In Part 1, we discussed some of the inhibitors and challenges to the success of a strategic sourcing initiative. In today's post, I'd like to offer some high-level advice to assist in breaking down those roadblocks.

Now, I would love to say that hiring a strategic sourcing firm is going to solve all of your issues, but the reality is, outside firms tend to amplify these roadblocks (or snipers as we call them here). Fear, uncertainty and uneasiness run rampant as soon the word "consultant" is mentioned. Of course you should still hire us though, as we know how to deal with these issues!

Below are 10 tools and tips that procurement professionals and sourcing teams must have in their toolbelt in order to knock-down roadblocks:

Precision - Very few things are better than having rock solid data to help you establish a business case for making a change within an organization.  Unfortunately, the same people that are disputing your suggestions may be the ones responsible for providing you data. Don't settle for estimates, even when talking to managers, demand (where possible) actual numbers from historical usage and try to capture multiple opinions on the future of that procured good or service. In recently history, we were engaged to help a marketing department reduce their internal printing costs.  When collecting data from a Vice President of the company (who controlled the spend), he provided "solid estimates" that showed without a shadow of a doubt that his department was a profit center.  However, after retrieving data directly from their ERP system, we found tiny rounding issues in the data.  For example, something that was a"$10,000" project actually only was $9,800.  That person that only had a $35,000 or so salary was actually making $39,500 (not including benefits and overhead).  All in all, we found that the department had been operating at a loss exceeding six figures for the last few years.  No one had ever challeged his figures and claims because he was senior management.

Priority - Priority can mean a lot of different things.  For one, do you have the support of management to make this sourcing project a top priority for everyone on the team? If not, you are likely to achieve mediocre to zero results, as you are going to have a hard time motivating people outside of your normal control to do extra work for you.   Priority is also something that you need to manage though.  Do you need line item analysis?  Do you need 100% of the invoices, or will just a sampling do?  Does every single person on your weekly status meetings really need to be at that table?  Make sure that your priorities are not conflicting with your team's daily responsibilies wherever possible.  Don't request work to be done where the person who has done the work does not get to see what value they shared to the project.

Collaboration – Yes, we have all heard thins one a million times.  It is used so frequently in all aspects of business that it is typically just dismissed as a buzz word.  However, it is CRITICALLY important to the success of strategic sourcing projects to collaborate.  This means internally (between end users, managers, departements and divisions) and externally (with existing suppliers, potential vendors and your customers).  Remember, this also means being cooperative with those dreaded consultants that management brought in.  Together, everyone achieves more than any one could have done on their own.   Are you an RFP Spammer? - that is a definite way to be non-collaborative with your supply base.  But, don't confuse cooperation with a supplier with allowing the supplier to write your specifications or RFP.  We have seen fantastic results in sourcing projects that could never have been achieved without collaboration.  From customers of our clients offering to extend their discounts for downstream components  to suppliers looking for help in reducing their costs because of a lack of procurement resources (and leveraging their customers resources), we have seen solutions that have saved millions of dollars annually.

Creativity - Tightly integrated with collaboration is creativity.  Have you really thought of every possible way to save money, improve the quality of the product or service that you are buying, or reduce lead times?  Have you asked others how they would do it?  Have you looked for outside help (consultants, suppliers, customers)?  Sometimes the best solution to a problem or need is not the most obvious.  Think outside the box.

Objectivity - Believe it or not, working on a spend category can be a very emotional experience for some.  Particuarly if that spend category has not been reviewed in recent history. Some are still proud of and attached to that 10% savings they got last year.  Some simply think they are the best their is.  Some think it is an audit.  Some love their suppliers, or at least the sales rep that brings them bagels and Phillies (not Yankees) tickets.  Whatever the reason, people get attached.  Make sure those emotional attachments don't bleed into rational decision making.   Our first bullet listed was precision.  Having the right data, combined with ethical business decisions will help you always make
objective decisions.  When dealing with a seamingly irrational individual (including yourself), simply ask them what it is that they are truely concerned about and ask them to communicate it.  Often, a little self-reflection is immediately enough for them to come around.

Flexibility - Being too rigid in your specifications or requirements is a surefire way of making sure you are paying too much for a product or service.  We frequently see RFPs that are so specific about a need that it immediately either disqualifies a large portion of the potential supply base, or raises the price that those suppliers will bid.  Why are your specifications written the way they are? Did your
incumbent suppier have a say in building your specs? When was the last time anyone reviewed your requirements internally?  Flexibility extends beyond your specifications too.  What sourcing methods are you using?  Do you do everything with a reverse auction?  Why?  If half the suppliers refuse to participate, maybe it is time to rethink your strategy.  Do you have a 23 page RFP for a $50K spend?  Allow the suppliers to make presentations and respond to questions, don't ask them to fill out a document that will make them invest a substantial portion of that small spend.  Let the suppliers know that you are flexible in your needs and see what they might come back with, you might be suprised.

Experience - We mentioned this in part one.  "Why do I need help, I have been doing this for 18 years" - Yes, you negotiated a reasonable telecommunications agreement for us once every 3 years or so.  So, you actually only did it 6 times, the last time being 3 years ago. Additionally, is your job really to negotiate and get the best price on that specific contract you are working on?  Really?  Think about it.  Most procurement professionals number one most critical function is to make sure that the people in your organization have what they need to make and sell your products and services and to ensure that revenue is never disrupted due to lack of the necessary commodities needed for them to do their jobs.  Bundle that in with managing 2 to 3 dozen spend categories, worrying about inventory turns, helping your quality control department with returns and assisting accountants develop estimation reports and cleaning a general ledger filled with typos, what time do your really have left to dedicate to that contract that is expiring?  You have not negotiated that contract in a year, or three.. so now you have about 30 days to be brought up to speed in everything in that category that has happend over the last 12 or 36 months. The salesman on the other side of the table sells one thing every single day of their life.  Who really knows more about the product you are buying?  It's okay to seek help from outside your department or organization.  That help can be in the form of consultants or just purchasing reference materials, either way you need experience in both subject matter as well as the processes you use for a sourcing initiative. 

Market Intelligence - We mentioned earlier that the sales team on the other side of the table sells one thing, day in and day out.  You do a thousand things a week and are responsible for way more than just a single spend category.  One way to level the playing field is to have good, current and relevant market intelligence.  The right market intelligence will help you determine internally if it is the right time to source a category and can even help some of your internal roadblocks "see the light" as they might use a market shift as an excuse to allow you to look at their deals that they have been holding so close to their chests.  There are hundreds of sources of data out there, depending on the product you are buying, don't just settle on that one report from the trade magazine you subscribe to, chances are the supplier read that article too and has an answer prepared to deflect  you.

Time - Yes, as obvious as it sounds, time is as important as the next item in our list (sponsorship).  Do you and your team really have the time to take on the sourcing a spend category?  If you only do it half way, the suppliers will know and they will provide you with the most mediocre result possible in order to make you go away.  Make sure you really have the time, resources and dedication to focus on a spend category properly.

* Sponsorship * Sponsorship * Sponsorship - For most companies, sponsorship is the A#1 most important thing necessary to drive significant results in a sourcing project.  Sponsorship is mainly and internal turn that you use the build your team, cooperation and collaboration; but it translates very well to your external resources.  When suppliers know that they are dealing with a unified team (and can't do an endrun with the end users or buyers) then you are likely to get the best results.  Sponsorship can come from many forms, but is often best when it comes from the highest level (the CEO).  For the few snipers in your organization, they need to know that their behaviour or failure to cooperate is unnacceptable.  For the rest, they need to know that their efforts and results are going to be in the direct line of site of senior management.  Companies that also encourage results with rewards (time off, parties, bonuses) also are traditionally producing the highest results in their sourcing initiatives.

What other tools do you recommend to drive the best results in your strategic sourcing initiatives?
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William Dorn

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  1. The tips are very good, quite interesting but more of being informative. Nice blog!