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Top 5 Sourcing Organization Myths - Busted!

Posted by Lynn Barras on Sep 29, 2016 9:55:30 AM
Lynn Barras
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Globe World Hand Sourcing Organization Myths Busted ProcurementOne of the nice advantages of consulting for many Fortune 500 companies is the amount of perspective we gain. Nitor has helped build industry leading sourcing organizations in almost every business sector.  Over time, we've taken note of the most common sourcing organization myths in the field, and we're going to bust them one by one...

Myth #1 - An eSourcing Tool is going to transform your company

Don't get me wrong, an eSourcing tool can be a powerful way to organize your sourcing process.  As compared to sending an RFP through a Word document and housing a sourcing process in Excel, the benefits of using an eSourcing tool include:

  1. Organization of the sourcing team
  2. Sourcing events become reportable and those that were already reportable can become more robust
  3. Improved communication with suppliers
  4. Reduced biases/prejudices by sourcing agent toward certain suppliers
  5. Frequent tasks can be streamlined
  6. Some tools help build a necessary three-way wall between sourcing agents, suppliers and stakeholders

Even with these benefits, a sourcing tool alone is not a miracle worker.  The real secret to a great sourcing organization lies in having an effective, logical, and productive sourcing process and time for the sourcing team to adjust to this process.

This is why Nitor puts heavy emphasis on sourcing process transformation and change management when our clients ask us to implement a sourcing tool.  We stay with our clients after the implementation and run real sourcing initiatives with the sourcing agents to make sure we pass on the very best practices.

Myth #2 - My 12-step sourcing process is better than your 5-step sourcing process

There is no point in arguing that one sourcing process is better than another.  It's true that some sourcing processes are more detailed than others and some are grouped into more stages or phases than others. What makes a sourcing process the "best", however is:

  • How much it considers the organization's principles
  • How flexible it can be toward unique and frequently sourced categories alike

Each sourcing project is going to embark upon essentially the same phases, no matter what you call them.  I'll admit, we in the industry like to give these phases fancy names, but in layman's terms this is what we're doing:

  1. Spend and Baseline Data Gathering
  2. Project Initiation and Stakeholder Support
  3. Sourcing Event Content Creation
  4. Running the Sourcing Event (i.e. RFIs, RFPs, RFQs, Reverse Auctions)
  5. Supplier Response Analysis
  6. Decision to Down-Select Suppliers
  7. Presentations, Site Visits, and/or Negotiations
  8. Supplier Award Recommendation
  9. Contracting and SOW
  10. Transition to Category Owner or Implementation

The secret in the industry is that if you do these ten things in one way or another, you are on the right track.

Myth #3 - The longer your sourcing project, the more you're going to save

Full-blown strategic sourcing projects take a long time, and they can save your company a lot of money.  But not every sourcing initiative needs to be large and complex.  Some sourcing initiatives warrant shorter processes and shorter timelines.  You won't necessarily save more by spending many months on sourcing low-volume items, specialty products with very few suppliers, or categories that have already gone through a strategic sourcing initiative a year or two ago.  If not all sourcing projects will require the same amount of work, why would sourcing organizations treat them all like long projects?

There is a fine line between capturing robust data for reporting purposes and needlessly stringing sourcing projects through complex tasks when a simpler set of tasks might do just as well. In the past, Nitor has implemented pairs of sourcing processes, one focused on complex, strategic projects and another on quick wins.  This flexible approach has worked well for our clients.

Myth #4 - Timelines are determined by category complexity

On the flip side, there are many things that can bog down a project's timeline.  The complexity of the category does play a part in the length of the project, but more often than not, the two biggest determinants of a sourcing timeline are:

  1. The quality of spend and baseline data immediately available to you
  2. The scheduling and availability of internal subject matter experts and project team members

Surprising, right?  Many companies overlook the priority of good spend analysis practices because it doesn't directly yield savings, but without it sourcing projects can be held up for weeks or months as companies piece together internal spend data or send out data requests to suppliers and try to match them to internal data.

At the end of the day, sourcing is also a people-orientated task and we are subject to the schedules of stakeholders, sourcing teammates, and even bidders/suppliers.  We've seen many optimistic project timeliness go south because they did not take scheduling and holiday periods into account.  When we lead a project, we factor these things in because we'd rather pinpoint a realistic timeline than continually change the schedule.

Myth #5 - Stakeholders always know what's best for the sourcing initiative

Stakeholder are non-core team members of a sourcing project who either provide some sort of expertise, have a stake in the project results or need to be informed about the project.  Stakeholders are necessities because without them the project has little support and visibility in the company.  However, sourcing organizations sometimes treat their stakeholders like core sourcing team members who need to be involved in day-to-day decisions.  Just like having too many cooks in the kitchen, this can be time consuming at best and disruptive at worst.

Our philosophy is that stakeholders have an interest in the outcome of the sourcing initiative and should be updated formally on a periodic basis, but they shouldn't - and often don't have time to - be involved in the oversight of the project itself.  We recommend that core team members of the sourcing initiative (i.e. those that gather the data, create the content, and interact with the suppliers) be kept to a small group that can reach agreements efficiently and have the time and effort to see the project through to the end.

Reality

Sourcing is not rocket science.  It is a discipline that is dominated by common sense, a commitment to long term gains and a touch of public relations.  As long as your sourcing organization has a set methodology that works well with the categories your company sources, you'll be just fine.

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Topics: strategic sourcing, procurement consulting

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