Best In Class Sourcing: 5 Actions That Put Your Money to Work

In today’s economic environment companies must take control of how their money is being put to work.  Although many believe they are already doing this by slicing headcount, restricting or eliminating bonuses and cutting operational costs, these short term cost cutting initiatives are just that, short term.  They generate profits but often lead to damage over the medium and long term because they lack the strategic focus needed to generate real revenue growth.

The Pros & Cons of Cost Cutting

Cost cutting is not all bad. It is actually a very good survival mechanism, as well as a method used for continuous improvement initiatives. But too often it lacks sustainability and undermines the mechanics of business. Think of the consequences random cost cuts may have on your organization. When business leaders & department mangers panic, they cut costs without a view on operational impact, efficiencies, supply chain or processes. Cost cutting in this context can destroy your business.

It used to be that a company’s procurement group was responsible for strategically cutting costs, optimizing processes and sustaining ongoing improvements with key suppliers. This remains an effective approach, however many of those procurement professionals have been among the skilled personnel cut from organizations, or they are not heavily involved in the overall cost cutting process.

What Happened to Strategic Profit Building?

I believe there is a primary reason why most companies have abandoned Best In Class Sourcing as a key strategic profit-building element:

It worked when they launched it – and now it doesn't; maybe the function has become too expensive.

OR

They are tired of it because it’s grown too large in headcount.

The strategic sourcing trend has fizzled because companies forget to teach their employees why they are driving best in class sourcing efforts.  Today the typical approach focuses on teaching people how to use the procurement tools – the mechanics - then repetition sets in. It ends up being all about negotiations and price reductions – and everyone suffers…..the suppliers get beat up and the buyers benefit – for a little while.

Often when things start to go south, leadership neglects to set any vision for their employees on why a sourcing function is important or what purpose they are indeed intended to serve.  Without some connection to the business strategy, the sourcing methodology just flounders in the mass of daily tasks and responsibilities without purpose or success.

Taking Advantage Of Best In Class Sourcing

Many companies utilize experienced procurement and supply chain resources successfully, but in order to take full advantage of these resources, companies should turn to this expertise to do much more.  They should be the ones leading company wide cost cutting efforts, not individual department leaders.

5 Actions That Put Your Money To Work:

1. Establish a vision and an infrastructure for your procurement efforts.  It’s more than training, projects and negotiations.  It’s about the basics:  driving price down, ensuring on time delivery and quality when the supply chain needs it. 

2. Dive deeper:  Drive cost out of both the supplier and the buyer’s supply chains.

3. Quantify inefficient lead times or delivery times and the negative impact it has on your business.

4. Drive back to basics in developing and managing supplier alliances for world class growth of both the supplier and the buyer. 

5. In the end, procurement needs to touch on all of these fundamentals that have somehow been lost in the economic upheaval.

Maybe the answer is to re-brand Procurement.  There are too many definitions and perceptions out there about what it does and whether it lasts or not – if it even exists in an organization in the first place.  But those of us who have deployed a sourcing function or strategy and used it successfully know that it is a powerful function that will always work because of its objectivity. 

Using best in Procurement and Supply Chain practices puts a company’s money to work, and executives should get excited about that.  There are so many great experts in the field these days, and companies have the pick of the litter to drive their program effectively.  Just remember to fold it into a larger strategy of driving world class quality, delivery and price/cost balance - and don’t get hung up on the sourcing tools themselves. 

It’s great stuff - we just need to get rid of the old opinions and perceptions that have occurred over time.  

Written by Julie Brignac, Principal, Vantage Partners, and a member of the firm’s sourcing and supply chain management practice.  She has worked as a transformational leader in globally matrixed organizations, with over 20 years of strategic and operational experience in supply chain management, international outsourcing, sales and operational planning, procurement transformations and business process improvement initiatives. She is the inventor of The RoSS Model®, an end-to-end project benefit financial validation process that helps organizations predict, report, and reconcile project benefits to financial statements, specifically in the supply chain arena. Julie is an Associate Adjunct Professor for the Undergraduate School of Supply Chain Management at the University of Maryland, as well as an Adjunct Professor of Online Learning for the Whitman Business School for Syracuse University. She holds an undergraduate degree from the University of Virginia, where she was a Bailey Tiffany Scholar, and a graduate degree in Business Administration and International Business from the University of Maryland University College. She is a certified Six Sigma Master Black Belt, Lean Expert and a Certified Purchasing Manager by the Institute of Supply Management.

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