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.

Traditional sourcing practices/approach

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).
n Non-standard processes n High cycle time n Lack of ability to manage complex and

Traditional sourcing processes presented the organizations and sourcing executives with many challenges, like;

diverse categories
n Negotiation slippages n Inability to manage multiple sourcing events n Inability to leverage knowledge from

successful sourcing events

n Lack of overall visibility into the sourcing

process
n Lack of scalability

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.

Factors mandating change in 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.

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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:
Top Strategies for CPOs Who Have Not Prioritized Collaboration Strategy Source more Improve policies and processes Implement cash management strategies Optimize current systems and processes Increase investment in technology Percent 52.5% 30.5% 28.8% 28.8% 23.7% Source - Ardent Partners

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.

Sourcing Process Leveraging Technology

Event approval and edits Creation of the event (RFI, RFP, Auction) in Excel/Word Avoid back & forth by Leveraging Technology Emailing the Word/Excel to Supplier with timelines Collaborate with others

View & Score responses

Analyze Responses

Suppliers fill responses and ask questions

Award Shortlisted Suppliers

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.

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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;
n A cumbersome and time-consuming process for managing sourcing events n Large number of items (8000+) and suppliers (200+) to be managed in a single

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

months to just over a month

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

items and suppliers

n Easy modeling of complex cost breakdowns that allows sourcing of all categories n Quicker ROI realized based on savings generated from competitive sourcing

events

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;

1.

Use standard templates

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.

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3.

Ask the right question

As said by Peter Drucker, My greatest strength as a consultant is to be ignorant and ask a few questions. 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.

4.

Collect comprehensive information

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.

Step 2 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,

1.

Pausing an event
Ability to pause a live event helps for instance, to make an announcement or add a new supplier among others.

2.

Extending an event
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.

3.

Re-opening an event
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!

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Sourcing pros need to have the ability to invite selecti

seem most competitive for the sourcing project. For in

4. Leveraging and collaborating with supplier groups

those suppliers with whom the company has done bus

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.

the group of supplier with quality certification etc. Tec

sharing a platform wherein buyers and suppliers can c

stage till the event is completed.

Step 3 Holistic Response Analysis

Step 3 Holistic Response Anal

Once the comprehensive information is collected from the

Once the comprehensive information is co

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 the cumulative score of different suppliers.

suppliers, the next step is to analyze supp

technology, complex and in-depth analysis

graphically as cumulative scores vis--vis the questions revealing

analysis can be performed just by changin

viewing their real-time impact. This can be

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

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

graphically as cumulative scores vis--vis

the cumulative score of different suppliers

Once desired scenario islike created, it can be saved and Invite different stakeholders CEO, CPO, COO, VP procurement etc. for sent to
their criteria for evaluating the suppliers and also compare various what-if

1.

Collaborative Scoring

evaluating the supplier and assigning a score. All the stakeholders can share their comments. There are multiple scoring best practises tha

the suppliers. They are, scoring is the feedback of all the concerned scenarios. With collaborative
stakeholders is readily available on a single platform, thus making it easier to

1.
2.

award suppliers.

Collaborative Scoring

Automated scoring

Assign weightages to objective questions and get automated scores once the suppliers have answered the questions. For instance, a buyer in F&B industry

Invite different stakeholders like CEO, CPO, COO, VP p

evaluating the supplier and assigning a score. All the s

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.

their criteria for evaluating the suppliers and also com

scenarios. With collaborative scoring is the feedback o

stakeholders is readily available on a single platform, award suppliers.

2.

Automated scoring

www.zycus.com Assign weightages to objective questions and get auto

Step 4 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. 2. 3. 4. Automatically populating the lowest cost vendor from the lot Spreading the purchase between the incumbent supplier and other new vendors Shortlisting the best supplier meeting all the requirements Showing combination of 2 or more best suppliers that generate maximum savings

Some tangible and intangible benefits from automating the sourcing process are;
n Better collaboration between the stakeholders n Reducing the burden of collating and consolidating supplier responses n Automating basic roles of event management like sending emails and notifications n Maintaining a repository of events n Managing vendors easily and effectively n Standardizing score calculations n Reducing event cycle time n Improving levels of transparency

Conclusion
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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About Zycus

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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