Source One's new whitepaper series presents reflections from a range of Supply Management thought leaders. Looking at Procurement Transformation through numerous lenses, they provide a survey of the conversation surrounding the subject and offer strategies to today's Procurement teams. This week, we're taking a closer look at the series' fourth installment. Titled "The Road Ahead," it focuses on the next steps for post-Transformation organizations.
Part 4's second section, written by Sourcing Innovation's Michael Lamoureux, is "targeted at the average tech-enabled sourcing organization." He elaborates, "They've 'transformed' in the sense that they've embraced e-Sourcing . . . Relatively speaking, they're early on their e-Sourcing journey." That's not to say these organizations are doing anything wrong. Lamoureux acknowledges that some are certainly thriving. Even these basic e-Sourcing technologies still "identify savings and new sources of value." These organizations are not, however, deriving the maximum possible value from their efforts. Simply put, these tools cannot "empower Procurement's transformation" or support a transformed Procurement team on their own.
To realize "next generation opportunities," Lamoureux writes, Procurement requires advanced sourcing technologies. Offering Should-Cost Modeling, Decision Optimization, and Predictive Analytics, they'll refuel the function's cost reduction efforts and "provide the foundation for cognitive sourcing."
Currently, Lamoureux suggests, Procurement lacks true insights into its pricing and payments. While asking for current bids is often sufficient, more accurate cost models will impart enough insight and added security to transform the sourcing process. Providing dependable cost models based on production and material requirements, they'll help Procurement determine "the true cost drivers of a product." Procurement can leverage this knowledge to tailor its cost reduction strategies.
Most current-generation sourcing suites also encourage a shortsighted focus on unit cost. Focusing on unit cost alone, Lamoureux reminds readers, "typically leads to cost increases over time." The best most Procurement teams do in response is shift their focus to landed costs. This, too, leaves money on the table and often saddles Procurement with unexpected costs. To achieve the best possible value, Procurement requires a tool that makes it easy to calculate total cost of ownership. A "modern Decision Optimization-backed sourcing system" will do just that. Taking all conceivable costs into consideration, these tools will help guide Procurement in making the most strategic awards decisions possible.
Lamoureux continues, "There are more savings to be found with the right addition to your advanced sourcing suite, and that addition is Predictive Analytics." Traditional spend analysis applications, he writes, "simply describe spend over a certain period of time." Augmented with Predictive Analytics, however, these tools will not only map historical spend, but "also predict future costs based on incremental changes in the spend profile and changes in market pricing for corresponding commodity categories." This look into the future will permit Procurement to make more informed, strategic sourcing decisions than ever before.
He concludes, "Traditional e-Sourcing platforms are good, but platforms that include advanced sourcing technologies are better." These, he asserts, are the ones that will provide for Procurement's continued transformation in the coming years. These are the ones that will set the function apart as an indispensable value generator.
To read more about the road ahead for post-Procurement Transformation organizations, check out Part 4 of Procurement Transformation: Industry Perspectives.