Welcome and introductionOpen to other ideas here, but I planned to open by polling the audience, for the buyers in the audience, by a show of hands…“How many sellers in the audience use linkedin in some fashion to identify or network with potential buyers”?“Now the same question to the buyers in the group…how many of you use linkedin in your buying efforts in some way”?In looking at the strategic sourcing and “what’s next”, we at Ariba have worked extensively with Ardent Partners, a fast growing independent research and consulting group. Ardent points to 3 key requirements for any company interested in better managing their sourcing function: 1) You must have broad and deep visibility into your spend with the ability to take action on the information this spend provides to build sourcing pipelines, better monitor compliance, and so on.2) Processes must be reviewed and improved for greater efficiency and effectiveness in the sourcing process, and3) Improved collaboration is a must. The rate of innovation in business today is unrivaled in any time in history. The reality is that innovation is taking place outside of your company’s four walls – in within your supply base. You must be able to harness this innovation to build and maintain competitive advantages. It isn’t just about savings anymore. CPOs are realizing this…we’ll talk about that in a few minutes…
But in discussing collaboration, we have to understand that social media users have surpassed email users and by a growing margin. It’s not that people are communicating less and that is why email usage is declining - they are actually communicating more but just through an increasing amount of channels. So the era of email isn’t over per se, it’s just evolving as all communication channels have throughout history. The digital landscape just makes those changes happen a lot more quickly, and distinct communication channels will become blurred.We must keep this in mind in our daily jobs especially with younger workers coming into the workforce. The opportunities to consume information are growing which is good and bad. We must consider the best ways to find the useful information.
So let’s talk more about collaborative sourcing and the collaborative sourcing framework. As we discussed earlier, it is important to remember that while technology can absolutely enable collaboration (think facebook, twitter, google+, etc.), although we’ll start with technology, a collaborative sourcing framework goes far beyond software.That said, collaborative – or strategic – sourcing usually include some version of four distinct areas:Spend analysis to aggegrate, classify, and enrich, and analyze spend for strategic sourcing decision-makingSourcing ranging from simple rfx’s to auction tools to potentially complex configuration and optimization toolsContract management to assure the terms agreed to during the sourcing process are recorded and observed in requisitioning and invoicing,and Supplier management encompassing both information management – gathering info on the supply bases – as well as performance management – to monitor and track how your suppliers are performing and take resulting and/or corrective action.
Spend analysis success requires looking beyond the tip of the iceberg. Spend analysis or spend visibility programs have been around for over 10 years now. PPG was at the forefront of the discipline having reduced their supply based by 90% and taking out 10% of their overall costs, remains an Ariba Spend Visibility customer today. However, companies looking to invest in spend analysis program today need to look beyond the traditional scope limited to commodity classifications – or “what” you are buying from “whom”. While always important, spend analysis today offers much more.Supplier Enrichment: (cite Reed Elsevier)Negotiation leverage Financial health & risk ratings Diversity & sustainability Market IntelligencePrice & industry indices Online communities Peer benchmarkingSpend Management integration (Nalco and others)Additional source dataBudget & forecast data Balance of trade Additional invoicing details
Sourcing extends beyond just automating RFQ’s and quotes. eSourcing has been in existence for more than 15 years and companies like Tata Motors, British Airways, have executed thousands of sourcing projects addressing billions of dollars in spend driving more than $200M in negotiated savings to the bottom line with reduction in transaction costs by 40%.However companies looking to tackle “Complex categories” beyond the “low hanging fruits” need to incorporate a Category management approach using collaborative tools paired with ready access to a networked community, decision support tools, knowledge management/ best practices and real-time market intelligence to drive optimal decisions pivoted against Price, Performance and Risk. In addition many organizations likeAs such an effective Sourcing solution offers: Achieve Sustainable Savings – Results and Enablement (Tata Motors, BA, Emerson) Seamless access to global suppliers to help drive savings (Winn-Dixie, Tupperware and OSU Medical center) Total Information Visibility (HP, BP) Performance Measurement (Sonoco, Pentair) Improved Collaboration and Risk Mitigation (BP, GD)
Effective contract management is obviously a need for both the buy and sell-sides. For procurement, after sourcing more effectively, the next logical place to examine to assure the negotiated savings hit the bottom line is effective contract management. Sales meanwhile, needs to focus on any area of the sales cycle that can be more efficient to speed deal closure. For sales people, only bad things can happen during contract negotiation. Increasing collaboration and transparency in the cycle helps make sure the right people are engaged at the right time.Regardless of whether procurement or sales though, when viewing the business case and potential value for automating the contracting process, the process must be viewed holistically. While it is true, contract management automation delivers value through reduced administrative costs, improved visibility and other benefits, the real value in procurement contracting comes from an integrated process that considers and enforces contract terms during requisitioning and invoicing. One the sales side, Ariba and salesforce.com recently enlisted the help of IACCM – the leading contract management trade association for contracting professionals – to research the challenges of sales contracting and potential value of automation. The results were astounding. The results of a survey showed that those who had integrated their sales contracting process with their sales automation tools showed across the board improvement in areas like opportunity management, process management, fulfillment and renewals. Ariba customer Community Health Systems reduced their sales contracting times by 43%. Others have improved their renewal management by 25%. And IACCM research shows a potential revenue impact ranging from 5% to 7%.
Supplier Management:1) In today’s economy, it isn’t a question of if your suppliers may be at risk of failing. It’s a matter of which suppliers will fail and when? 2) According to industry reports, business bankruptcies were up 75% in 2008. And they are expected to increase another 35% this year. 3) This creates risk for the CPO, the CFO and even the CEO. If a key supplier fails, a major link in the supply chain is broken which could lead to delayed shipments or total production shut downs. This obviously impacts costs and revenues.4) Having information on supplier financial viability and operational performance is critical to assessing exposure to risk, but it won’t give you a full picture of supply chain risk and isn’t enough to help companies mitigate potentially negative effects on their business.5) What’s needed is a 360° view of a supplier’s health, details on underlying supply market risks, and an efficient process for acting upon this intelligence and monitoring and managing performance and risk on an ongoing basis. 6) In order to effectively manage supply risk, companies must have tools to: • Analyze the financial health and stability of suppliers using detailed financial information and third-party risk profiles (Pentair)• Create detailed supplier scorecards and risk profiles to determine category and industry threats (HP, Sonoco Products)• Examine commodity and underlying supply market trends to discern potential impact of supply constraints and price fluctuations across your top- and sub-tier supply chains (BP)• Investigate the stability of raw material supply and possible effects of trends such as market consolidation and capacity constraints• Quickly discover, assess, and on board new supply partners, ensure their information is accurate and up-to-date, and continually measure and improve their performance.And none of this can be done with software alone. It takes a combination of technology, category knowledge, market expertise and services. And that’s exactly what many companies like HP, Pentair and Sonoco Products have done to continuously monitor and mitigate supplier risk.
After technology, the second pillar of the collaborative sourcing framework that we want to discuss is capabilities. I think we would all agree that none of our organizations have ALL they knowledge need across all disciplines of the organization. Where needed, this in-house expertise must be augmented.
When considering how you can better manage your sourcing – or any other commerce strategy – think about the areas where you may require this assistance to be successful. These capabilities can range from:Business Commerce Enablement Services to help you determine where your existing areas for opportunity lie as well as how to build an optimal business case that sets you up for success. Best Practices can range from everything from deployment, to change management, to ongoing usage. Learn from the experts and, most important, do so with the flexibility you need. After all, the degree to which you may need these capabilities varies over time. An “always on, on-demand” model gives you the piece of mind to know help is a phone call away. And lots of other opportunities exist as well. Training and support for example assure you get your team trained and question answered in a timely fashion.Technology won’t solve all your problems. The people in your organization will.
Finally, let’s briefly discuss the role that a larger ‘community’ plays in the collaborative sourcing framework.Going back to our discussion about social, the outlets that exist to learn from and share with others is unrivaled at this point in time. Some of these outlets – like Ariba Exchange – exist within the Ariba community. We manage others like many of the LinkedIn groups you may subscribe to. And many others are outside of the Ariba ecosystem. The point is, knowledge is power and to collaborate more effectively, you need this knowledge at your fingertips.“The love you give is equal to the love you take”
We at Ariba, attempt to share this information we have in many outlets – twitter, facebook, and Ariba Exchange
Ariba Exchange being our online community…
Collaborative Sourcing - Keys to Unlocking Greater Value