Ravi Panchanadan, Strategic Business Practice Head -Sourcing & Procurement, Infosys Ltd.
Kunal Kant, Practice Lead-Sourcing& Procurement, Infosys Ltd.
Strategic sourcing is defined as the collaborative, systematic and structured process of critically analyzing an organization’s spending and making business decisions about how to acquire commodities and services more effectively and more efficiently.
To have a strong and effective strategic sourcing function, it is necessary to have a team of good category managers / sourcing professionals as well as a proper sourcing structure within the organization. To improve the effectiveness of this sourcing structure and leverage the maximum potential of available organizational talent, a commodity council is constituted. Commodity councils are cross functional teams or focused groups, providing expertise in contracting, management, finance, engineering, and other areas necessary to support the acquisition of commodities or logical groupings of items. “Instead of individuals supporting a small number of parts / components; commodity councils serve as the gateway for parts and services aligned along logical commodity lines. This approach maximizes cost-reduction opportunities, improves sourcing strategies, and helps foster and sustain stronger supplier relationships.”
Every commodity has its own unique characteristics and it may not be possible for an individual to understand it completely. It becomes more complex in case of direct materials where the maximum spend of the organization goes, but the options for product or supplier substitution are very restricted. A sourcing/category manager may be an expert of few items, but he cannot be an expert in all the items falling under his category/commodity. So if he tries to manage the strategic sourcing of all these thousands of items, there is no way he can do justice to his job. In the same time it is not a brilliant idea to keep a category manager for each and every item. As mentioned, strategic sourcing is a ‘collaborative approach’, i.e. if we want the sourcing/category manager to deliver the best results then we need to have more people supporting him in his job… more people means, people from the relevant functions.
The whitepaper focuses on the fact that what are the different types of Commodity Councils, their merits / demerits and how to get the best out of these. Also it prescribes the ideal structure / team composition of a commodity council.