The focus of strategic sourcing and procurement has changed drastically in recent years. What was once a tactical, back office activity targeting cost reduction above all else is now a pivotal function that makes crucial contributions to supply chain management, strategy, alignment, innovation, risk management and much more.
At the same time, successive waves of supply shortages, price hikes and lengthening lead-times are causing severe supply constraints and related sourcing and procurement complications. These forces are narrowing profit margins, delaying production delivery and time-to-market, causing quality issues and eroding the bottom line. In fact, Jabil’s Global Supply Chain Trends survey reveals that some of the top business and technology challenges include trade and tariff implications, assurance of supply and materials and cost reduction. Download the full survey report.
Sourcing and procurement is an essential connection between a company and its suppliers, so it’s no wonder that industry professionals are being called on to apply the latest tools and technologies to continually reevaluate and improve processes; optimize relationships; extract ever more value from networks; and, ultimately, solve these problems.
Dramatic industry transformation requires organizations to accelerate the pace of change with regards to people and leadership. While evolving technologies and new business models are important to achieving sourcing and procurement goals, the real key is winning the war on talent.
In order to benefit from expert market insights, adept negotiating skills, fast decision-making and digital leadership, you must build a team composed of the very best and brightest. Superior sourcing and procurement professionals drive superior value — the kind that goes well beyond mere cost savings.
“Creating Value Through Procurement and Sourcing Efforts in Integrated Supply Chains,” a report by the Department of Supply Chain Management at Michigan State University’s Eli Broad College of Business, notes that the most effective supply chain leaders concentrate on value arrangements, knowing that total cost doesn’t always paint the full picture.
“The focus has shifted from how to obtain the lowest unit price — through negotiation and, often, adversarial win-lose approaches — toward a more holistic value approach,” the report states. “This shift started when firms began to recognize that focusing on the lowest unit price created suboptimal decisions when, for example, the lowest price supplier produced a poor-quality product or the cost of transportation and additional inventory outweighed the unit price savings.”
Smart supply chain professionals are uniquely positioned to add value and mitigate risk — such as shortages due to extreme market forces, instances of fraud, compliance challenges or quality issues — by building strong, collaborative relationships with suppliers, tapping into the latest technologies, improving service offerings, bringing innovation and honing asset utilization.
Unfortunately, too many organizations are losing the battle for skilled personnel. In fact, more than half of respondents to Deloitte’s 2018 Global Chief Procurement Officer Survey reported that their teams do not have the necessary skills to deliver on sourcing and procurement strategy: “What is clear is that there is a direct correlation between stronger leadership capabilities, higher spend on training and enhanced performance. This is also true of leadership at suppliers.”
The question therefore becomes, what do companies need to do in order to achieve their sourcing and procurement talent goals?
First, invest in hiring and engaging the most skilled and dedicated people in the world for your sourcing and procurement organization. The challenge here, of course, is that we are experiencing record-low unemployment coupled with an ongoing supply chain talent shortage. Keep in mind that outsourcing your procurement function to a manufacturing solutions provider, like Jabil, is always an option.
Rodney Apple, founder and president of supply chain recruiting and executive search firm SCM Talent Group, knows exactly how difficult it can be to recruit and retain top supply chain professionals. “Luckily, there are some low-cost, high-yield solutions that organizations can implement to attract and land the talent needed to keep their networks operating efficiently,” he writes in SCM Now magazine. Following are some of his recommendations:
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The latest technologies and solutions are likewise essential weapons for the talent wars. Larry Wood, finance operations director at Intuit, recently told the Harvard Business Review (HBR) that supply chain organizations must invest in the right tools to ensure a best-in-class sourcing and procurement team with the highest-caliber market insight, negotiation skills, analytical prowess and collaborative business-partnership skills. “Robust, intuitive solutions are essential to promote workforce productivity and retention,” Wood said.
The report found insufficient talent to be a significant barrier to digital transformation. This was largely due to problems associated with a lack of flexibility, particularly the inability to experiment with technology and rigid organizational silos. HBR asserts that legacy software systems, disparate spreadsheets and email chains block effective collaboration among stakeholders; make performance metrics difficult to measure; and chase away top talent, especially millennials. “In short, they drag the enterprise and sourcing back into the weeds of tactical administration, crippling success and the ability to reach full potential,” the report says.
Compared to many other business functions, the tools and processes that support sourcing and procurement efforts are too often viewed as nice-to-haves. However, giving your people what they need to succeed — whether a technology or training on a new procedure — opens a world of possibilities and brings significant returns. If talent is the heart of sourcing and procurement, effective technologies and processes are its lifeblood.
Modernizing your sourcing and procurement efforts can help ensure supplier continuity, facilitate effective decision-making that is based on effective data analysis, and enhance visibility and transparency. While the transactional elements are generally well-automated, the sourcing process itself has meaningful room for improvement — especially because it is the area with the potential to create the most value.
Numerous technologies and business models are emerging and unlocking sourcing and procurement opportunities. Top-performing sourcing and procurement teams are using data, collaboration tools and digital supply chain tools to produce meaningful benefits.
Data analytics is essential to enabling your teams to maximize the wealth of information available and help them perform. Sourcing and procurement organizations generate enormous amounts of data that can be used to gain insights to advance their effectiveness. Whether internal, external, structured or unstructured, data can enhance spend analysis, bring products to market in a timelier manner, improve contract management, add valuable market intelligence and fortify risk management efforts.
In sourcing and procurement, going it alone may seem like the obvious approach. However, the dangers of taking this position outweigh the benefits. Adopting a collaborative focus is vital to effective processes. Internally, professionals from myriad functions of the organization should participate in meetings and planning sessions. This leads to a better understanding of sourcing and procurement objectives and priorities, business needs and the plans that support them.
Externally, the value of supplier collaboration cannot be overstated. It demonstrates to your partners that you respect them and value what they bring to the table. Even better, it makes it much more likely that you will always be able to access product.
According to research and advisory firm Ardent Partners, “Suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain.” Report author Andrew Bartolini says changing the construct of the traditional buyer-supplier relationship and working to build more collaborative relationships requires the investment of both time and resources and a deliberate effort to reframe or overhaul old views.
“Enterprises that have begun to pursue this collaborative approach are already reporting that they are finding more supplier improvement and innovation opportunities and that their suppliers are more likely to invest in the relationship,” Bartolini adds. “These indications signal larger opportunities ahead as more enterprises begin to adopt collaborative sourcing strategies.”
Additionally, the advent of the digital supply chain creates some noteworthy new plans and tactics. Digital supply networks connect global supply chains, drive essential insights and augment results, positively influencing pricing, infrastructure, transportation management and quality assurance. Some interesting advantages here include e-sourcing decision-support tools for online negotiations, auctions and reverse auctions.
Don’t be intimidated by front-line innovations such as AI and chat bots, blockchain, IoT, machine learning and robotic process automation (RPA). These tools are not intended to replace sourcing and procurement professionals; rather, they are designed to enrich their roles while eliminating repetitive and mundane tasks. In this way, the digital supply chain enables your talented employees to actually do what you hired them to do: build relationships with suppliers, advance their knowledge and gain experience.
To help with your sourcing and procurement transformation, look to a partner that can address both people and technology challenges — one with a vast, deep partner network and proven capabilities. A solid relationship enables you to devise strategies that create consistency, become much more agile, ensure you have the right set of suppliers, develop more integrated methods and boost confidence in both process and outcomes.
Perhaps most importantly, change is difficult. A skilled partner can help you adapt, react and make thoughtful decisions, such as when you are coping with sudden demand shifts or changing bills of material.
And you will be in good company. According to the Jabil report, a growing number of companies are outsourcing at least part of their sourcing and procurement activities. With market conditions like the ones supply chains are facing today, these organizations are enjoying meaningful advantages.
Current market forces are causing severe shortages, price fluctuation, extreme cycles, trade uncertainty — the list goes on. Today’s supply chains are dealing with a massively complex and tough environment. Rising to the challenge requires strategic partnerships, the highest possible efficiency levels and ever-increasing agility. Most importantly, it demands that you arm yourself with the best talent and give them essential tools and training. Success is all about zealously investing in your sourcing and procurement organization.
Insights from over 300 supply chain decision-makers at OEMs with more than $500 million in revenue on how they are managing their supply chains in light of market forces.