If you're going to bring Procurement to the attention of the C-suite and demonstrate value beyond cost-cutting measures, you've got to recognize the benefits inherent in adopting strategic sourcing.
But to truly wring the most benefit out of strategic sourcing, you must include e-sourcing. However, implementing an e-sourcing solution does not mean you've automatically adopted strategic processes; e-sourcing is a tool. No more, no less. While simply switching from email and Excel to a more streamlined software solution will benefit your organization regardless, the underlying processes have to be there in order to see the true advantage e-sourcing can bring to the table.
The Benefits of Strategic Sourcing
First and foremost, there are cost benefits, and secondly, strategic sourcing can also help Procurement leverage its value to help the organization meet a broad range of business objectives. For example, strategic sourcing can help organizations achieve their sustainability and socio-economic goals by purchasing from small businesses or meet “green” purchasing requirements. Furthermore, the push behind strategic sourcing initiatives is often the reduction of supply chain risks. Strategic sourcing helps organizations become more proactive in their sourcing decisions, which mitigates risks since they can be taken into account ahead of time rather than being dealt with on an ad-hoc basis.
Overall, strategic sourcing converts Procurement into a more valuable function. Organizations now consider a broader range of KPIs. For instance, cost can be taken into account but by looking at the big picture: the total cost of ownership. Supply Chain Quarterly states that a product’s acquisition accounts for about 25-40% of the TCO. Strategic sourcing allows you to consider the factors accounting for the balance of that TCO – transportation, warehousing, maintenance, inventory, etc. Take inventory, for example. It’s tied linked to net working capital, so a lower inventory level means better NWC and an improved cash flow.
The Benefits of E-sourcing
The Hackett Group performed an e-procurement poll recently and found e-sourcing led to improvements in the following areas:
- Compliance to indirect preferred contracts increased by 20% on average.
- Number of orders processed per buyer increased by an average of 38%.
- Data management efficiency increased by 15% on average.
Hackett also states that as more organizational spend comes under management, companies will see an increase in savings due to gains in compliance, cycle time, and data management. For example, for $1 billion in spend with 75% under management, savings of $3,500,000 can be expected, with the majority of savings coming from increased compliance.
E-sourcing is an essential part of procurement best practices. According to a recent survey by Aberdeen, 68% of best-in-class organizations use e-sourcing. With all the benefits that have been shown over the past 20 years, any company striving to achieve procurement savings must implement an e-sourcing solution.
5 Tips for Getting Upper Management On Board
Implementing strategic sourcing processes involves change management. Adding an e-sourcing solution on top of that is essential to getting the most out of your new sourcing processes. Since it involves more investment and approval from the budget holder, here are some tips to help you get upper management on board with e-sourcing adoption.
1. Explain your pain
Oftentimes, the C-suite may not realize how lack of current technologies is affecting you and your team’s everyday performance. After all, they only see the end result of your work and not what it took to get there. If you can show that the final results will be noticeably better, than they will likely be willing to invest in the process improvements needed to get there.
2. Show them the money
As much as we like to talk about Procurement playing an essential role in achieving business objectives from sustainability to diversity, cost is still one of the greatest motivating factors. Low-cost SaaS solutions have broken down the barriers to e-sourcing for all organizations and especially for SMBs, which means increased ROI. Furthermore, streamline procurement processes improve efficiency, allowing buyers to get more out of the RFP process.
3. Follow the leaders
Why wouldn’t your organization want to join other best-in-class organizations in the ranks of e-sourcing adopters? There’s a reason those organizations are best-in-class and their sourcing procedures show it. Learn from the best, and don’t get left behind with the rest.
4. Try it out
Many of the current SaaS e-sourcing solutions offer free trials. Take advantage of it. Run an RFP or two and have your team test it out. There’s no better way of ensuring user friendliness than actually using the software in question. Once you’re tried it, you’ll have the firsthand experience, which will make your case much more persuasive.
5. Leverage employee buy-in
There’s power in numbers. It’s easier to convince upper management if you can show that you’ve already gotten your team on board. It means they’ll have less work to do when it comes to ensuring high user adoption, and it shows your own dedication to the project since you’ve taken the time to persuade others and have done so successfully.
This article was first published on LinkedIn.