The article below is written by John Calia on March 10, 2012
Historically, sourcing organizations are mainly focused on securing sources of supply to deliver value across the enterprise through appropriately negotiated quality and pricing terms. Organizations that utilize sourcing are better positioned to realize cost efficiencies that can be leveraged to support company initiatives from increased cash/working capital than those that are not.
So it comes as no surprise that driving down costs has a positive effect on the bottom line and can have an impact faster than increasing revenues since it is easier to save money than to make money, especially in a declining economy. Unfortunately, there are limiting factors sourcing organizations face that lessen the results that could be achieved. Some example of these factors could include:
- Large percentage of spend not under sourcing purview resulting in a limited supplier landscape and/or embedded suppliers with outdated, and possibly unfavorable, terms
- Limited category management expertise on selected categories with a large amount of spend as percent of total supplier spend
- Lack of process, tools, and templates to support consistent sourcing methodology
- Lack of sourcing technology solution and/or limited expertise with running events (e.g. eRFx, auctions, etc.)
Capgemini offers sourcing as one of its many available services. The Capgemini Strategic Sourcing method is a defined process with detailed activities and built-in tollgates for governance. This defined process can drive success through its application of leading practices in support of the sourcing organization’s strategy. The detailed process can be summarized in four components:
- Spend Analysis: Define category characteristics and develop a baseline to clarify the main components of category spend (i.e., spend by department and suppliers) to develop baseline to calculate savings
- Market Analysis: Compare internal, categorized spend trends with the market for prioritization of sourcing activities based on financial benefits
- Supplier Strategy: Combine the spend and market analysis to determine the best value approach to balancing cost, risk, and efficiency to optimize value
- Supplier Selection: Deploy strong process and tools to drive selection of the best qualified suppliers and extract maximum value
Organizations where the business strategy is aligned with the sourcing strategy is a forward-looking approach that recognizes sourcing potential that can contribute beyond cost savings and can create sustainable value for the enterprise by improving profitability, increasing supplier collaboration, and supporting new product development. Therefore, those sourcing organizations that leverage leading practices are better positioned to demonstrate how sourcing can drive value and create competitive advantage.