Strategic Sourcing: From the Backroom to the Boardroom
Many CPOs have a new boss — the Board of Directors (BOD). While the pandemic accelerated this transition last year, the trend of strategic sourcing moving from the backroom to the boardroom started years ago in response to unmanaged risk from financial crises (like The Great Recession of 2008) and devastating natural disasters (like the 2011 floods in Thailand that resulted in 80% of the global hard drive supply drying up.)
The BOD wants you to deliver a sourcing and procurement plan that they can understand, believe in, and sign off on. Boards are also looking for a forensic analysis of what happened last year, including what went wrong, and, for many companies, a much clearer, deeper understanding of why weren’t we ready? Boards are asking CPOs: what are you going to put in place to quicken our response to something like this (critical supply disruptions, etc.) happening again?
Meet Your New Boss, Not the Same as the Old Boss
Meeting the expectations of the BOD isn’t the same as reporting to the operations teams and business units that have been the norm for procurement leaders for many years. Most organizations have looked at sourcing with a tactical approach, so sourcing has generally evolved to be aligned with lines of business as a supporting function. The sourcing function became distributed — separated from supply chain management.
In the past, multiple business units would all have their own requisitions that sourcing would fulfill: Find three suppliers, get three bids, make a choice. Sourcing would be at the bottom of a trickle-down process. The problem is this approach doesn’t support the enterprise-wide, risk-aware perspective that the BOD is looking for, demands, and requires.
What’s a Strategic Sourcing Professional to Do?
Today procurement leaders embarking upon strategic sourcing and optimization initiatives have access to a wide variety of data on suppliers that can be leveraged for more efficient and lower-risk sourcing and procurement, as well as to make better deals. The challenge is that there is so much supplier data available to evaluate, it can be near impossible to separate the signal from the noise without a strategy in place supported by modern sourcing optimization tools. In addition to getting the right platform and tools in place, CPOs looking to meet BOD expectations should:
1. Put the “strategy” in your strategic sourcing
Those who are serious about sourcing, centralize it enterprise-wide. Sync your board expectations with your strategic sourcing strategy by, first, getting to a single system of record. Break down the silos, integrate data systems and processes, and provide access to data and analytics that effectively give (near) real-time visibility into your resiliency and potential weaknesses, from an enterprise-wide, big-picture perspective.
2. Create a Center of Excellence and focus your talent on strategic value
Creating a Center of Excellence (CoE) around procurement and sourcing is another key to building the foundation for efficient strategic sourcing capabilities that deliver significant value to the business and can meet BOD expectations. A CoE enables you to increase the capacity of your best sourcing professionals. With the efficiency gains from new tools, the CoE can source a higher percentage of addressable spend, and when your best people source with the best tools, they find more savings and unlock more value.
3–5% of previously managed spend, according to experienced Fortune 100 CPO Walter Charles III,
while it can save up to 10–15% on previously un-managed spend.
When you have a single system of record and you have your best people working in your CoE, then you’re ready to roll up your sleeves and get to work on value-rich sourcing activities. Your top talent has visibility and collaboration tools with both internal and external information to drive better deals and more efficient sourcing.
3. Prepare for acquisitions and synergy savings
One unique expectation of the BOD is that when a company is acquired, they want to see synergy savings between the procurement operations of the two companies. It’s one of the possible advantages of an acquisition and reaping that potential value falls to the procurement team. The BOD wants potential savings taken advantage of, and, just as important, they want the data that shows the value of the procurement savings derived from an acquisition. This isn’t something the old (business unit or operations manager) boss ever asked of you.
For example, after an acquisition, procurement teams need the tools that allow them to identify which company (the parent company or the newly acquired company) has the lowest price for what the companies are buying, or which company has the higher quality or more reliable suppliers. This demands a centralized approach that can quickly integrate an acquired company’s sourcing data. Along these lines, a growing number of investment banks are using spend analysis to qualify and quantify the value of potential acquisition targets. Using the same tools, procurement teams can now model the supply chain impact of a merger or acquisition.
Advancements in spend analysis are giving some organizations more visibility than ever before, so CPOs can now see where to look for value-rich, strategic consolidation and rationalization opportunities. The data is available. Getting at them, normalizing them, and analyzing them require investment and the right tools.
4. Source the tools you need to exceed BOD expectations
Gaining efficiency and increasing the value delivered in sourcing for the largest of enterprises is like solving a Rubik’s Cube. It’s not necessarily that hard solving for one side, but it’s not very easy to solve it on all sides because there’s so many facets to consider. Each category that you are sourcing has its own challenges (like a different side of the cube). For some categories, you want to achieve more sustainability, for others the focus is on vendor competition or quality over price, etc. This complexity overwhelms manual and de-centralized sourcing approaches.
Why Successful CPOs Choose Coupa Sourcing Optimization
What if with a push of a button you could solve your most complex sourcing and procurement challenges and be prepared to deliver upon BOD asks? This is what Coupa Sourcing Optimization (CSO) makes possible. CSO is just the tool that can unlock your most complex sourcing challenges. It can be configured for sourcing in any sector and makes the most advanced sourcing techniques on the market available to all sourcing professionals.
