Introducing ‘Sourcing Architecture’: next-generation sourcing and procurement transformation
- Sanjay Chadha
- On August 5, 2016
Sourcing and procurement (S&P) leaders continue to reference efficiency, effectiveness and continuous improvement of operations as a high priority. Most will admit that continuous optimisation is not a destination, rather a journey that has become increasingly complex. Today, an agile S&P organisation that effectively aligns with the needs of the business is critical to establish. S&P organisations want to embrace accelerated decision-making, improve productivity and spend visibility, and implement tighter controls for supplier performance. Several trends like increased globalisation, mainstream usage of matured sourcing models (e.g. managed services), technology advancements – led by the social, mobility, analytics, cloud (SMAC) wave – and rapid automation are influencing this direction. At the same time, keeping a focus on customer satisfaction, cost savings, and operational transparency; staying competitive; and addressing compliance needs continue to be important drivers. Like never before S&P leaders feel an immediate need to take a more strategic review of S&P operations and talent readiness. Many leaders face the same dilemma – how do we undergo this transformation?
Dynamically balancing strategic needs with operational effectiveness is challenging but doable
It is more and more essential that sourcing and procurement leaders reassess their strategy and plans in an agile fashion to stay relevant. The importance of acting swiftly to make the desired changes cannot be ignored. Moving from “people” dependence to “process” dependence is today taking a back-seat and the focus is shifting towards process elimination and automation. While in many situations, the opportunity to “modernise” procurement is significant; the stakes are high as it does come with a cost associated with it. At the same time not acting in timely manner or a poorly designed execution can have a profound cascading negative impact on S&P operations and the overall business. Good news is that the increasing technology advancements and improving sourcing maturity is also bringing forward new generation of solutions. The shifting momentum towards SMAC adoption, rapid growth of procurement outsourcing and lately increasing acceptance of automation solutions can be all leveraged to benefit the S&P departments.
Managing S&P data and the ability to run analytics are emerging as a critical capability area for proactively addressing risks, finding optimisation opportunities and effective decision-making
Interestingly, these trends are catching momentum when most sourcing departments are still using traditional manual processes and bare-bone technologies to run their operations. The disparate systems that typically don’t have consistent data sets continue to be a fundamental standing problem. S&P leaders want to get better organised and proactive with getting accurate data to take effective decisions. There are a lot of loaded questions here but very few answers and it gets really complex when an integrated view of needs and deep collaboration are required to determine the right solutions with the right stakeholders. Other challenges are around the scalability considerations, and the understanding of long-term needs and investments required to integrate all the disparate systems and provide for a common and self-evolving data source.
Introducing ‘Sourcing Architecture’ as a science that must be embraced by S&P leaders
The fundamental science of ‘sourcing architecture’ seems to be emerging as more analysis and innovation are today required to evolve the blueprint of the future state S&P process and technology roadmap. The future state sourcing architecture will be more standardised, industrialised, integrated and automated and S&P leaders must start thinking in that direction. It will require global thinking while keeping simplicity, scale, cost and time-to-market considerations in perspective. In the maze of available solutions and technologies the sourcing architecture will bring together sourcing needs, analytics, sourcing models, technology, standards, and automation under a common framework. This will likely put significant pressure on the talent and solutions that S&P has deployed today. The solutions might require leveraging outsourcing, technology, cloud, and automation in an integrated fashion and will likely require expertise to manage the supply chain beyond your organisation. The transformation required to implement such change across multiple dimensions will be far bigger and broader than the transformations S&P departments might have gone through in the past that focused on one or two dimensions at a given point in time.
Establish your vision and strategy and supplement that with an agile implementation roadmap
Your sourcing architecture will require a deep understanding of your long-term needs to build a best-in-class S&P department. Here are 12 best practices that are generally applicable as you establish your strategy and execution plans.
- Define your strategy and multi-year vision: S&P transformation will be a multi-year journey and require deep subject matter and technology expertise.
- Define transformation team structure: strong advisory, process re-engineering, technology and program management skills are all critical and must be introduced at the right time. Outsourcing and automation of processes can both become a consideration to allow experts to have more capacity to focus on strategic needs.
- Understand needs and build a strong business case: conduct assessments to gauge current and future needs, quantitative and qualitative benefits, and solution options. If there is lack of talent in-house and the risks are high, a specialist advisory firm can be engaged. Capture the pain areas, and research potential options to address gaps and articulate the ROI keeping in view the strategic and operational agility needs of the organisation.
- Simplify your environment wherever feasible before embarking on the journey: supplier consolidation and/or volume consolidation with top-down change management should be an ongoing strategy wherever feasible. Opportunities to eliminate non-value added processes, eliminate demand and repurposing tasks not directly associated with S&P should be considered wherever possible. Automating repetitive workflows and mundane tasks is often easier achieved with basic technologies and software bots (RPA) and scripts. Software bots can be designed to mimic human actions based on pre-configured rules.
- Collaborate extensively and clearly communicate your intentions as you launch the first wave: seek approvals from the core stakeholders with a clear view on data ownership, process and technology impacts. Key suppliers should also be consulted and informed especially if the future changes will impact them.
- Design keeping the end in mind: establish training, communication and change management plans for increased adoption. Self-improving, self-automating and self-destructive processes should be designed whereever feasible. The processes and workflows should generate data as they are used and should not require human intervention.
- Consider all technology and automation options: it is likely not possible to find a single technology solution that will address all your needs but it is important to focus on what will be the right architecture that will address your company needs. Your sourcing architecture should capture your technology maturity and integration roadmap that is suitable for your requirements, complexity, and cultural adoption. Keep globalisation and strategic partner relationships in perspective when designing architectures and transformation roadmaps.
- Keep it simple and strategically focused: categorising workflows, processes, practices based on candidates for elimination, outsourcing, automation and eSourcing. Several processes can be candidates for eSourcing e.g.: eRFX, eSignatures, eCatalogs, self-serve supplier portals, workflows, contract lifecycle processes, and content and document repositories. These in turn can be made efficient and outsourced.
- Adopt packages, hosted platforms, or cloud v/s development: try to use ready packages v/s doing custom development or customising the packages extensively. Often a process change may be a better strategy than modifying the system at a huge cost. Consider cloud or vendor-hosted platforms due to ease of use and low cost; it can be an appealing business case if they can be integrated with your architecture easily. Consider mobile interfaces if they improve productivity, response time, and enhance the quality of user experience.
- Keep a focus on the analytics: use predictive analytics for business decisions, visualisation and supplier risk management. Implement metrics and scorecards to demonstrate increasing adoption, cost savings and spend under management through the systems. Measure the percentage of specific services that the new systems are supporting. Future automation capabilities might leverage advanced cognitive computing capabilities to derive intelligence from structured and unstructured data.
- Pilot and go mainstream: migrate slowly in a phased manner. Processes and workflows selected for migration should be first piloted; evaluate closely if historical elements don’t need a migration. Decommission legacy systems and eliminate old processes as you gain adoption.
- Keep continuous improvement and automation integrated: establish a CoE (Centre of Excellence) that continues to focus on knowledge management, standardisation and change management, measures adoption and continues to mature the processes.
I have deliberately stayed away from naming specific solution providers and packaged tools here that might address specific needs; however if you have a specific situation that you will like to bounce off; I will selectively respond to questions. Feel free to write to me directly at firstname.lastname@example.org.