Thank you to everyone who has taken our annual CPO Rising survey – we’ve decided to close the survey tomorrow night so if you have 12-13 minutes (average survey taker time), I’d be personally grateful. Procurement practitioners (not consultants, etc.) only.
The Intersection of Data and Sourcing
Prior to my time as an analyst, I was a strategic sourcing consultant, or more specifically, an eSourcing consultant, since I always used an eSourcing tool. Before I go too far into this article, let me once again remind every Chief Procurement Officer, that if you have engaged a team of consultants to drive some sourcing projects for you, they are not doing “strategic” work if they are not using an eSourcing tool and you will be paying them again very soon for repeat work… since you are not using an eSourcing tool to capture their insights, strategies, and results. Please stop doing this.
It’s been about 15 years since I ran my last eSourcing project. But, for a few years, anyway, it (eSourcing) was a primary part of my job, so much so, that I ultimately managed more that $500 million worth of sourcing projects covering direct, indirect, and services categories. eSourcing is also how I became hooked on procurement – the exciting nature of rapid ‘deal-making’ was a shift from the very large and complex (and slow-developing) capital market transactions that I had worked on in my immediate post-MBA career.
Services Spend – A Mini Case
Many of the classic challenges faced by strategic eSourcing teams were encapsulated by a project I managed for a Mid-western-based global manufacturer (Fortune 500 company). I led a team of consultants on a project to teach a new eSourcing customer how to use the tool by managing several for them. Without looking at their spend in any detail (something that would have taken literally six months), we identified the usual ‘quick win’ categories and set about a plan to prioritize and rapidly execute the projects. One favorite category was contingent workforce which back then really meant temp labor. It was estimated to be a high dollar spend category and with plants and distribution centers located across the US, it was also an opportunity to consolidate spend.
Challenge #1 – No Contracts
This category spend was not managed by the global procurement team, so a call went out to all locations requesting copies of all existing contracts. Call received, call not answered. The only contracts available were the six in-hand at corporate HQ where the CPO was based. These six contracts accounted for a very small percentage of overall spend (Also, six!… at a single location). No contracts = no supplier names or contacts, no pricing detail, and no SLA information.
Challenge #2 – Poor Spend Data
Make that almost no spend data. The company’s adoption of eSourcing was the first supply management solution deployed, so all supplier transactions were captured in a variety of ERP systems. The primary ERP used by 30-40% of the company was able to show some level of “temp” spend, but it was not really clear how accurate the spend data was or more importantly, what the spend data was. The IT unit was able to pull a vendor master and some big, national suppliers were identified – I should note that almost none of the local suppliers were.
Challenge #3 – Spotty Supplier Relationships
The idea was to have a conference call with all of the category owners at each site to get the name, contact, and email address of their temp labor suppliers. We received info from about half the locations. Our team then crafted an email explaining what we were doing and why and if they could be so kind as to send us the current contracts and the past three years of orders (the historical spend). Having to request this info while simultaneously explaining that the information they would be supplying would be used to craft a competitive eSourcing RFP was, as you’d imagine, not ideal, but the responses were both surprisingly fast and extraordinarily helpful.
Challenge #4 – No Buy-in
While it took much, much longer than it would have if the contracts and spend data were available, a strategic eSourcing strategy was hatched and executed. The event was a huge success and identified savings north of 20%, an amount that would pay several times over for the installation (this was pre-cloud) of an entire suite of supply management solutions. Problem was though, the procurement team wasn’t empowered to force the plants to use the newly executed contracts. The stakeholders had eventually gotten somewhat engaged when they saw the eSourcing RFP draft so their favored suppliers could be invited, but they uniformly stonewalled every discussion with the CPO to consider making any changes… Huge savings identified, small savings implemented, many lessons learned as to the value of data visibility and sourcing.
Direct Materials Sourcing
With direct materials sourcing, many would assume that the challenges faced by the team in the mini-case study above would not exist. Many would be wrong. Data challenges are rampant on the direct materials side and solving them really is low-hanging fruit. Simply managing the data elements in a complex bill of materials (BOM) can be a huge challenge that can adversely impact a product’s price and when it hits the market. Fortunately, there are newer eSourcing solution providers, like LevaData, that are focused on direct materials sourcing that can remedy these challenges.
LevaData offers a solution that captures product, supplier, and contracted pricing and can integrate it into a BOM or new sourcing project. Essentially, LevaData helps its customers manage its data to make better sourcing decision. Customers are also part of a network that allows participants to view, share, and leverage the data of others on the network. LevaData combines the network data with third-party data and its experience to advise its customers on sourcing strategies and sourcing opportunities. In the near-term, LevaData is applying newer ‘Industry 4.0’ technologies like AI to its advanced platform and planning to introduce predictive capabilities soon.
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Tagged in: Big Data, Chief Procurement Officer, Data, eSourcing 2.0, Innovation, Monday First Thing, Sourcing, Spend Analysis