Archives for March 2016

Shorten Your Sourcing Cycle Times

There isn’t a procurement group in the world that wouldn’t like to have more resources. As the leader of procurement organizations at Bristol-Myers Squibb, WellPoint and Biogen, most members of my teams would often be working on 4-6 active projects at the same time with many more in queue that desperately needed resources. But this is not an insurmountable problem. There are many ways in which to increase the efficiency of the procurement organization without sacrificing the overall quality of the sourcing process and I share just a few things that I have seen to be incredibly impactful over my time in this profession.

1. Set Your Sourcing Limits Appropriately. There will be many purchases by your clients that will not have an impact on the company, whether that be from a cost perspective or from choosing the very best supplier. Those smaller purchases can be handled by the use of P Cards or by setting simple parameters for others outside of procurement to make intelligent supplier selection decisions. More and more companies are also putting Buying Groups or Tailspend Management processes in place either internal to the organization or more likely through outsourced arrangements with leading suppliers who have well-established capabilities and a presence around the world. This can easily generate as much as 5-10% savings on things that would likely not be addressed by procurement. Don’t sweat the small stuff when your resources should be managing the sourcing process for the more impactful buys of the company. Put your attention on that 20% of the spend that will have 80% of the impact.

2. Onboard Sourcing Projects Appropriately with Your Clients. I see too many projects started without fully understanding the key requirements of the internal client or developing the most appropriate and impactful strategy for the company. More time spent upfront will eliminate stops and starts, taking time out of the entire sourcing cycle time and more importantly, making sure that the right supplier is selected that can meet both the immediate needs of the business as well as intermediate and longer term needs. A critical part of this onboarding process is to ensure that you have buy in up the chain of command of your client group. All too often, a project approaches completion only to have a more senior member of the client organization weigh in with something that completely changes the scope or direction of the project. Get them onboard early, get their perspective and set them up as executive sponsors that can support making the project a success. Sourcing cycle times can easily be reduced by an average of 10-20% through a well thought out onboarding process.

3. Use Technology to Your Advantage. I often think back to when I was appointed to lead the Global Sourcing & Supplier Management Group at Bristol-Myers Squibb. Having just completed several years managing the worldwide SAP implementation project, I was a big believer that technology could dramatically transform the procurement organization and improve our efficiency and effectiveness. There were a number of things that we did at BMS and elsewhere to use technology to our best advantage.

a. We got control of the data through the development of a global data warehouse for spend management and used this in conjunction with great spend analytics software that helped us properly classify our spend. This allowed us to properly address spend on a regional or global basis and truly understand the magnitude of the sourcing opportunities in front of us. The ability to drill down by category, country and supplier helped us set appropriate strategies with the appropriate underpinnings of the historical spend and to rationalize the supply base.
b. Deploying eSourcing tools is essential. Electronic RFX and auctions can not only reduce sourcing cycle times, but will also provide the opportunity to significantly reduce costs. The process of preparing and administering RFIs or RFPs can take much of the time of a procurement group. But with the use of technology, this administrative burden can be reduced. With the right tools, RFXs can be prepared more quickly by using templates with standard sections and with the ability to better submit requests to suppliers, track supplier responses and ultimately analyze responses and proceed to the best supplier selection. And in this day of transparency of pricing in our personal lives through the use of the internet, reverse auctions provide this same capability for businesses. Not only do you ensure you are getting the best market pricing (my experience shows incremental pricing benefits of 5-10% on average), but you are also able to take 4-6 weeks of negotiations time out of the process. And this frees up resources to work on other critical projects. Leading companies are using reverse auctions on as much as 50% of their sourceable spend. If done properly, including only suppliers qualified to win the business, and with a system having the right functionality, this can be the most impactful thing a procurement group can do to improve their performance.

While I would never say that you should sacrifice speed for quality, there are many things that can be done to make our procurement organizations much more efficient. If your organization is operating at less than an 8 to 1 ROI (benefits over expenses), or is unable to support your clients as a result of lack of resources, take a hard look at how you can improve your efficiency using some of the ideas I have presented and expand the benefits that your organization contributes to your company.