This week's eSourcing Wiki-Wednesday topic is 'Barriers to Sourcing Success'. An excerpt of the article is below, but you can also read the full article on the eSourcing Wiki by clicking here. Have something to add? The eSourcing Wiki is an open content community and you are invited to register and contribute to this resource, which benefits our whole professional community.
If you are interested in reading more about procurement compensation plans as a specific barrier to success, read today's blog post on "The Point".
"Inadequate sourcing competencies are costing mid-size (U.S.) firms more than 134 billion in missed supply savings opportunities annually."
From: Strategic Sourcing in the Mid-Market Benchmark:
The Echo Boom in Supply Management,
Aberdeen Group, December 2005
Before presenting a best practices checklist, here is a review of some success barriers commonly encountered in sourcing. Key barriers have been divided into three broad categories - leadership, team, and project issues. Although this is not meant to be a complete list, it defines the major barriers that must be addressed to allow a sourcing team to focus on clearing the path for strategic sourcing. Following the discussion on success barriers is an overview of success enablers.
Of our nine major barriers to success, three of them are tied to leadership. For sourcing to be successful, it requires a senior executive champion and support at the CxO level. Sourcing should be managed daily by a seasoned executive with deep sourcing experience and strong communication skills.
Leadership invisibility is the result of limited visibility of a senior sourcing leader - whether there is no C-level representation, or there is no strong, vocal leadership at the C-level. Most importantly, it affects the Sourcing Team's credibility across the entire organization. Leadership visibility can affect different areas.
- C-level visibility: A visible sourcing leader drives credibility across the entire company. A strong leader builds organizational structure, ensures Sourcing Team integration with other business units and actively manages a budget.
- Sourcing Team visibility: A strong Sourcing Team takes ownership of global sourcing processes, sets priorities and aligns priorities with the company through goals and objectives.
- Project team visibility: A strong project team takes ownership of the project, drives participation across the stakeholder community, manages progress and fights for results.
Contradictory Organizational Goals
The organization needs a clear, concise sourcing strategy that is consistent with the overall organization. A finance mandate of lower cost and an engineering mandate of higher quality cannot have equal weighting, since generally higher quality products cost more. Goals need to be:
- Balanced - not too many, nor too few
- Aligned - see above
- Measurable - save $20 million dollars, run 100 e-Sourcing projects
- Long-term - no 'goal of-the-month' philosophy
Motivated people are successful people - and financial incentives can be very effective, but only if they make sense. If a significant part of the Sourcing Team's compensation package is a bonus based on PPU or TCA reduction, chances are she will be attracted to the absolute lowest cost award, which might be inconsistent with overall corporate goals. To ensure goals are aligned, incentives should be tied to the individual, the team's success and the company's success.
Three of our nine barriers to success relate to team dynamics.
If the team (and / or organization) is resistant to change, it will not embrace today's efficiency-producing software tools or leverage best practice sourcing procedures. The team will be resistant to acquiring new skills needed to operate in the global, fast-paced economy. Rigidity manifests itself in multiple ways:
- A 'yes, but…' attitude: it will work great for the other commodity, but not mine
- Animosity to new ideas
- Reliance on old methodology
- Over-reliance on relationships (and incumbent suppliers)
Information Hoarding / Lack of Sharing
Lack of information sharing refers to the unwillingness of an organization to share goal and cost information among internal and external partners. Some organizations are so ultra-competitive that they undermine their own success by hoarding information about:
- Best practices for a market, commodity, incumbent communication strategies, etc.
- Supplier information - whether the supplier is a strong or weak partner
- Successes and learnings
Collaboration issues affect both internal stakeholders (users and influencers of a product or service) and external stakeholders (suppliers and business partners). Collaboration is often scary because it requires someone to give something away in order to get something. The fear is that the value given away is more than the value received. Additionally collaboration often involves a great deal of work and strong communication skills. However, the value collaboration provides is usually a better product (through collaborative design) and lower costs (through better procedures or material costs).
The last three of our nine major barriers to success fall under the project umbrella. Though bad data is generic to all business processes, it has drastic consequences on the sourcing process, therefore it is included in the list.
From a project perspective, having spend that is not meaningful means that the supply base is not interested in the business. It may mean that:
- The dollar value of the potential business is too small to be interesting to suppliers
- The quality standards are overly stringent and too costly to support over the contract duration
- The bidding and qualification process is too cumbersome and costly to warrant supplier participation.
Sometimes spend is meaningful not because of the overall value, but because the supplier wants to have a recognizable reference customer or the supplier needs to utilize excess capacity.
It is important to build sourcing projects with current, detailed and accurate data so that suppliers can provide correct quotes. Data must be correct and complete before making major buy decisions or Sourcing Teams run the risk of making costly mistakes. Examples of bad data include:
- out of date specifications and drawings
- incomplete specifications and drawings
- supplier owned specifications (where only one supplier can fulfill requirements)
- inconsistently distributed data where not all suppliers receive the same information bundles
Limited use of e-Sourcing Tools Strategic sourcing is a complex and involved process. Previously, Sourcing Professionals relied on traditional paper RFQs/RFIs/RFPs, spreadsheet-based project management, checklists, conferences calls, face-to-face meetings and email/fax communication and distribution methods. With today's fast-paced, global economy, Sourcing Professionals need access to tools that are equally fast-paced and globally accessible. E-Sourcing tools should enhance communication and improve access to information. E-Sourcing tools should not replace communication or relationships. Failure to use today's e-Sourcing tools results in longer, more expensive sourcing projects with reduced delivered-value. It is important to note that e-Sourcing does not equal auctions. Not all sourcing projects should use auctions, but many can. However, all sourcing projects can use the project management, RFx distribution and communication tools found in today's e-Sourcing applications.
eSourcingWiki is an open content community of strategic sourcing and procurement best practices. This wiki is intended to be a dynamic document that constantly adjusts and transforms to current trends and thought leadership in supply management. Iasta welcomes global contributors to assist in the ongoing documentation and knowledge building that is essential to creating useful information for supply management professionals.