By Sean Correll, Director of Consulting Services at Emptoris, Inc.
Although the future of the current economic recovery is still unclear - there are at least as many forecasters calling for a double dip recession as those calling for a strong recovery in the months ahead – most of us agree the pace of the recovery has been slow.This trend has had a direct impact on the activities of Strategic Sourcing Professionals, who make decisions based on a variety of macroeconomic, organizational, and risk factors.Here are three trends associated with the recovery that we expect will affect those decisions in the near future.
#1 – Outsourcing decisions are becoming increasingly complex – It’s no longer as simple as saying “Let’s move production to China to lower costs …”Between the relatively recent Chinese labor issues and currency volatility, companies need to evaluate all of their options.Those options could range from shifting manufacturing to new low cost countries to splitting operations, say between China and Mexico, to shifting everything back to the U.S.Because of long term ramifications, these decisions should not be made without thorough analysis of each option.That analysis needs to include a view into Total Cost.Financially it might make sense to shift production of widgets from China to Nigeria, but does it make sense after taking into account infrastructure, transportation, customs, quality, and the service issues that need to be ironed out when dealing with any new manufacturer?Are there capacity limitations and production incentives (perhaps proposed by the new manufacturer that will allow them to make the most out of their capital) that need to be factored in?In most cases, the Sourcing Professional will need to lean on technology to help make these decisions.
#2 – Sustainability will remain crucial in generating adoption of strategic sourcing programs – Because this recovery has been slower than many recent recoveries, it has magnified the need for sourcing programs that are built to last.Gone are the days when reverse auctions are the single solution for reducing expenses.There is still a time and a place for such “quick hits”, but Strategic Sourcing Programs today need to include much more.Focus on total costs, adherence to standard methodologies, and active risk mitigation can all help build sustainable programs.Risk is especially important in the current economic environment, with so many suppliers struggling to keep their heads above water.Reverse auctions, while effective at compressing prices and negotiation cycles, can sometimes mask the financial straits of the participants.Suppliers may feel that a price above market signals process inefficiencies or financial weakness when in fact it comes from higher quality or better service.And that value needs to be taken into account.Strategic sourcing programs that account for this value effectively are more likely to be around for the long haul.
#3 – It’s becoming more about process, and less about savings – Ten years ago, when Strategic Sourcing was still a relatively immature practice, savings was all one needed to make a business case.In those days the low hanging fruit was bountiful and most new Strategic Sourcing programs found it relatively easy to lop 10% off the bottom line in the first few months of their existence.Although there are still laggards and organizations that have lapsed into their old ways, the savings projections have lost some of their luster.This isn’t necessarily because the savings potential isn’t there – it is – but nowadays the savings is expected.All new Strategic Sourcing initiatives come with the expectation of savings.In addition to savings, organizations are now looking to incorporate sustainable processes into their initiatives.That could mean providing proper visibility to stakeholders, ensuring standards and repeatability, or keeping an accurate audit trail throughout the entire process.For example, a company that procures temporary labor services will want to track:
• Decisions made in the supplier discovery process, incase supplier selection is challenged
• Offers made in the negotiation cycle, in case pricing is challenged by buyers or suppliers
• Resource Usage and Payments, in case there is a question regarding the service procured
In this environment, there is always a need for more efficient effective process.
Sean Correll is Director of Consulting Services at Emptoris, Inc., a strategic supply management and contract management solutions company. He can be reached at firstname.lastname@example.org