IN SOURCING AS WELL KNOWLEDGE IS POWER
By knowledge I mean the key data coming from the product application and its supply market. It means data to be collected, to be sorted out and to be stored in a user friendly way. The challenge is the time that the buyers want to allocate to this task. Their willingness to do it is of course tightly connected with their motivation to do it. I will approach the motivation topic later in one of my next post. The motivation input I propose is the power these knowledge will generate. The power to position the buyers upstream in the purchasing process. The upstream position is the place to be to influence the final solution selection and eventually yield the best possible achievements.
The performance measurement of the current solution is certainly the most critical. This measurement will be the reference from which the new options will be evaluated from. It’s actually deliberate that I have used the word measurement. Each buyer should push the demand owner to genuinely records the current solution performance in an objective and transparent manner. Having these measurements in place will pave the way of well managed supply contract. If you put yourself in the shoes of a contract manager who has clear KPI to follow, you can easily picture out how comfortable your position is.
However as your mission as a buyer is to create value for your company, the today’s performance borders need to be pushed further. The concept from “cradle to grave” will give the buyer the right mind-set to look up all the cost associated with the product usage. In the purchasing jargon we are talking about Total cost of ownership (TCO). The TCO will underline new areas to explore to create more value. The TCO will also be the buyer’s reference to prevent the subjectivity of some key decision makers from ruling the output of the sourcing project. It means that the supplier’s bids analysis will use the TCO as a main input. Therefore the too often heard “according to my experience the solution XYZ is the best by far” will be ruled out by a rational analysis.
Having in hands the current performance level and a detailed TCO will be a fantastic foundation, however it’s not enough in searching for excellence. Benchmarking your company’s rivals should move your “possible” frontier further. Creating value for your company starts to be a bit more obvious if you can choose a solution that would overtake the performance achieved by yours competitors.
The information gathering process is quite demanding and time consuming. You must choose your battles. A good tip will be to assess the business impact of the product you are buying. This impact should be understood under two main angles; the company strategic goals and its cost structure. This analysis of company’s impact added to a robust supply market understanding will support the design of the category strategy.
On top of contributing to the design of the category strategy, the market intelligence will propel the buyer to the upstream side of the purchasing process. It will bring information that nobody else has. It adds value in the decision making process that decision makers will greatly welcomed.
There are many tools to perform a supply market intelligence. You need to know in which step of its life cycle the product you buy is. Each of these steps will determine which features a company has to excel in in order to succeed in its market. Cost leadership will be a key asset in a declining market for example. Ability to develop the product and bring a robust service will be essential in a development life cycle phase in another scenario. Porter and his 5 forces will frame the market complexity. The pressure coming from their suppliers and their customers, the market entrance barriers, the threat from potential substitute or how rivals are behaving will explain the market complexity but above all highlight some opportunities.
The market is rarely static. There are dynamics that will guide your actions. Sometimes it would be better to keep using same suppliers, sometimes it would be better to shake the market. A professional buyer will implement tools to forecast the market fluctuation and therefore plan better her own activities.
The market is formed with suppliers that each has its own story, culture, assets and strategy. Identifying the ones that would fit the best with your own company and as well your category strategy will improve the likelihood of a strong and solid cooperation when the contract will be signed. If you are seen as a preferred customer, the resources allocated by the suppliers will support its ambition to improve its overall performance.
When building a sourcing strategy, I mean at the function level, having a clear insight of what your stakeholders are expecting from you is quite relevant. In this exercise one thing is always cited by the internal stakeholders; this is risk management. Risk of shortage, risk of price, risk of quality, risk of corporate responsibility are as many risks as you might anticipate. A deep supply market expertise will help buyers to list those risks, to assess their impact on the company strategy and evaluate their probability to happen. The mitigation plan to alleviate both likelihood and the impact will come as well from the knowledge you pull out of the supply market.
All these above information are usually stored in buyer’s brain. As a leader I think that your role is to develop your people competences and your sourcing processes. Today a sourcing leader is like a sport coach who can’t watch the match or the competition of her protégé. They want to develop their team members but they can’t see them performing on the “field”. They want to develop their processes but each buyer has created her own template.
Yet another risk to tackle is to see this knowledge leaving the company when the buyer decides to pursue some other routes.
One option is to create tools, like Excel or Power-Point templates. These tools will provide a frame to the buyer to perform their analysis. This frame will evolve with the experience accumulated and will be as well fine-tuned according to the category at stake. E-sourcing tools as well exist to give professionalism to the approach.
From the perspective of a sourcing leader few issues will be fixed simultaneously. By supplying new means to their buyers the sourcing head will therefore trigger their performance. Managers will gain visibility on their subordinate’s activities, so their coaching becomes easier. This transparency can be extended to the internal stakeholders opening up what is usually considered as a dark box. Something which I think it’s great to notice is the new possibility to share best practices among buyers. Yet a buyer can benchmark her way of building a supply market intelligence with the best in class of her company’s peers.
Gathering the most tangible facts of the category helps the buyer to be recognized by the internal stakeholders as a genuine business partner in the best solution selection decision making process. If as a leader you supply best available techniques and tools to your buyers to conduct such analysis, you will nurture their own development. The usage of the tools will bring transparency that other team members can use as a benchmark and that stakeholders will appreciate to get visibility on. Have a look on QUAEST, the e-sourcing tool, it might gives some ideas to help "knowledge" be one of your winning cards to be become a recognized value creation contributor.
