Understanding Your Sourcing Footprint is the Key to Procurement Analytics

Direct conversations through on-site engagement with different lines of business is the most direct and effective means of understanding how sourcing processes are occurring today, as well as understanding how the sourcing need evolves and is expressed to suppliers.  The initial approach should be selected based on the greatest likelihood of success, not necessarily the area of biggest spending.  As an example, a large financial services organization found that corporate offices were buying art to decorate interiors.  A TCO analysis revealed that interior design consultants were directing the spend with suppliers, but that the cost driver for art was the cost of framing and transportation and installation, not the value of the painting or graphic itself.  This in turn generated a different analysis of suppliers that resulted in a different set of outsourced relationships with delivery providers that generated significant savings.  Understanding the buying channel current used and evaluating it against alternatives often leads to a different set of decision frameworks with different sets of suppliers than originally considered by stakeholders.  This can be accomplished by assigning sourcing managers to work closely with lines of business, to move beyond the static spend data and understand the patterns of consumption to identify root causes of unexplained variances.

Supplier registration processes need to be designed around sourcing engagement processes, which track the supplier life cycle.  This begins with the supplier registration process that establishes the supplier’s profile, capabilities, and service offerings.  The next phase occurs when an RFI or RFQ generates more information on supplier capabilities, and additional price, volume, and operational business risks.  The contracting phase leads to additional details on pricing volume, general terms and conditions, and approaches.  Leading to on-going vendor performance against the contract.  Often this is documented into a supplier scorecards, and over the procure to pay cycle, invoices and payments occur, which are folded into the on-going spend analysis.  Payments need to be matched against contract prices and performance requirements, and a reconciliation occurs.  When a vendor is terminated, the contract is closed out, but the data must be retained over time.  If one looks at the entire set of transactions that must be organized, maintained, and cleansed over time to allow reporting and on-going sourcing analysis.  When this is multiplied over millions of vendors across multiple languages, the challenges of tracking and managing spend analytics becomes evident.