1. Ariba Knowledge
Nuggets
“To survive
Lessons Learned from the Recession—Strategic Sourcing and thrive,
While the past 12 months represent the most-trying economic climate since
the Great Depression with hardships experienced seemingly around every
businesses
turn, from a strategic sourcing perspective the recession can best be
summed up in one word—opportunity. With commodity prices plummeting
need to reset
almost across the board and suppliers desperate for business, the strategic the way they
sourcing environment has been primed like never before in most of our life-
times. But how long will these conditions continue? Experts disagree, but think about
most concede that the shoots of a recovery continue to become more
prominent. No one can be certain of when we will come out of this recession- business
ary period and move back into times of economic prosperity.
commerce .”
The question is—what have we learned?
As of early 2010, unemployment was exceeding 10 percent and Hackett
Group research suggested that less than half of these lost positions will be
re-staffed—meaning that enterprises will have to do more with less . Those
who embrace this new normal state of affairs will prosper through what will
almost certainly continue to be an uncertain economy.
Spend Management Transformation goes beyond sourcing status quo.
• Leaders across all industries realize that they must move beyond status quo sourcing to a complete transformation of how
they manage spend.
• New Normal requires a paradigm shift on how “Sourcing” needs to be approached and executed.
More projects
Value to
Organization
Increased activity driven by:
More spend under mgt from
tech-enabled efficiencies
Outsourced tactical functions
On-demand resource • Agility
augmentation
Sourcing 3.0 • Information
Volume of Sourcing
Improvements driven eSourcing
• Networked community
by: Sourcing 2.0 Better execution
♦ Standardized results driven by:
processes Supplier discovery networks
♦ Pipeline Continuously-updated
category intelligence
Management
Adoption Improvements Guidance from online
communities, peers, experts
driven by:
Increased
competition via
Execution online bidding
Sourcing 1.0 More accurate
bidding
information via
technology
Better Savings
Savings rate per project

2. 10 Lessons Learned
Based on external research and input from Ariba customers and prospects, presented
here are 10 ways to re-examine your strategic sourcing organization. In some areas,
you may be well positioned to succeed. In others, you may have work to do.
1. Bring more spend under management
2. Reconsider “best-in-class” spend analysis
3. Align your organization with your goals
4. Expand your category coverage to include non-traditional “sacred cows”
5. Leverage automated supplier discovery tools
6. Employ information to be more agile
7. Reexamine existing sourcing tools and processes
8. Mitigate risk and manage supplier performance by implementing an
enterprise-wide supplier management program
9. Work more collaboratively with key suppliers to jumpstart innovation
10. Consider the benefits of an integrated spend management platform
Bring more spend under management
Given economic conditions, many organizations sought ways to bring more spend under
management during the recession. However, this effort often became a catch-22 since many
companies were concurrently dealing with layoffs and did not have the process and
technology infrastructure in place to capitalize on the opportunity.
“What if you Ask yourself, what is your primary source of fuel for your sourcing pipeline? For example, if
the answer is that expiring contracts drive which commodities to source next, this is clearly not
could a best-in-class process. Instead, sourcing pipeline building must have a component targeting
new commodities to source resulting in additional spend under management beyond the low-
eliminate up hanging fruit that is easily identified. Aberdeen Group research states that each new dollar of
spend brought under management results in 5% to 20% savings—a compelling statistic. Such
to 30% of an effort requires visibility into spend data across often-disparate business units and data
your buyers sources. This complex effort requires either manpower to manually aggregate and compile
spend data or an automated spend analysis tool that makes sourcing opportunity identification
time and prioritization a repeatable, standardized process.
identifying
suppliers?”
Reconsider “best-in-class” spend analysis
While sourcing savings identification continues to be the number one objective of
organizations deploying spend analysis programs, the information best-in-class solutions can
provide today extends far beyond commodity classifications. In fact, leading spend analysis
solutions today offer “one-stop shopping” when it comes to the information needed for
strategic sourcing decision-making including supplier enrichment attributes that offer a myriad
of information on a company’s supply base including financial information, risk ratings,
diversity details and, more recently, suppliers who are certified as green due to pro-
environmental practices. Possibly even more importantly, spend analysis today should include
information providing visibility into sourcing market dynamics. This information can include
price indices, peer benchmarks, or results-oriented savings figures as well as the ability to
load custom information that may be applicable to certain industries. The addition of these
components makes not only savings opportunity identification possible, but also savings
prioritization. Before engaging with a spend analysis provider, be sure to assess their
capabilities not only in commodity classification, but also these other areas.

3. Align your organization with your goals
As stated earlier, The Hackett Group research states that of all the jobs lost during the recessionary period, less than
half will be replaced. This requires strategic sourcing organizations to do more with fewer resources. But is your sourcing
organization aligned with your goals? If not, reaching those goals will undoubtedly be far more difficult if not impossible.
To illustrate this point, think again about your sourcing pipeline building approach and goals. Many organizations have
business objectives to bring ‘x’ percent of additional spend under management, but fail to reach this goal year after year,
or in actuality fail to meet the goal, but claim that they do through creative accounting that results in managing more
spend in the same categories. Quite often, these organizations are destined to fail due to their strategic sourcing organ-
izational make-up. An organization will not discover new and different categories to manage by chance when commodity
managers are given a finite number of commodities to manage. Even when these individuals are tasked with identifying
new categories to manage strategically, they are often not provided the tools and training to do so effectively. Therefore,
they continue to focus on the areas that are in their comfort zone. Instead of this bottoms-up approach, someone in the
organization must have the goal of increasing spend under management as a primary goal. This individual is charged
with identifying new commodities to manage and will seek the processes and technology required to make this happen.
Another area for potential sourcing savings often ignored or underutilized is the opportunity in indirect services and
goods. The complexity here is that organizational alignment with commodities is suboptimal since indirect categories
tend to be smaller in general, and because the commodities/opportunities are from a larger pool that is more dynamic.
This requires a more-flexible and agile organizational structure focusing resources where they are needed on a weekly,
daily or even hourly basis.
Expand your category coverage to include non-traditional
“sacred cows”
Even with signs of improvement, the effects of a recession as impactful as this one will
continue to linger. Banks and other financial institutions have implemented stricter lending
policies that will limit resources for both corporations and consumers. This will continue to
impact overall demand, especially for many indirect services, which companies might not
consider a necessity. This decline in demand creates great opportunities for buyers of
indirect services, and Ariba has seen a shift in focus from direct to indirect spend categories.
“Success will
Ariba’s customers are focusing on opportunities in their indirect spend categories, executing
sourcing efforts in categories such as temp labor, MRO categories and consulting services.
require
Additionally, categories that have typically not been addressed through sourcing programs
are now receiving attention; examples of this include legal services, relocation services and
implementing
other HR-related projects.
effective and
A large number of procurement organizations have not only identified millions of dollars in
savings, but also worked with the spend owners to get a majority of the identified savings to
efficient
reach the bottom line—contributing significantly to the profitability of the organizations they
serve. But in a recessionary period where CFOs conservatively estimate either flat or
business
negative growth, it is now possible for Procurement to play a direct role to become a “silver
lining” by contributing even more to growth by expanding category coverage to include off-
commerce
limit sacred cows like legal, marketing, professional services and employee benefits/
healthcare. While in the past where it was difficult to convince spend owners to strategic
processes.”
source these categories, the “new normal” provides an immense opportunity for Procurement
professionals to place these categories under a competitive strategic sourcing process.
Procurement’s Top Priorities
• Strategic sourcing efforts
• Reducing Risk
• Driving price concessions
• Upgrading talent and skills

4. Leverage automated supplier discovery tools
According to Aberdeen Research, “Enterprises dedicate the most time to—and are challenged most by—sourcing
activities that occur before and after the negotiation with suppliers”. Supplier discovery is the unaddressed pain point in
the sourcing process and consumes significant resources—nearly 30 percent of cycle time. Both in good times and bad
times, sourcing professionals acknowledge that savings opportunities are missed when too few suppliers are involved in
the sourcing process. To drive increased savings, often sourcing teams have to search farther, wider and deeper to
identify and invite new global sources of supply that can participate in the strategic sourcing projects. The good news is,
new suppliers eager to win your business are everywhere. The challenge, however, is finding and preparing them in time
for your negotiation. While many tools exist to help buying organizations find suppliers, discerning whether those
suppliers can meet their needs often poses a significant challenge. Search engines such as Google generate plenty of
names, but supplier information may be inaccurate or out of date. Attending tradeshows is time-consuming and
expensive. The unique requirements of each working relationship can make peer recommendations uncertain. Lack of
knowledge about new markets or categories can put buyers at a disadvantage, resulting in costly mistakes during
supplier selection and negotiations. Hence the need to use automated supplier discovery tools with access to a large
number of active high-quality suppliers across multiple spend categories becomes all the more critical in driving
competition for your business from suppliers—thereby resulting in sustainable savings to the organization.
Employ information to be more agile
One of the effects of a recessionary downturn is that there will never be unlimited resources to use on any initiative.
Instead, organizations will need to increase both their agility and access to information to respond more quickly and
effectively to situations as they arise. Organizations will enable this agility by better anticipating fluctuations in market
conditions.
Agility: With the over-used "do more with less" mantra only accelerated by the
recent economic downturn, it's increasingly difficult to support keeping in-house “Success
a host of different resources that, while valuable, may only be needed sporadically.
Instead, organizations need to be able to have "on-demand" access to additional will require
resources (human, knowledge and technological) to deal with new categories,
event-driven projects, spikes in workload, and internal knowledge gaps. By competing
maintaining cost-effective access to the incremental help your organization needs,
you can have the tools you want at the price you need. Leading companies will more
enable this agility by better anticipating fluctuations in market conditions. They
will balance internal capabilities with external solutions and expertise delivered effectively
via flexible, technology-enabled service models, such as SaaS and business
services delivered in the Cloud. to drive
Information: The dramatic swings in most commodity markets over the last 12- revenue”
plus months are only the most -visible reminder that all the technology and
process in the world is no match for understanding where a market is going.
Rather than quarterly market reports that are outdated before their ink is dry,
Sourcing professionals need to tap into the many online resources available to
track markets, get strategy advice, find new suppliers, and generally stay on top
of things. Combining this on-demand access to both information and agile
resources with their existing capabilities in both technology and
process, best-in-class sourcing organizations can create the
opportunity to drive additional value on every project and maintain
their lead over the competition. They will balance internal
capabilities with external solutions and expertise delivered via
flexible, technology-enabled service models, such as SaaS and
business services delivered in the Cloud.

5. Reexamine existing sourcing tools and processes
Though the current global downturn has affected all different industries irrespective of where they are located and how
big or small they are, it also provides a tremendous opportunity to re-ignite sourcing and other cost containment
initiatives. Cost reduction initiatives are prudent in good economic times. But in the current environment, they are critical
to survival. Companies that recognize and accept this and implement solutions and processes that enable them to
effectively manage every dollar they spend will be well-positioned to weather the storm and effectively compete in the
new state of normal—whatever that may be. Secondly, as planning cycles shrink and future growth trajectories are
harder to predict, it becomes all the more relevant for Procurement organizations to leverage strategic sourcing tools
and design processes that prioritize speed to implementation as much as savings.
Mitigate risk and manage supplier performance by implementing an
enterprise-wide supplier management program
Sourcing does not end with the contract and compliance activities. As a supplier and buyer begin to build their
relationship, both parties need to remain satisfied with the other’s performance. For suppliers, this means maintaining
service levels, committed timelines and quality metrics. For buyers—especially in the case of direct materials
procurement—this means living up to promised levels of quantity and accurate and timely demand forecasting. By
bringing together both qualitative and quantitative performance data, buyers and suppliers can engage in meaningful
reviews and planning sessions. Though creation of the contract is one of the foundational elements for all supplier
management interactions, achieving operational excellence, however, would require a robust performance monitoring
process of key suppliers. Though the economy shows sign of improvement, supply risk caused by rising input costs,
swings in energy prices and insolvency of partners or suppliers are unlikely to go away in the near future. Hence it is
imperative to have a comprehensive supplier management program that not only builds risk management into everyday
performance management processes, but also provides additional benefits ranging from better visibility into key supplier
information and performance to lowering costs of ongoing supplier management.
Work more collaboratively with key suppliers to jumpstart
innovation “Success
As the Hackett Group points out, stronger relationships with strategic and critical suppliers are will require
needed especially coming out of the recent downturn. Best-in-class procurement organizations
realize that driving sustainable cost reduction in the supply chain would require a more- proactively
collaborative relationship with their strategic suppliers who can help with innovation, demand-
generation and creative cost savings projects. It is also important to note that suppliers can pick managing /
customers they serve and it is imperative for buying organizations to become valued customers to
their suppliers. mitigating
risk.”
Consider the benefits of an integrated spend management
platform
Something that many organizations fail to realize is the benefit that a cross-functional spend management platform can
deliver. When building a business case, most organizations turn to analyst metrics and benchmarks in order to attempt
to quantify the value of implementing technology to assist in their strategic sourcing initiatives. However, what most fail to
realize is that the best-in-class metrics provided assume an integrated platform across spend management functional
disciplines. For example, most sourcing and procurement organizations are interested in monitoring compliance in order
to assure that negotiated savings are hitting the company bottom line in the form of savings. It is usually understood that
in order to assure this compliance, procurement and even contract management systems are required in order to track
negotiated terms, record those terms in a contract, and assure that contract is adhered to in the procurement-to-pay
business cycle. In order to do this effectively, however, technology that is integrated is a baseline requirement—unless
you are interested in often- complex third party integration that materially changes the cost equation of the ROI model.
Therefore, when turning to technology in spend management, whether going with a small niche provider, a best-in-class
vendor, or a monster ERP, think beyond your requirements today. Think about longer-term goals and the provider’s
ability to address them in order to build an optimal model.