that they were better off paying the monthly fee. Even though the U.S. federal government offered subsidies to utilities that installed solar panels, most firms still preferred to source energy derived from fossil fuels that were trading at incredibly high rates. 

However, the tide seems to be turning. Despite the fact that oil, coal and natural gas prices have dropped considerably, Register maintained that Chinese photovoltaic panel production combined with new advances in production techniques have caused solar energy rates to plummet. He acknowledged the following statistics. 

  • Solar panels now cost 75 percent less than they did five years ago
  • Citibank asserted that the average price of a PV panel falls 30 percent whenever installed solar capacity doubles within a particular region
  • Citibank anticipates that by 2020, solar power will be just as, if not more, affordable than fossil fuels on an unsubsidized basis. 
  • Marketing analysis shows that by the end of this year, the U.S. will have installed 6.5 gigawatts of new solar energy - 40.8 percent of the total amount of solar power the U.S. currently produces. 

A supplementary source 

Because of solar power's volatility, businesses should be aware that current technology doesn't permit most entities from sourcing 100 percent of their power needs from PV panels. Quite often, organizations will aggregate electricity powered by utilities and green energy simultaneously, but this doesn't mean enterprises should disregard solar entirely. 

According to E&E Publishing, the Plymouth, Massachusetts, public school system garners 60 percent of its 8,000-student district's electricity needs from a 5.57 MW solar facility. The source noted the procurement has saved the educational body an estimated $500,000 in annual utility expenses. 

The battery conundrum 

One of the biggest obstacles to installing PV panels on business park roofs is the expense posed by battery manufacturers. While these statistics apply to domestic implementations, The Week noted that each kilowatt of energy storage costs $600, meaning a 60 kilowatt hour battery will cost $36,000 dollars. Is such a battery going to last long? It will likely need to be replaced way before a solar panel's 20-year lifespan expires. 

Yet, this factor has only motivated researchers to develop more reliable, affordable batteries. Product Design and Development referenced a liquid battery formula created by Donald Sadoway and other researchers at MIT that operates at 200 degrees Celsius lower than previous solutions. Sadoway and his team asserted their invention will make industrial-scale renewable energy competitive with power plants fueled by natural gas, coal and oil. 

How does it work? The battery is comprised of two layers of molten metal separated by a layer of molten salt that serves as its electrolyte. Each of the three substances possesses its own density, allowing them to separate naturally. MIT's battery rivals conventional utility storage in that it doesn't require a hillside or water abundance to hold electricity (conventional systems require pumped hydro, which delivers 70 percent of power used to operate).

The conclusion? It makes sense for businesses to install solar panels to supplement power derived from fossil fuels, but solar can't be leveraged as the sole source. 

R&D an essential part of manufacturing procurement

When a production company sources new factory equipment, research and development professionals must be an integral part of the procurement process. 

Mechanical and electrical engineers have a clear idea of how operations will transform over the next 10 years. They possess a comprehensive understanding of machinery design, which enables them to determine which suppliers develop the most reliable and progressive implementations. 

A distinct advantage 

Moving past the surface-level benefits of getting R&D departments on board with materials acquisition, how can these specialists specifically contribute to sourcing endeavors? Bradford Goldense of Machine Design noted four segments of R&D, each of which brings its own insight to the table:

  • Basic research involves professionals scrutinizing the market for signs of progression or needs that will arise in the near future. Basically, it consists of analysts combing certain sectors, geographies and demographics for opportunities. 
  • Applied research occurs when a specific goal or target has been identified. Maybe a problem in a given situation exists and there are possible ways in which it can be resolved. The goal of specialists is to find a solution.
  • Advanced development transpires after a resolution to a previously defined challenge has been answered. The R&D team then deduces how that finding can be applied to existing products or processes. 
  • Product development consists of fine-tuning revised goods in order to make them fault-tolerant and eliminate any vulnerabilities that may exist. 

As one can see, the R&D team has a comprehensive understanding of all existing solutions and where opportunities for expansion or advantages reside. 

Replacing old machinery 

U.S. manufacturers would do well to include R&D experts in the development of suppler relationship management strategies. IndustryWeek referenced a study conducted by Morgan Stanley, which discovered the majority of industrial machinery currently used by domestic production enterprises is at least 10 years old

Apparently, U.S. commodity-makers aren't showing any signs of procuring new equipment, as orders fell 2.7 percent in the first half of 2014.

However, North American factories are encountering greater demand. The source referenced the RBC Canadian Manufacturing Purchasing Managers' Index, which noted that Canadian production activity increased 1.5 percent in August from July of this year. The Institute of Supply Management's metric of manufacturing health in the U.S. grew 1.9 percent over the same time period. 

High production rates typically translate to a need for more equipment. Before getting ahead of themselves, businesses should conduct a thorough assessment of projected material demands. This will give them a good idea of what kind of machinery is needed and whether it will grow outdated in two years' time. 

What net neutrality means for the RFP process

Almost every business in the United States uses the Internet to deliver products, services and entertainment in one form or another. 

Obtaining reliable Web connections has always been conducted through strategic sourcing, even if a company has branches located in different parts of the country. However, discussions regarding the Federal Communication Commission's take on net neutrality may change the way companies procure Internet access. 

What is net neutrality? 

According to The Washington Post, net neutrality refers to the idea that Internet service providers shouldn't slow down, speed up or adjust consumers' Web traffic. Basically, if ISPs were allowed to impose such manipulations, they could restrict people from visiting certain websites and sharing particular information.

The chief concern among neutrality advocates is that the market will make it difficult for startups and small businesses to pay for optimal service, which would temper job growth and U.S. ingenuity. 

AT&T's proposal 

As always, both consumer groups and ISPs are willing to reach a compromise - many are simply unsure as to what that accord would be. AT&T made an interesting proposal. The news source noted that Randall Stephenson, the telecommunication company's senior vice president for regulatory policy, recently convened with FCC officials.

Stephenson suggested that AT&T offer consumers a plan that would allow them to request that some services, such as Netflix, are prioritized over other applications like online video games and email. AT&T asserted that this strategy would maintain ISPs' current ability to initiate specialized request for proposal agreements with content companies while preventing fast lane charges from occurring. 

What does this mean for those procuring content delivery contracts from ISPs? If AT&T's route were taken, commercial deals between ISPs and companies could only progress at the behest of subscribers. The more requests submitted by consumers, the better off a business will be. 

The debate goes on 

A separate article for The Washington Post detailed how some libertarians are arguing that the FCC should not regulate ISPs as all. The main argument behind this angle is that it would prevent ISPs from delivering the best service possible to consumers.

Still, the movement - operating under the name TechFreedom - has yet to achieve a significant amount of support. This is because people want the freedom they've enjoyed for so long by using an unrestricted Internet. If ISPs are given more control over content delivery, they will hinder the progression of service improvement. 

After outlining the need for a benchmark report and conducting a thorough assessment by establishing a baseline and using market data and best practices to create a clear picture of what can be accomplished (see Source One's benchmarking series to learn more about the process) the next step is to implement. The implementation strategy should be based on recommendations provided in the benchmark. These recommendations should provide clear and actionable results to help improve a company's current state and develop and align strategies to meet company goals. To implement the recommendations it is important to get buy in from the right level of management in a company and gain consensus, develop an action plan, and monitor results.

The recommendations established in a benchmark may include a variety of solutions to help improve profitability and streamline processes. Recommendations may include direct negotiations with current providers to improve pricing, contract terms, resource allocation,supplier consolidation, or the results may indicate that based on current market conditions a full sourcing event is warranted. The results and recommendations from a benchmark need to be presented in a way that is clear, concise, and motivating to a company to gain consensus and move forward with the strategy.

Benchmarks should provide the spend owner with the leverage needed to gain buy in from different levels within a company. While a benchmark may only impact one department, having all the right levels of management involved in the implementation process can help clearly identify and define goals that will provide results and have positive financial impacts to different aspects of a company. It is also important to be prepared to present your benchmark to the non-management team that will be impacted by the recommendations since they will most likely be part of the implementation process. The spend owner that would be responsible for the implementation should be motivating in their message to all members of the team involved in the change process and ensure that they understand their involvement and how the result of the benchmark will provide an overall positive impact to them and the company.

Once you have reviewed and gained consensus from all the right parties the next step is to develop an action plan for implementing the recommendations outlined in the benchmark report. In the plan, it is important to identify a clear timeline of the actions that need to take place in addition to the people that will be responsible for completing the tasks. Each person that is part of the action plan must understand their role in the process to ensure the implementation is successful. The person spearheading the implementation process should continually monitor the progress to ensure tasks stay on track and that the recommendations of the benchmark are implemented properly.

Acting on a benchmark recommendation requires commitment. Evaluating the results of your benchmark recommendations and monitoring its success rate is a crucial component to completing the benchmark process. It is important to continually assess the improved or new program by monitoring progress, tracking results, and re-adjust as needed to make sure progress goals are met. As part of the benchmarking process, keep in mind benchmarks must be re-evaluated and updated on a regular basis to keep up with market changes and adjust company goals to continue to see successful results.
What is e-procurement? Why are governments interested?

Bridging connections with aerospace, transportation, utility and manufacturing companies can be a complex endeavor, especially for governments. 

Public authorities have continuously revised the way they procure goods in order to satisfy the needs of their constituents. Depending on how its economy is organized, a nation may need to provide water, electricity, transportation and health care for its citizens. 

Acquiring myriad resources requires strategic sourcing, a tactic a number of governments across the globe already employ. In light of the Digital Age, officials are beginning to migrate this approach to electronic formats. 

A computer-based procurement process 

Given the fact that enterprise resource planning - a staple solution for professionals concerned with supply chain management, material acquisition, financial forecasting and other business tasks - is delivered as software, it's only appropriate that sourcing follows suit.

Such a system enables organizations with various needs to sanction communications between departments and partners quite easily. In addition, it provides analysts with more information as to which suppliers deliver the best quality goods for the most affordable prices. Analytics, role assignments and other features are included in e-procurement deployments. 

Kenya's transition 

According to Capital FM, Kenyan President Uhuru Kenyatta recently implemented an e-procurement solution in order to promote transparency, accountability and appropriate use of public resources among officials. The leader maintained users will realize the following benefits of using the system: 

  • Supplier relationship management endeavors will be conducted more smoothly due to the ease of which information can be accessed
  • Financial authorities will have a better overview of all available funding, allowing them to deduce how capital can best be utilized
  • Youth, women and disabled citizens will receive preferential treatment when authorities carry out procurement endeavors
  • The nation will be better capable of holding suppliers accountable for their actions and scrutinizing their business practices. 

"Through the automation of public financial processes, the Integrated Financial Management Information System has provided an interlinked system of internal controls providing clear audit trails and identification of the originator of all transactions," said Kenyatta, as quoted by the source. 

Transportation woes 

One of the reasons why procurement is such a major concern in government is because many nations only have some many resources at their disposal. Developing nations usually deal with setbacks, as they're more vulnerable to economic fluctuations than their more established counterparts. An inaccurate view of the procurement process and vendor relationships could result in several instances that are detrimental to the welfare of citizens. 

FutureGov acknowledged how the city of Jakarta, Indonesia, is using e-procurement to improve its public transportation system. Incoming Governor Basuki Purnama Tjahaja acknowledged several vehicle malfunctions by TransJakarta, the city's public bus operator, have incited a need for more thorough assessments of city-vendor relationships. 

These instances aren't unheard of, either. Apparently, faults are a regular occurrence for TransJakarta, putting the 3.7 million people who use Jakarta's public transportation at risk. The metropolitan government has blamed sporadic automobile procurement and lackluster maintenance support for the problems. 

Solving the problem 

These are all signs of a poorly organized supplier relationship endeavor. It's apparent that Jakarta's officials lack the time and resources required to survey TransJakarta's operations and deduce where changes need to be made. That is why Jakarta City Transportation Council Chairman Edi Nursalam maintained comprehensive oversight of all sourcing activities is critical. 

"For this to happen we encourage policy agencies of Jakarta government to use the existing public sector e-procurement system to ensure transparency in the supply of goods and services," said Nursalam, as quoted by FutureGov. "The National Public Procurement Agency's e-catalogue system is the principal means to improve the current service failings of TransJakarta."

Bringing the RFP process and other elements of procurement into the electronic age is conducive to making the best possible use of all resources. 

What does Google need to make Project Loon a reality?

For those who haven't heard, Google is hoping to provide Internet access to the estimated 5 billion people who have yet to become connected.

Although "Project Loon" is quite ambitious, one can't ignore the materials Google will need to acquire to make this a reality. This isn't even the greatest challenge - getting Internet providers on board with the endeavor is another significant issue.

At first glance, a spend analysis may deter enterprises away from investing entirely, but further scrutiny shows Google isn't setting a tall order.

What it is, how it works

According to a video posted on Project Loon's YouTube channel, the aim is to launch multiple polyethylene-based, solar- and battery-powered balloons 20 kilometers into the sky. Each balloon is equipped with antennas, which allow them to network with each other consistently. The implementations float about 10km above air traffic, meaning they won't be disrupted by weather or airplanes.

The balloons move by catching wind in the stratosphere, allowing Google to keep them up in the air and optimize connectivity by grouping several together. Buildings and houses possessing specialized antennas communicate with signals distributed by the balloons, which are connected to ground stations owned and operated by Internet providers.

What materials are needed?

Google's YouTube video didn't divulge how many balloons the tech titan would ideally like to place in the earth's stratosphere, but it will likely need hundreds of thousands of these mechanisms at least. This means the company will have to establish supplier relationships with producers of the following materials:

  • Dynamic random-access memory
  • Advanced CPU processors capable of hyper-threading and sophisticated task provisioning
  • Polyethylene
  • Lithium-ion batteries
  • Solar panels
  • Motion control sensors

In order to reduce the cost associated with procuring these assets, Google will have to reassess its negotiation strategies at the RFP process.

Establishing key relationships

Surprisingly enough, some telecommunications providers aren't always thrilled at the prospect of ubiquitous Internet connectivity. Forbes contributor Erika Morphy noted one instance in which Tennessee State Senator Janice Bowling fought to bring high-speed Internet to the city of Tullahoma. Apparently AT&T, Charter and Comcast attempted to convince state leaders to divert Bowling's bill to a "summer study," which would effectively put an end to  the proposed initiative.

Although cable providers have quite a bit of leverage in high places, Google isn't helpless in this regard. By establishing strategic partnerships with key corporations from around the world, it will be able to fend off attempts to derail Project Loon.

IT procurement considerations for financial services

Whether an investment consultant or a benchmarking advisor, financial services require robust, reliable IT assets.

While software typically receives the brunt of attention, hardware shouldn't be ignored. For example, because business analysts require both historical and real-time data in order to provide the best advice to their clients, these professionals would do well to acquire networking equipment capable of handling stem and leaf architectures.

Vendor resource management: an essential or nice-to-have? 

Outsourcing to managed IT services is a regular practice among today's enterprises. While some companies store information on hosted environments managed and secured by cloud technology developers, others hire remote database administrators to ensure data warehouses are protected and flexible. 

This behavior requires a vendor resource management plan. Procurement Leaders contributor Harry John noted that if any details within the service-level agreement are left vague or undefined, problems can be exacerbated in the future. 

The importance of clearly defining SLAs

For example, say a financial services firm contracts a remote DBA to provide protection for its relational database management systems. In an effort to collect more thorough information about gold futures, the enterprise begins collecting unstructured data. Because RDMS systems can't organize unstructured information, the firm's servers encounter bottlenecks, causing critical applications to fail.

Because the financial services company didn't include data management in the DBA SLA, the business encountered a blackout that likely cost it upward of a $100,000. This figure isn't an exaggeration. According to Datacenter Dynamics, unplanned data center outages cost $7,900 per minute on average

Is real-time visibility a necessity? 

Aggregating data as it's produced is a capability many professionals devoid of IT backgrounds take for granted. While operating at this level is beneficial for some enterprises, other companies may find the volume and variety of digital information at their disposal simply overwhelming. 

Karen Stern, a contributor to the St. Louis Business Journal, noted a survey of accountants conducted by small business accounting software creator Xero. The research discovered 75 percent of participants believed a real-time perception of their clients' actions and finances would enable them to give more thorough advice. 

Stern maintained this level of oversight enables certified personal accountants and business advisors to identify areas of high profit-yielding potential. Surveillance over tax obligations is also easier to achieve, making the late-winter/early-spring season transpire much smoothly.

Based on these findings, it can be argued that financial services would do well to source real-time data analysis software. 

As far as outsourcing is considered, implementing a robust vendor resource management strategy is conducive to ensuring all needs are met and bases are covered. 

Today, Rutgers University is holding their annual Supply Chain Management Meet and Greet in New Brunswick, NJ. This event is for students currently enrolled in the supply chain management program and who are looking for employment. A myriad of companies attend, including procurement officials from major brands such as Amazon,Colgate-Palmolive and Estee Lauder, as well as leading strategic sourcing consulting firms such as Source One.

Source One is a regular attendee of the event, having recognized the supply chain management talent that comes from the current student pool. Additionally, Source One has long been a champion of supply chain education, often speaking at colleges to help promote the strategic sourcing industry as well as engage budding procurement leaders.

If you at the event, feel free to swing by and speak to Michael Croasdale, Project Manager and Heather Grossmuller, Marketing Manager about your supply chain career goals. Source One is located at table 64.

Africa: A major energy industry participant?

Although Africa's shadow economy typically receives more attention than its counterparts, the continent's energy deposits have been gaining much attraction as of late. 

Whether businesses build supplier relationships with natural gas and oil drilling companies primarily depends on one factor: the political stability of the country in which said producer operates. While an enterprise may find it favorable to procure natural gas from Ghana, procurement services may advise that same company to refrain from establishing connections with businesses in the Democratic Republic of the Congo. 

Why this disparity? 

Before assessing Africa's potential as a global energy provider, it's important to understand why some nations are more favorable business partners than others. According to Global Issues, the DRC conflict has been fueled by myriad components. A dangerous concoction comprised of political assertions and disparate cultural priorities, among a plethora of other issues, has caused the DRC government and rebel troops to fight one another over the region's natural resources. 

Suppose an enterprise wants to source natural gas from a company in the DRC. Even if a company exercises particularly strong transparency policies in regard to procurement and the supplier complies with every possible audit, a person could still argue that the sourcing enterprise is indirectly contributing to Congolese conflict. One side of the debate could propose that the Congolese business is using a guerilla group for protection, which then profits from natural gas sales. 

While there may not be tangible proof that such a situation is transpiring, suspicion is all that takes for a foreign investor to refrain from sourcing from nations similar to the DRC. With this in mind, why is Ghana the better option? According to the Overseas Security Advisory Council, while Ghana may have its own set of problems, they are not as severe as the DRC's. Most importantly, the Ghanaian government imposes strict surveillance over natural resources, and all transactions involving such commodities must be certified by authorities. 

A place of opportunity 

While differences between varying countries may persist, Africa is a continent with a lot of potential. Industry Week noted a study conducted by PriceWaterhouseCoopers, which discovered more than 500 companies are exploring the continent for potential energy deposits. Out of the top 10 discoveries of energy reserves across the globe, six were in Africa. 

The source noted particularly large natural gas findings were made in Mozambique and Tanzania, which are located in the southern half of the continent and bordered by the Indian Ocean. In general, east Africa could become a significant player in global sourcing. Last year, an estimated $1 billion worth of transactions occurred every 17 days in Africa's oil sector.

So, what's stopping this growth? PWC maintained Tanzania and Mozambique lack the proper infrastructure required to maintain production and distribution operations. Apparently, neither country possess the capital required to construct the necessary roads and facilities, which makes them dependent on foreign investors for support. 

Where does the continent's future reside? 

Industry Week noted that African countries cumulatively produced almost 9 million barrels of crude oil every day last year, 80 percent of which originated from active participating countries such as Libya, Algeria, Egypt, Nigeria and Angola. Four of those nations are located in the northernmost part of the continent. 

Regional disparities aside, what about the role of renewable energy? How will Africa support the estimated 76 percent of Africans who don't have access to electricity? Forbes cited the latter statistic, which was developed by American University adjunct professor Caleb Rossiter. 

Before these other considerations can be seriously assessed, African countries - particularly Mozambique and Tanzania - need foreign investment to support lackluster infrastructures. Outside influence will foster domestic production. 

Why sourcing new technology may be more reward than risk

When the printing press was invented in 1445, it effectively put scribes out of business. 

Although this innovation contributed to unemployment, it enabled people to spread and share information faster than previously possible. Essentially, it enhanced humanity's capabilities. Arguably, the same process occurs when a company procures new technology its competitors have failed to obtain. 

IT and strategic sourcing 

Take, for example, how technology developers and large entities intend to use quantum computing to further advance their capabilities. Some specialists have asserted that quantum computers are capable of solving an equation so complex that it would take a classic computer the length of the entire history of the universe to solve. 

While this assertion may be an imprecise estimation, it goes to show why enterprises participating in a wide range of industries are interested in the technology. MIT Technology Review noted tech giant Google intends to construct its own quantum computer, which would significantly improve the search engine's ability to deliver highly accurate results. 

According to the source, Google recently hired University of California, Santa Barbara professor John Martinis, who intends to construct a computer chip that is based on the intricate, often confounding concepts of quantum physics. D-Wave Systems, a startup based in Canada, has asserted that its machines abide by quantum principles, but critics have asserted the company's computers operate according to conventional physics.

Why procure new technology?

The question is: why has D-Wave Systems received millions of dollars in funding for its effort? Why bother directing supplier relationship management toward establishing strong connections with technology developers that are pushing the limits of today's IT implementations?

Manufacturing Business Technology Magazine referenced a study conducted by Harvard Business Review Analytic Services, which surveyed 672 business and technology decision-makers from across the globe on how mobile, social, cloud computing, advanced analytics and machine-to-machine communications have affected their enterprises. 

The research categorized participants into three categories: 

  • Pioneers: Companies that are the first to adopt new technologies in order to gain a competitive advantage. 
  • Followers: Those who recognize the success of pioneers and then leverage solutions those businesses previously employed.
  • Cautious: Enterprises that are hesitant to follow technology trends due to perceived issues and concerns.

Overall, 54 percent of organizations labeled as pioneers maintained technology adoption led to significant changes throughout their business models. 

With this all considered, business leaders must also exercise ways to convince their subordinates to adopt solutions. Software can induce company-wide transformations, but only if it's used in a meaningful way. 

What does the ASEAN Economic Community mean for global sourcing?

The Association of Southeast Asian Nations recently brought a vision to the region's economy that will play out over the next 11 years. 

According to the organization's website, ASEAN was established in Bangkok, Thailand in 1967 to improve Southeast Asia's economic, political and social growth. Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Lao PDR, Myanmar and Cambodia are all members of the association. 

Setting up a plan 

The ASEAN Experts Group on Competition (AEGC) convened at ASEAN Secretariat between September 9-10 in order to establish a strategy for a post-2015 world. Southeast Asia is expected to be a major participant in global sourcing, offering Western businesses the chance to benefit from labor that's more affordable than what China has to offer. 

The main focus of the meeting was to establish competition laws. AEGC asserted its intention to establish institutions that will define and regulate fair economic policies across nations, although the source didn't provide further details regarding the matter. It's likely ASEAN will implement regulations that prevent monopolies from occurring, primarily because so many different companies will work to participate in several industries. 

What's the perception of western businesses? 

So far, there have been mixed reactions regarding ASEAN's initiative. IndustryWeek noted that many people residing in ASEAN member nations remain skeptical about whether the establishment will be capable of meeting all of the goals it outlined for 2016-2025. 

However, Thai business executives remained the most optimistic, with 78 percent of the country's professionals  believing that participating in ASEAN will help Thailand establish itself as an active part of global sourcing. American Chambers of Commerce Board of Governors President Darren Buckley concurred, maintaining Thailand possesses strong economic foundations and its enterprise leaders are eager to expand. 

"As the political situation stabilizes, businesses are experiencing higher degrees of optimism and foreign investors' confidence return," said Buckley, as quoted by the source. 

Fair competition and business expansion 

As ASEAN focuses on making member nation economies competition-friendly, western organizations will attempt to capitalize on this environment. The more competitive a market is, the more its participants seek to enhance service quality and reduce prices. For a company operating under ASEAN mandates, the goal is to make it profitable for foreign investors, subsequently yielding stronger relationships. 

In addition, it's important to note many professionals in Thailand (62 percent) plan on expanding their businesses. Furthermore, 82 percent expect to encounter greater profits over the next several years. This means investment in the region already exists, and the infrastructure needed to support large-scale manufacturing is ready. 

One of the primary reasons why companies turn to vendors

There's a reason why vendor resource management is currently becoming a necessity for enterprises. 

When a business encounters a lack of talent, whether it be in procurement, IT, marketing or some other discipline, outsourcing responsibilities to a third party appears to be the safest option. However, it's important to ask a critical question: Why is it that organizations are finding they don't have the employees needed to perform key jobs?


Corporations typically point to an absence of in-house training as the problem, but contributor Chris Fox believes salary has a lot to do with the shortage. The United States government, private enterprises and universities have been working together to provide apprenticeships and specialized programs to mitigate the situation, but these may not even be necessary. 

One of the first challenges associated with this issue is that millennials entering the workforce cumulatively find themselves with an exorbitant amount of student loans to pay off. Attending a reputed engineering or computer science school isn't cheap, and graduates favor well-paying positions that allow them to pay back their debt as quickly as possible. 

Job security 

Contracting a cloud service provider, database administration firm or other company to provide a particular service is a growing practice among organizations. There are three possible reasons why this trend persists:

  • A lack of in-house talent (as noted above)
  • A "They can do it better than we can" attitude
  • A shortage of in-house time, resources and knowledge

The general consensus is that in-house IT departments are considered a cost because they're not producing any profits. Professionals entering the field are recognizing this perception and seeking positions at managed IT services companies, primarily because they know they'll be regarded as revenue-generating assets. This means they don't have to worry about being let go due to an outsourcing move. 

Where's the resolution? 

First off, it's imperative for manufacturing companies to prepare themselves to train a generation of workers who have demonstrated their ability and willingness to learn a particular craft. They understand engineering concepts, so instructing them on how to apply this knowledge to the actual trade must become perfunctory. 

In addition, Industry Week noted millennials need to be more resourceful and enter the prospect of working in manufacturing with an open mind. Factories are looking for specialists who will take production to the next level - their job descriptions don't involve standing in front of a machine all day.

Yet, this points to the issue of miscommunication. Millennials assume accepting mundane work is conducive to landing a position in a factory. Companies need to acknowledge this perception and turn it on its head. 

Often within the maintenance, repair, and operations (MRO) space, inventory management is a recurring and commonplace issue. In many cases, companies are operating purely on a tactical basis. As parts run out, the buyer reorders. Even worse, when a part that is needed to maintain facility operations runs out, the buyer or warehouse manager has to halt production while attempting to obtain it.

This is the norm in the manufacturing and industrial space, and it produces countless wasted hours - and businesses know time equals money. Throw poor record-keeping of purchasing history into the mix and you have a whole myriad of problems.

For these reasons and many others, companies have set up vendor-managed inventory programs (VMI). In a perfect world, facilities could get exactly what they need when and where they need it without maintaining excess inventory and while keeping an accurate record of the transaction. These are the solutions VMI attempts to establish.

In a typical warehouse, MRO supplies are managed centrally by warehouse managers who are in charge of overseeing your inventory storeroom or tool crib. The tool crib is set up to facilitate the parts needed for the 100-plus employees who maintain the facilities operation. However, there is only one tool crib for the 100,000-square-foot-plus warehouse that is divided into separate areas by operation. This methodology causes employees to preemptively grab excess supplies to store on their own floor areas and, in turn, creates overstocking of inventory within the tool crib because of supposed "low inventory."

The company is now looking for a long-term solution, which in most cases can be facilitated by an incumbent MRO supplier, and that supplier is happy to oblige. It is simple if the supplier is assisting in the management of the inventory and establishing reorder points.

For this particular situations, the MRO supplier would work with the company to set up bins or cabinets with restricted access by operation. When an item is taken out of stock, the transaction is logged electronically and processed by the supplier. The supplier creates a database of the items by manufacturer part number tied to client part number along with the bin or cabinet in which the item is stored.

When a specific preset volume reorder point is reached, the system alerts the supplier that the item needs to be restocked. The supplier sends a representative out weekly to restock items that have hit the reorder point,

Conversely, if the buyer would like to keep it in-house, the system can be configured to either automatically send out a purchase order request or alert the warehouse manager that an item needs to be reordered. The product is then shipped out from the warehouse to the facility. All transactions are recorded by the supplier and readily available for the client to view.

This is just one of many industrial VMI solutions. Each solution can be custom-tailored to the company's needs and operations. Industrial vending machines are another common form of VMI for smaller, common-use products such as gloves, disposable ear plugs, etc, providing another form of efficient, controlled, just-in-time automatic replenishment.

VMI might not be the answer for every business, but it does provide a simple solution to an aggravating inventory problem.

This blog can also be viewed on, a leading product sourcing and supplier discovery platform for procurement professional.
Implementing environmentally friendly and socially responsible supply chains has been a recent focus in various industries but especially in consumer electronics. Many manufacturers have received bad publicity for poor labor practices and unsafe working conditions in overseas manufacturing facilities. Out of all the big tech companies, Apple has been at the center of attention for many of these issues and must continually makes changes to improve their supply chain and maintain a positive brand image. Although the treatments of workers, compensation, and living conditions have been called into question; the materials used in the manufacturing process are also an issue for workers, consumers, and the environment.

After receiving pressure from environmental and labor groups, Apple has recently banned the use of the toxic chemicals benzene and n-hexane in its late stage manufacturing process. These chemicals are commonly found in industrial cleaners and could cause health issues for workers regularly exposed to them.  According to a report by Apple, the chemicals were in use at 4 out of 22 factories but at levels within accordance to Apple’s “Regulated Substances Specification” and "found no evidence of workers' health being put at risk." This follows an earlier change in Apple’s supply chain in 2009 when Apple eliminated polyvinyl chloride (PVC) and brominated flame retardant (BFR) from laptops after Greenpeace targeted Apple over their recycling polices and toxic substances used in manufacturing. The heavy metals mercury and arsenic have also been removed from their products over the past few years as well as the toxic element bromine.

While most of the harmful elements of a smartphone or other electronic device are not exposed while in use, the main issue surfaces when the item is no longer needed and discarded. When exposed to high heat and broken down in landfills, electronic devices release harmful chemicals that can work their way into water supplies. This is why Apple and many other companies have implemented recycling programs to help combat this problem and keep these old devices out of landfills. Aside from free recycling programs, there are also multiple ways for consumers to sell their old devices to resellers, third party recyclers, and even cell phone carriers such as Verizon. Despite these efforts, many devices still end up in the trash and the recycling programs are sometimes questioned by environmental groups. According to a 2010 study by the EPA, only 8% of mobile devices are recycled.  The EPA also reports that 50 to 80 percent of electronics that are collected for recycling in the U.S. are shipped to developing countries where child labor and unhealthy practices are used to remove valuable metals from the e-waste.

Waiting for an activist group to petition your company or an undercover employee to reveal unsafe working conditions and harmful materials is not the best way to find opportunities for improvement.  In order to stay up to date on sourcing and manufacturing practices, companies need to constantly evaluate their supply chain for potential hazards that would cause harm to their employees and brand image. In order to accomplish this, companies must dedicate time to market research and stay up to date on manufacturing trends, environmental and health studies, new manufacturing processes, and what other industry leaders are doing.  Attending industry events, subscribing to blogs and newsletters, and having a strong supplier relationship which allows for an open dialogue with suppliers are all good ways to stay up to date on the current trends. Proactively identifying a need for change allows companies to identify alternate materials or suppliers that can provide environmentally safe product components for manufacturing electronic devices. 
Why strategic sourcing is necessary for corporate IT departments

Between cloud services and outsourced database administration support, public organizations and private enterprises have more than enough options to choose from.

An unfavorable situation

Large entities with departments spread across the globe are at risk of suffering from redundancies. For example, a North American shoe retailer with 2,000 locations may leave it to branch managers to procure customer relationship management software.

Not only does the merchant fail to benefit from bundle deals characteristic of large software procurement deals, its IT budget is likely losing millions of dollars it could use to upgrade legacy hardware or hire more knowledgeable cybersecurity professionals.

That's where strategic sourcing comes into play. This tactic centralizes technology acquisition, allowing professionals working at headquarters to assess the needs of their subordinates and find the best software or hardware solution for the entire company as opposed to a disparate set of departments.

How much is wasteful?

Before scrutinizing the spending habits of enterprises with pressing IT concerns, it's important to look at an example of how much capital can be lost due to inefficient procurement practices. Fierce Government contributor Ryan McDermott noted a report conducted by the Environmental Protection Agency's inspector general, which discovered the EPA could save anywhere between $30 million to $60 million a year by fully centralizing its procurement process.

The report, which was instigated by a memo sent by the Office of Management and Budget, said spend analysis endeavors need to be conducted more frequently, allowing the EPA to free up much-needed capital for IT.

"The agency has been slow in implementing strategic sourcing due to a lack of commitment in the initial stages of the initiative and by proceeding cautiously as experience was gained," stated the report, as quoted by McDermott.

How much do businesses plan on spending?

Gartner recently conducted a study on global IT spending, showing the consumption of organizations of every ilk will reach $3.8 trillion this year - a 3.2 percent increase from 2013. The research firm's Managing Vice President Richard Gordon noted that enterprises view IT assets as the tools with which they can expand their businesses. In regard to organizations, Gartner made the following discoveries:

  • Spending on data center systems is expected to reach $143 billion, a 2.3 percent rise from last year
  • The enterprise software market is anticipated to total $320 billion, 6.9 percent greater than 2013
  • IT services remain incredibly healthy, with $964 billion in spending in 2014, growing at a 4.6 percent rate

Considering all assets

A particular facet of IT that has garnered an incredible amount of attention is big data. Manufacturing, retail, health care and a collection of other industries can make use of technologies designed to help businesses better collect complex information sets, as well as store and analyze such data.

The problem is, sourcing specialists who know little about big data and how it can be used often regard it as an unbelievable phenomenon only the most expensive, complex architectures can handle. However, before investing in a multi-million dollar software solution that's going to require staff training and possibly expensive implementation costs, CIOs should strongly consider the benefits of open source technology.

Open source is a name assigned to software for which the original developers released the source code to the public, meaning it's available for government and private organizations alike to use free of charge. Hadoop, an open source architecture designed specifically for handling big data, has been favored by companies headquartered in different parts of the world.

The only expense associated with utilizing Hadoop is that the software requires specific data center configurations and programmers with a thorough knowledge of the infrastructure.

As one can see, centralizing procurement to identify any hidden or redundant costs is important, especially in regard to such a resource-heavy industry as IT.

Why strategic sourcing is vital in health care

At a time when U.S. health care organizations are seeking to reduce costs, many are executing poor sourcing practices that are contributing to superfluous expenses.

Administrators aren't the only ones at fault, though - physicians are prescribing medications that aren't needed to deliver successful patient treatment. In order to get everybody on the same page, centralizing the procurement process appears to be the best solution.

Overcompensation leads to waste

The Centers for Disease Control and Prevention collaborated with Premier on a new study, which charted how U.S. hospitals are procuring materials based on the perceived needs of those receiving treatment. Overall, the research discovered many facilities are ordering and using an unnecessary amount of identical antibiotics, which costs the industry nearly $163 million in frivolous expenses.

For example, Premier and the CDC found 70 percent of therapies that may not be necessary to a patient's health use three specific drug combinations when treating people with anaerobic infections. As far as intravenous pharmaceutical care is concerned, 32,507 cases of redundant antibiotics treatments occurred between 2008-2011.

"The overuse of antibiotics is an industry-wide public health issue that is occurring across all care settings," said lead author and Premier Safety Institute Director Leslie Schultz. "Sometimes in an effort to 'do whatever it takes' to fight a serious infection, clinicians use multiple antibiotics to treat the same infection. This practice can contribute to antimicrobial resistance, put patient safety at risk and increase costs."

A new take on strategic sourcing

Not only must hospitals combine their departmental procurement initiatives, they must also factor patient needs into the process. Having physicians and other experts collaborate to deduce which antibiotics and other medicines are best suited to treat certain conditions is a necessity.

This approach to achieve corporate cost reduction also ensures hospitals abide by standards defined by the Office of the Inspector General and other regulatory authorities. Supply & Demand Chain Executive Gary Johnson asserted governance, risk and compliance should be an integral part of materials acquisition.

For instance, when a hospital uses patient data and runs analysis tools, it must ensure all digital information is being transferred over a secure environment. The Health Insurance Portability and Accountability Act obligates all organizations participating in the medical industry to adhere to this regulation. Those that fail to do so may be subject to fines or prosecution.

Health care isn't getting cheaper, and that's a huge problem for a nation in which many people cannot afford to seek proper care when they need it.