Elevating Sourcing Process to the Next Level

Sourcing process has evolved from merely finding, evaluating and engaging suppliers

to a more sophisticated one - deemed as strategic sourcing - wherein, the sourcing

process is continuously evaluated and improvised. This concept was made famous by

major consultancy companies in late the 1980's and 1990's and is now a standard

sourcing practice for most of the leading best-in-class companies.

Traditionally sourcing or

procurement was referred as a

purchasing activity. It was in the

early 1980's that purchasing - which

was being viewed as highly tactical -

began its transformation to

procurement. From 1980's till today

the sourcing process/approach has

undergone a paradigm shift. Before

the advent of automation, sourcing

activities were highly manual -

paper based and were supported by

tools like excel (something that is

still prevalent in today's era).

This white paper will focus on factors that demand change in sourcing process and

how advanced sourcing approaches can make the process more efficient. It also

highlights the best practices that can be adopted at various stages of the sourcing

process.

With globalization, the world has been integrated by easy exchange of

information, raw materials, services etc. Even though this has made the world

glocal, the complexity has only increased. The supply chain is spread across the

globe with tiers of suppliers supplying from different parts of the world.

In order to quickly meet the customer demand, organizations have had to move

their manufacturing plants closer to the market. To ensure satisfied and happy

customers, customization of products/services has become a necessity. In

doing so, organizations end up with a vast supplier base and maintaining a

healthy supplier relationship becomes a challenge.

Traditional sourcing practices/approach

Factors mandating change in the sourcing process

Traditional sourcing processes presented the

organizations and sourcing executives with many

challenges, like;

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Non-standard processes

High cycle time

Lack of ability to manage complex and

diverse categories

Negotiation slippages

Inability to manage multiple sourcing events

Inability to leverage knowledge from

successful sourcing events

Lack of overall visibility into the sourcing

process

Lack of scalability

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3. With increasing R&D, the product life cycle is becoming shorter. This means

products become obsolete sooner.

4. Rising competition has resulted in price wars. Customers are increasingly getting

aware thanks to the myriad of information sources available. They also demand

better quality & value for their money. This at a time when the cost of input i.e.

raw materials are on the rise. All this add to a very tight budget and shrinking

profit margins, mandating sourcing executives to not only source the best

quality but also keep a close eye on the value.

5. Volatility is the norm today be it natural catastrophe or unstable economies.

These factors constantly change the equation between the organization &

supplier, thus mandating an alternative sourcing strategy.

As per recent survey undertaken by Ardent Partners, following are the top priorities for

CPOs in 2013 apart from collaboration:

More sourcing translates into multiple events and more spend under management –

bringing more categories under the sourcing umbrella. This makes re-evaluating and

redesigning sourcing strategies an imperative.

Traditional sourcing process involves multiple back and forth between the stakeholders

while creating the event and while scoring & analyzing the responses before finalizing

on the event draft and award decision, respectively. By leveraging on technology the

sourcing process can be streamlined, reducing the process cycle time drastically.

Sourcing Process – Leveraging Technology

Top Strategies for CPOs Who Have Not Prioritized Collaboration

Strategy Percent

Source more 52.5%

Improve policies and processes 30.5%

Implement cash management strategies 28.8%

Optimize current systems and processes 28.8%

Increase investment in technology 23.7%

Source - Ardent Partners

Creation of the event (RFI, RFP,

Auction) inExcel/Word

Emailing theWord/Excel toSupplier with

timelines

View & Scoreresponses

Analyze Responses

AwardShortlistedSuppliers

Event approval and edits

Suppliers fillresponses andask questions

Collaborate with others

Avoid back & forth byLeveraging Technology

Lets us understand this better with help of an example

A US based global provider of automobile parts with more than 100,000 employees

and offices spread across the world faced the following sourcing challenges;

A cumbersome and time-consuming process for managing sourcing events

Large number of items (8000+) and suppliers (200+) to be managed in a single

event

High volume of sourcing events across the year

Their sourcing processes were highly manual and thus resource consuming. This

changed for good when they decided to leverage technology for sourcing. It offered

them with,

65% reduction in end-to-end sourcing cycle time - from approximately five

months to just over a month

High scalability enabled by specially designed features to handle high number of

items and suppliers

Easy modeling of complex cost breakdowns that allows sourcing of all categories

Quicker ROI realized based on savings generated from competitive sourcing

events

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Sourcing with automation – A step by step approach

Step 1 – Accelerate Event Drafting

The first step involves creating an event for the sourcing project. It

refers to defining the objective of the project, creating RFXs and

setting up an auction.

To make the event creation stage more effective, the following best

practices can be followed;

The objective and requirement of the sourcing projects may vary; however, the

broad outline remains constant, for instance asking for company information.

Templates can be used to standardize the event drafting process.

2. Source categories electronically

Leverage technology to source not only simple categories like laptops, office

supplies etc. but more complex ones like engineering components, packaging

and services like legal, IT etc.

Use standard templates

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As said by Peter Drucker,

Modern technology enables buyers to not only ask multiple questions but also

questions of different types like textual questions, single and multiple choice

questions, as well as attachment and matrix-based questions. Furthermore, the

"matrix or table type" option facilitates the creation of multi-dimensional

questions. For instance, if you need to know the company's details, you can

simply add the relevant rows and columns for the name, telephone number and

email address so on and so forth.

With multiple questions, buyers can collect detailed supplier information. From

basic company information to finding out supplier's emergency response time

in case of non conforming delivery or details of emergency plan implemented

by supplier to fulfill the contract and others can be collected.

Flexible Event Scheduling

To keep up pace with the modern demands of sourcing, sourcing

professionals need to be equipped with the flexibilities when it

comes to scheduling and hosting the event, be it scheduling event

as per different time zones or supporting large number of suppliers

in a single event.

Here are some of the to do's which every sourcing manager must consider while

scheduling an event,

Ability to pause a live event helps for instance, to make an announcement or

add a new supplier among others.

Even if the event was scheduled for say 2 hours, sourcing pros should have the

ability to extend the event to accommodate any additional requirement.

Sourcing professionals should have the option to reopen the event to

accommodate the responses of suppliers who may have missed the deadline of

the floated RFP. You bet you would not want to miss on the best deal!

3. Ask the right question

4. Collect comprehensive information

1. Pausing an event

2. Extending an event

3. Re-opening an event

“My greatest strength as a consultant is to be

ignorant and ask a few questions.”

Step 2 –

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Sourcing pros need to have the ability to invite selective group of suppliers that

seem most competitive for the sourcing project. For instance, inviting only

those suppliers with whom the company has done business with in the past or

the group of supplier with quality certification etc. Technology can also enable

sharing a platform wherein buyers and suppliers can collaborate from the initial

stage till the event is completed.

Holistic Response Analysis

Once the comprehensive information is collected from the

suppliers, the next step is to analyze supplier responses. With

technology, complex and in-depth analysis is made simple. Complex

analysis can be performed just by changing the parameters and

viewing their real-time impact. This can be demonstrated

graphically as cumulative scores vis-à-vis the questions revealing

the cumulative score of different suppliers.

Once desired scenario is created, it can be saved and sent to the team members for

their comments. There are multiple scoring best practises that can be followed to rank

the suppliers. They are,

Invite different stakeholders like CEO, CPO, COO, VP procurement etc. for

evaluating the supplier and assigning a score. All the stakeholders can share

their criteria for evaluating the suppliers and also compare various what-if

scenarios. With collaborative scoring is the feedback of all the concerned

stakeholders is readily available on a single platform, thus making it easier to

award suppliers.

Assign weightages to objective questions and get automated scores once the

suppliers have answered the questions. For instance, a buyer in F&B industry

can ask the suppliers' questions on various certifications like FDA etc. Weights

can be assigned to the answers – if Yes then the supplier is awarded a score of

5 and if No then they score 0. This helps in evaluating suppliers and

understanding if they meet the requirements/standards set by the buyer.

4. Leveraging and collaborating with supplier groups

1. Collaborative Scoring

2. Automated scoring

Step 3 –

Sourcing pros need to have the ability to invite selective group of suppliers that

seem most competitive for the sourcing project. For instance, inviting only

those suppliers with whom the company has done business with in the past or

the group of supplier with quality certification etc. Technology can also enable

sharing a platform wherein buyers and suppliers can collaborate from the initial

stage till the event is completed.

Holistic Response Analysis

Once the comprehensive information is collected from the

suppliers, the next step is to analyze supplier responses. With

technology, complex and in-depth analysis is made simple. Complex

analysis can be performed just by changing the parameters and

viewing their real-time impact. This can be demonstrated

graphically as cumulative scores vis-à-vis the questions revealing

the cumulative score of different suppliers.

Once desired scenario is created, it can be saved and sent to the team members for

their comments. There are multiple scoring best practises that can be followed to rank

the suppliers. They are,

Invite different stakeholders like CEO, CPO, COO, VP procurement etc. for

evaluating the supplier and assigning a score. All the stakeholders can share

their criteria for evaluating the suppliers and also compare various what-if

scenarios. With collaborative scoring is the feedback of all the concerned

stakeholders is readily available on a single platform, thus making it easier to

award suppliers.

Assign weightages to objective questions and get automated scores once the

suppliers have answered the questions. For instance, a buyer in F&B industry

can ask the suppliers' questions on various certifications like FDA etc. Weights

can be assigned to the answers – if Yes then the supplier is awarded a score of

5 and if No then they score 0. This helps in evaluating suppliers and

understanding if they meet the requirements/standards set by the buyer.

4. Leveraging and collaborating with supplier groups

1. Collaborative Scoring

2. Automated scoring

Step 3 –

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Step 4 –

Conclusion

Optimize Supplier Awards

The last step in the process is to award the contract to the most

suitable supplier after evaluating their capabilities in different

scenarios. The decision can be manual, based on the information

collected or technology can throw best the match depending on the

parameters set. It can be,

1. Automatically populating the lowest cost vendor from the lot

2. Spreading the purchase between the incumbent supplier and other new vendors

3. Shortlisting the best supplier meeting all the requirements

4. Showing combination of 2 or more best suppliers that generate maximum

savings

Some tangible and intangible benefits from automating the sourcing process are;

Better collaboration between the stakeholders

Reducing the burden of collating and consolidating supplier responses

Automating basic roles of event management like sending emails and notifications

Maintaining a repository of events

Managing vendors easily and effectively

Standardizing score calculations

Reducing event cycle time

Improving levels of transparency

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We are doing business at times where regulatory norms are getting stricter, suppliers

becoming more formidable and consumers pushing for lower prices. There is a need to

innovate, increase growth and enhance the brand. Procurement needs to evolve its

approach from a current focus on cost savings to adopting a more strategic value

driven approach. Investing in the right technology can help improve the process.

Technology can be a great enabler, what is really required is a broader set of

organizational capabilities and new skills for the new supply chain.

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At Zycus we are 100% dedicated to positioning

procurement at the heart of business performance. For

more than a decade we have been the world's most

trusted leader in Spend Analysis. With our spirit of

innovation and a passion to help procurement create

even greater business advantages, we have evolved our

portfolio to a full suite of Procurement Performance

Solutions — Spend Analysis, e-Sourcing, Contract

Management, Supplier Management, and Financial

Savings Management.

Behind every Zycus solution stands an organization that

possesses deep, detailed procurement expertise and a

sharp focus on being responsive to customers. We are a

large — 600+ and growing — company with a physical

presence in virtually every major region of the globe. We

see each customer as a partner in innovation and no

client is too small to deserve our attention.

With more than 200 solution deployments among Global

1000 clients, we search the world continually for

procurement practices proven to drive competitive

business performance. We incorporate these practices

into easy-to-use solutions that give procurement teams

the power to get moving quickly — from any point of

departure — and to continue innovating and pushing

business and procurement performance to new heights.

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AboutZycus

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