The Sourcing Solution: A Step-by-Step Guide to Creating a Successful Purchasing Program


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She must be willing to entertain new concepts and ideas from suppliers she may not have been comfortable dealing with in the past. The sourcing specialist should also be willing to study all aspects of her current vendor base, and look forward to their meeting the future goals and needs of the company several years hence. The design and technological capabilities of the factories rivaled the best that the United States had to offer. The Far East mentality was to invest in those tools and equipment that directly affected and improved the efficiency of the production line.

If a computer could be used to design a more effective machine tool, to improve the interchangeability of required tooling, to speed up the manufacturing line, or contribute to improved quality and reduced defects, there was no question about making the investment. Not only would it be working to attain the best total cost for the company, it would be working with suppliers to ensure continued, ongoing success for them as well. Of course you would. Such a process can yield enormous benefits for buyers, including reduced inventory levels, faster time to market, significant cost savings, and reduced development costs.

Not all suppliers can meet the high standards demanded in this purchasing environment. Some studies indicate that companies that adapt strategic sourcing have lowered the number of suppliers they use by an average of nearly 40 percent. What characteristics make a good supplier, then? If the supplier is willing to partner, then analysts have identified several traits that good suppliers share:.

Analysts indicate that suppliers receive some benefits in the emerging purchasing dynamic as well. Reduced paperwork, lower overhead, faster payment, long-term agreements that lead to more accurate business forecasts, access to new designs, and input into future materials and product needs have all been cited as gains. Other observers, meanwhile, point out that some buyer-supplier relationships have become so close that suppliers have opened offices on the site of the buyer, an arrangement that can conceivably result in even greater improvements in productivity and savings.

Of course, companies are not going to form such "partnerships" with all of their suppliers. Some form of the traditional purchasing process involving bidding and standard purchase orders and invoices will continue to exist at almost every company, and especially at smaller companies that do not have the financial weight to make large demands on their suppliers. In addition to strategic sourcing, there are other methods companies can use to improve purchasing.

One is creating cross-functional teams that involve purchasing personnel in every stage of the product design process. In the past, purchasers were not involved at all in the design process.

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They were simply instructed to purchase the necessary materials once a new product had been created. Now, purchasers and suppliers are increasingly included from the start of the new product process to ensure that the products needed to create product are readily available and are not prone to quality problems.

Driving superior value through digital procurement

Suppliers tend to be experts in their field, so they bring a large knowledge base to the design process that would otherwise be missing. This can help prevent poor designs or manufacturing mistakes. These teams have broken down barriers and helped abolish the old manufacturing method that was known as the "over the wall" method of productions—each business unit would work on a project until its portion of the job was completed.

It would then "throw the product over the wall" to the next functional team that was waiting to perform its part of the manufacturing process. The new cross-functional teams often include personnel from purchasing, manufacturing, engineering, and sales and marketing. Purchasing teaches other members of the team how to deal directly with suppliers, cutting the purchasing personnel out of the loop.

Tools that identify and create value

For many companies, especially those with global manufacturing and service footprints, value leakage is still one of the main untapped sources of procurement impact. They will create predictive order configurations for repeat buyers, reducing processing time and encouraging the use of standard order templates, for example. Companies that buy hundreds of thousands of SKUs and that struggle with price and contract term variability across the SKU spectrum should consider automated leakage management solutions. If a computer could be used to design a more effective machine tool, to improve the interchangeability of required tooling, to speed up the manufacturing line, or contribute to improved quality and reduced defects, there was no question about making the investment. Purchasing is now seen as more of a strategic function that can be used to control bottom-line costs.

This is important in that it eliminates much of the time-consuming work that buyers had to deal with soliciting bids, creating purchase orders, etc. Just-in-time JIT manufacturing became one of the biggest trends in all facets of industry in the s.

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JIT companies maintain only enough inventory to manufacture the products they need in the very near future. Parts are ordered on a near-continuous basis and often go directly from the loading dock to the assembly line. The benefits of this system include reduced inventory, improved quality, reduced lead time, reduced scrap and rework, and reduced equipment downtime. JIT purchasing requires a nearly degree change in purchasing philosophy. Traditional purchasing meant building a supplier list over time by constantly adding new suppliers, spreading purchases around, and maintaining higher inventory levels in case demand for a product soared or quality from a supplier dipped suddenly.

JIT purchasing demands that buyers narrow their supplier list to a chosen few who can deliver high-quality products on-demand and in a timely fashion. The JIT purchasers pays a fairly high cost in homework and vendor relations to achieve the "just-in-time" optimum. In addition to meeting specifications, suppliers must have the ability to make frequent, on-time deliveries and to provide very large volume commitments or single sourcing arrangements.

Tools to prevent value leakage

linawycatuzy.gq: The Sourcing Solution: A Step-by-Step Guide to Creating a Successful Purchasing Program (): Larry Paquette: Books. "Book review--The Sourcing Solution: A Step-by-Step Guide to Creating a Successful Purchasing Program," Industrial Organization , EconWPA.

One large industrial company was able to reduce its total air freight costs by 25 percent using a commercially available multi-variable freight optimization solution. Cleansheet and should-cost analyses. Cleansheet tools comprise a work-flow application to build calculation sheets, several expert tools to estimate different cost areas like machining, logistics, or overhead cost, and a set of databases containing template libraries and factor costs e. It is not uncommon for these tools to reduce the cost of products or services by up to 40 percent, while also improving time-to-market for new product designs.

Early involvement with internal customers and cross-functional cooperation to jointly challenge demand, specifications, and processes is critical for good sourcing. Digital platforms that foster exchange, transparency, and interaction can facilitate that collaboration. A number of large software vendors already provide generic collaborative spaces including file repositories, collaborative workspaces, audio- and video-conferences, and calendaring.

We expect to see the emergence of solutions that are specifically geared toward the requirements of strategic sourcing. These include consolidating demand and specification data, and vendor insights, analyses, and strategies across diverse BUs and functions, allowing for timely and effective interactions to challenge what, where, and how to source.

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Many of the elements of this approach already exist, including web-screening solutions designed to improve supplier risk management, and on-line supplier networks and communities. In the future, we expect to see a convergence of such solutions, ultimately delivering the kind of multi-tier supplier visibility that companies can only dream of today.

Electronic sourcing tools have existed for more than a decade and have evolved significantly over time.

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Most vendors now offer suites that include several of these tools, along with spend analytics and other functionality. We expect the most significant future developments to come from automated analytics and user interface improvements, which is in our experience the single biggest factor to foster adoption. Future solutions will offer much more sophisticated analyses like bid-comparisons or best-of optimizations, fueled by comprehensive, category-specific bid sheets, templates, and analysis sets.

The increased power and ease-of-use of these solutions will significantly drive up the penetration of digitally managed and optimized sourcing events.

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Comparable to business collaboration tools, these applications will facilitate a better exchange and interaction between external partners, including suppliers tier-1 to tier-n , research partners, and intellectual property providers. They will work like a social network for the company and its supply base, enabling better end-to-end cost optimization, faster interaction times, and broader access to external innovations. Tools to prevent value leakage include ERP and transactional systems to manage the procure-to-pay PTP process, and performance management systems.

Here, several new opportunities arise from the use of digitization and big data analytics. PTP process work flow. Procure-to-Pay solutions were among the first digital tools available to support operational and tactical procurement activities. Since their introduction in the early s, they have evolved significantly in functionality, covering an increasing scope of the end-to-end process, from sourcing, to payment of the suppliers, and extending from requisition management to adjacent areas, like expense management.

The PTP tools of the future will use the vast amount of order and invoice transaction data available to enable value generation in core operational activities. They will create predictive order configurations for repeat buyers, reducing processing time and encouraging the use of standard order templates, for example.

They will also automatically identify potential suppliers for categories not covered by contracts or catalogues, supporting operational buyers by creating more competition. Systems will interconnect with those of suppliers to transmit digital POs and invoices, eliminating the need for invoice matching: The receipt of goods and services will be automatically tracked using radio-frequency identification RFID , quick-response QR codes and other automated techniques. And all of this will increasingly happen in the Cloud, allowing ubiquitous connectivity and significantly reduced processing time and effort, while driving user adoption by Procurement and the wider business.

For many companies, especially those with global manufacturing and service footprints, value leakage is still one of the main untapped sources of procurement impact. Advanced compliance management tools will act as an ever-vigilant watchdog, scanning every procurement transaction, both from structured, i. Purchases performed through the wrong channels will be identified ex-ante in the PTP tools or ex-post during invoice payment.

Advanced compliance management will be especially useful in the case of large, high-value outsourcing contracts, which are often governed by complex legal frameworks and dozens of individual service line agreements and KPIs. Future systems will automatically extract all these conditions from contracts through machine reading and match them against continuous streams of invoices, supplier activity, and performance data. Category managers, buyers, and business owners will then be alerted about compliance breaches and their business impact.

The value at stake here is huge, considering the level of leakage of the life of a typical contract, and the high level of manual effort currently applied to contract governance. Supplier performance management systems will be integrated with the supplier x-ray capabilities described above. Such systems will deliver real-time insights on supplier performance, gaps, along with anticipated cost, quality, or delivery-time issues.

Similarly, they will also link to automated scope and service level monitoring systems and offer integrated claims management functionality. The availability of this information will allow category managers to act more quickly and decisively when problems occur, and will give them the tools they need to encourage—or force—suppliers to improve.