By Ajitabh Sood, Vice President, SCM Services, Corbus LLC
The current global economic scenario is complicated because of the lingering sovereign debt crisis in Europe, slowing growth in China & India, average performance in Japan and a slow US recovery. It may not be reckoned as the worst economic crisis but this has given reasons to a more turbulent and volatile market (see figure below). This has resulted in organizations realizing the need of finding new ways to streamline operations and curtail costs. Various initiatives are being taken to increase savings associated with costs of goods and services. The sourcing function is regularly confronted with multi-faceted challenges of increasing cost savings where prices are a moving target, engaging reputable sourcing vendors, and placing concrete hedging techniques with the judicious use of the existing team without increasing base costs.
A resourceful sourcing mind is needed to face these challenges. However, the vast majority of sourcing professionals focus on cost reduction through (re)negotiations of price. It is incumbent upon procurement leadership to understand the operational maturity in strategic sourcing, contract management, procurement ops, catalogue management, compliance, supply risk and capability matrix of the S2P operations. Resources and budgets are finite; time is a limiting factor and goals must be achieved within a set of parameters. Limited visibility into the cost structure of the supply chain makes organizations insecure about the performance of past sourcing efforts: Was the right decision made? What risk exposure is there? Am I getting a fair price? When do I need to address this commodity again? These often warrant a strong pitch to outsource non-strategic tasks or for a commodities trend analysis from a third party service provider.
A commodity desk helps procurement organizations gain structural insight in cost structures and drivers, and their interdependence. The desk combines supply and demand data with economic and commodity development information to provide a more holistic view of the commodity. The information aggregation reflects influencing factors and cost drivers on commodities, raw materials or services. Additionally, it helps organizations to compare and understand actual price developments from suppliers over a longer period of time. A commodity desk helps in analyzing:
Cost Drivers – Cost drivers encourage procurement professionals to understand the total supply chain correctly.
Supplier Engagement – Set up a dialogue with the supplier after getting a perspective from the commodity desk as it would help structure the framework of the discussion and also help in amending the cost drivers to levels that are in line with the perception of the supplier.
Incessant Development – Entrench the commodity desk inputs in procurement processes (systematic regular updates) to ensure continual development across the supply base.
New Skill Acquisition – Commodity understanding benefits in increasing the ability to understand market mechanisms and the macro and microeconomic influences in the end-to-end product supply chain.
Information Sharing – Again customized information sharing assists inflow of information and offers a better prospect of making the correct decision.
Data Access – Enhance the scope and broaden the discussion along with increasing access to multiple data sources.
In brief, commodity supply-demand and technical competencies enables procurement professionals to develop better sourcing strategies, negotiate more effectively, reduce risk and contribute to corporate objectives.