Don’t Be Scared of Strategic Sourcing… In conversation with Richard Waugh
Recently, Hailey Lynne McKeefry, Managing Editor at EBN had a chat with Richard Waugh, Vice President – Corporate Development at Zycus.
The 45 minutes chat took many an interesting turns, discussing different aspects of procurement like risks of strategic sourcing, supplier management, or concern over conflict minerals etc.
Excerpts from the chat:
Participant: Richard, as a place to start, can you say something about the current state of strategic sourcing apps? Who is the sweet spot user for these? What pain points are they trying to address?
Richard: Sweet spot for strategic sourcing apps is for those enterprises that have high volume, long-cycle and or complex sourcing processes. Take for example manufacturing companies – they may have very large RFP packages consisting of k’s of line items and 000’s of suppliers. We have enabled high tech manufacturers and others to conduct this complex sourcing project and analyze the total cost models across all these dimensions in record time – 1 month vs. 7 months
Participant: Can you give us some examples of how an electronics business might change and improve using this type of application?
Richard: Sometimes the value is more focused on standardizing the process and simplifying supplier collaboration to enable higher throughout and greater velocity of sourcing projects to generate more savings faster. Risks of strategic sourcing don’t change with a software tool – just easier to analyze them risks are: can supplier deliver? Can we assure supply? Do we know the market well enough to know we are getting best total cost?
Sourcing tools help manage supplier risk and gain market insight to assure supply and best total cost these solutions are becoming more widely deployed – usually replacing spreadsheet based tools which break down at higher volumes
Participant: Better definition than smart shopping for strategic sourcing?
Richard: Strategic sourcing goes well beyond smart shopping – it involves a lot of homework before the negotiation event takes place on line – analyzing the supply markets and assessing supplier capabilities for instance – negotiation price is last step in a rigorous evaluation of total cost
Participant: Richard, any advice on how organizations can identify a solution that is best first for their needs?
Richard: To your question, these are powerful Enterprise apps that offer a variety of capabilities, including e-sourcing, contract management, supplier base management (SBM), and spend analysis. Some vendors add additional capabilities: category management, supplier directories, commodity risk management, and business services, for example. It lets you track negotiations and purchasing agreements and do very deep analysis on procurement. I hope that helps.
Another way to look at strategic sourcing is that the sourcing professional is a “category manager” – like a brand manager in retail, the Sourcing or category manager needs to know everything going on in the supply market – capacity, pricing trends, new technologies etc. – Too much info to track without a sophisticated process and tool
There was a question about risk with shorter cycle times – risk is actually in not realizing cash flows generated from savings sooner due to time value of money
Participant: How do these apps help find sourcing opportunity?
Richard: Spend analysis can highlight categories where supply is fragmented and can be rationalized to gain volume leverage – can’t do it without granular (category and item level) spend viz
Trend in Supplier Management is to forge closer partnerships with fewer suppliers. Strategic sourcing is a methodology for determining the best suppliers to partner with. Best-in-class electronics and high tech companies are using sourcing and sourcing automation as a competitive advantage. Those that aren’t may lack category expertise – but technology is not a barrier – tools are easy to use and because of Saas model, pretty easy to own
Participant: With the concern over conflict minerals, knowing where not just components but minerals in the components come from and proving you’ve spoken to all your suppliers down the chain about it is going to be the requirement. Can these apps help with some of that work?
Richard: Yes these apps help find new innovations (cell phones with imaging device) and manage compliance with Conflict Minerals. Starts with visibility – at multiple tiers of the supply chain – tracking your supplier’s supplier.
Supplier Management includes not just negotiating price with suppliers, but Supplier Development programs with strategic partners to collaborate on technology innovations and share in the benefits. Supplier Management tools can be used to track which suppliers have certifications and which do not – giving preference to those which have worked hard to obtain them. Key to keeping up with pending and future regulations is to gain visibility now. Visibility means having a SIM (Supplier Information Management) repository centralized and tracking Supplier Performance Measurement against your KPIs. buyers are more concerned with supply risk than ever before – they are not after the lowest price, in fact they seldom award to the lowest bidder – they are focused on TCO
Which is why a SIM (Supplier Information Management) component that tracks certificates and ensures they are up to date is a key piece of the puzzle?
It is imperative that these strategic sourcing systems accurately reflect the certifications that vendors have. There is a big difference between a vendor saying they are compliant and a vendor actually producing a cert. Compliant vs. Certified is a big difference.
By collaborating with engineering, procurement can ensure that suppliers meet design and quality standards before ever negotiating the contract – so level the playing field first.
To read the entire conversation, click here.