The multi-pronged challenges that companies have been facing over the past year have come together to create a near-perfect storm of events that have threatened the existence of even the most iconic of companies — such as J.C. Penney, Neiman Marcus, Hertz, Stein Mart, Ruby Tuesday, California Pizza Kitchen, and many more now-bankrupt businesses — and compromising an untold number of firms that together represent links in each company’s supply chain.
While the U.S. economy has broadly come roaring back, the business landscape continues to be fraught with peril from all sides:
- cybercriminals are working overtime to launch increasingly sophisticated attacks;
- heightened compliance and regulatory mandates are evolving with dizzying frequency, making it difficult for even the most well-intentioned employers to stay abreast of the
- ever-increasing amounts and types of personal and financial consumer data are routinely being captured in electronic transactions (just waiting to be hacked by those cybercriminals we mentioned earlier);
- and many companies’ cybersecurity measures have been made vulnerable by the major shift to remote work prompted by COVID-19, making consumer behavior especially unpredictable.
It is in this topsy-turvy business environment that strategic sourcing experts must attempt to make sense of it all, forecast, analyze, plan, procure, and deliver products and services in a timely fashion, even while as the ravages of the pandemic ebb and flow across the globe.
Careful orchestration of the entire process from beginning to end will net the carefully projected profit margin only if every link in the chain falls into place properly.
Forging a Chain for Strength and Endurance
Working to capture the best materials at the lowest price from the most reliable suppliers is only the beginning of strategic sourcing. It is a multi-faceted, highly collaborative and creative set of procurement processes that draw from the fields of data collection, market research, spend management and analysis, negotiation, and
contracting of goods and services. Along the way, a supply chain is created. Done right, this chain is robust and possesses amazing tensile strength to withstand all manner of business environment challenges — although the two-month global shutdown beginning last March due to the coronavirus nearly brought many to their breaking points.
Achieving Solutions, Improving Sourcing Productivity
Strategic sourcing is all about optimizing the business of spend management — exploiting every new efficiency angle, inviting innovators to the table, combing through the corners to carve away every bit of excess from the material without compromising its quality, wringing every last bit of ROI that exists when companies come together with suppliers and others to negotiate a product into creation. Procurement plays a significant role in this process, but surprisingly a 2020 a survey co-sponsored by Insights and Coupa, Procurement in the Driver’s Seat: Delivering ROI Through the Procurement Function, indicates that not all on the team are in agreement here.
Researchers sought to learn whether the procurement role is perceived as adding value and ROI in the strategic sourcing process. Researchers met with 100 Procurement executives to obtain their input, and came away with some mixed results: 66% of the
Procurement professionals said there was a lack of buy-in around Procurement’s level of influence, and only 21% said they were fully involved in processes related to business strategy and long-term goal development. And this disconnect exists despite measurable ROI; 69% of respondents said they are using their percentage contribution to EBITDA as a metric to illustrate their department’s success.
Getting Back to Business
As the world seeks to return to its pre-pandemic speed of rotation (albeit with a few still-yet-unknown twists), strategic sourcing methods will undoubtedly continue to evolve as a means of efficiently connecting companies, suppliers and other partners around the world, to establish and maintain strong supply chains.
No longer is the goal simply to measure negotiated savings. The idea is to create a quantifiable business impact that goes beyond the spreadsheet to include risk mitigation, environmental, social, and governance (ESG) and diversity, equity, and inclusion (DEI) initiatives that many company boards are asserting as part of their corporate responsibility to better the society we share.
Given the spotlight currently shining on DEI matters, it is somewhat ironic that the surveyed Procurement professionals (while acknowledging they have made some progress in being recognized as a bonafide strategic partner within their organization) do feel that old ideas and outdated perceptions, still being held onto by some other divisions, are preventing Procurement from taking its rightful place in the strategic center of the organization.
Those who are in doubt might want to revisit the famous McKinsey study which found that gender and racial diversity among executive team members resulted in an EBIT spike of 21% and 35%, respectively. The same could be true of Procurement professionals — 41% of whom surveyed said they are now capturing metrics such as
ROI on functional cost vs. P&L savings as well as the percentage amount they contributed to COGS. Despite the myriad ways that Procurement can impact an organization, their posting the same numbers used by other divisions may win them more acceptance because, said one respondent, a perception persists that the only metrics they had worth measuring are cost savings and cost reduction.
Here's the bottom line — the improvement of which is fundamental to all those involved in strategic sourcing, after all — when they are included in the strategic sourcing planning process from the beginning, Procurement leaders can offer their experiences, insights and unique perspectives from their own point of view that prove to be truly valuable assets. Organizations that fail to embrace their Procurement departments do so at their own peril.