It is not difficult to differentiate a best-in-class organization from an average one in the sourcing and procurement industry. The results of our 2018 Cognitive Sourcing Survey, demonstrate that while an average organization engages with only 40% of their supplier base annually, those ahead in the agility race can reach 80% effortlessly.
This kind of leadership is possible because these organizations are digitally ready and have the right talent and mindset, with access to a cognitive sourcing platform to drive value.
This kind of digital readiness allows organizations to scale their strategic sourcing and procurement functions, providing them with dramatically greater agility. It is these two factors that are increasingly crucial in driving value for these organizations.
Scaling Strategic Control
Organizations can effectively drive value if they engage with their suppliers frequently and strategically, opening up new opportunities and allowing them to identify risks sooner.
In our study, two dimensions of supplier engagement help organizations take the lead against their competition. They not only cover a more significant portion of their supplier base but also engage with them more frequently and in more depth.
The general workflow in procurement is similar for most organizations. It primarily involves conducting sourcing events from time to time with suppliers. Often, it also involves “fighting fires,” that is addressing risks and challenges that arise quickly. In this case, sourcing is conducted on an ad-hoc basis. Examples include chasing parts, addressing internal requests for cost assumptions, dealing with organizational churn, overcoming quality issues, and other related quality incursion events.
The maturity level of a sourcing organization decides the frequency of these sourcing events. Only the best-in-class organizations can conduct these events with agility on a regular or even continuous basis. Our study revealed that only 4% of organizations are capable of holding sourcing events weekly.
A majority of the pack (32%) still conducts them annually, and a smaller portion (15%) leads them quarterly. What’s more, 16% of the organizations don’t have a fixed schedule for sourcing events, essentially conduct them on an entirely ad-hoc basis. Lastly, 10% of sourcing teams don’t even track the frequency of their engagements with suppliers. These events are more often than not held solely for essential commodities and suppliers. This lack of agility hampers a team’s ability to act strategically.
For leaders, frequent engagement allows organizations to scale strategically and intelligently. They can be proactive and, by spending less time fighting fires, are able to capitalize on opportunities. This allows them to gain an edge over their competition. And that is a key part of what makes them best-in-class.
Scale Strategically, Scale Intelligently
In today’s lean team environment, it is impossible for sourcing teams to scale with the same level of strategic control across the entire direct materials spend profile. There simply isn’t the time or bandwidth to manage all suppliers in this way. So, sourcing teams have to strategically choose when to engage in negotiation or when to directly collaborate with suppliers on new sourcing of capacity and lead time risks.
In organizations with a shortened cycle time,more frequent engagement with suppliers, and improved information, allows greater oversight of suppliers who would otherwise go unmanaged. Bringing a wider set of cost drivers under control has a direct effect on product margins.
But to do this with a lean team requires more than working hard or even smart. By leveraging a cognitive sourcing platform, leading organizations have scaled their strategic coverage to 80% of supplier-related spend on at least an annual, if not more frequent, basis.
Proactive engagement with suppliers regularly allows organizations to mitigate risks and seize opportunities more effectively. Industry leaders are using cognitive platforms to engage with suppliers on an as needed-basis instead of on a fixed calendar basis. That means when a shift in the market happens, or when raw material costs change, they can immediately interact with the suppliers. These teams are scaling with access to new intelligence that allows them to engage more appropriately in terms of relative spend, strategic importance and potential opportunities.
Unlike the majority of the pack, teams who spend over a quarter of their productive time “fighting fires,” best-in-class organizations spend well under 15% of their time on the same reactive tasks. Not surprisingly, there's a high correlation between those organizations and the adoption of purpose-built AI or analytics systems to leverage for their job processes.
Naturally, organizations which have access to agility can respond to external influences and changes in the marketplace faster, giving them a competitive advantage. This is possible because of the following factors.
Reduced Cycle Time
It was evident in our research that best-in-class organizations engage with their suppliers and react to external events quickly. This is because they have collapsed the time required for RFQs and RFIs while enabling a parallel negotiation cycle. As a result, they can prepare, negotiate and award an astounding seven times faster than average organizations.
Best-in-class organizations can sense a risk or opportunity before it happens, giving them time to evaluate it, make a strategy, plan a negotiation, engage with all stakeholders including suppliers, come up with a better answer, lock it in, and move forward faster than their competitors.
On the contrary, in average organizations, preparation for a sourcing event involves receiving data from suppliers, along with that inherent bias, or else manually extracting it from other sources in a labour-intensive process. Before a sourcing event can begin, fine-tuning data, scrubbing the analytics, and getting stakeholder buy-in is required. Developing negotiation materials means extracting data from sourcing tools to feed into BI tools, or else working with data independently in a spreadsheet. The final analysis is done outside of the system and requires stakeholder and other internal approvals to validate disconnected data points.
Meanwhile, leading teams have an AI-enabled platform that cleans data continually and generates baseline analysis automatically. Because of this continuous, always-on nature, these platforms can identify negotiation opportunities and even automatically reach out to suppliers with whom they share an open-book relationship. Before awarding a bid, Category Managers receive aggregate bid data with relevant insights and recommendations attached. And this is what allows them to prepare, negotiate and award in 4 days, unlike average organizations which take 31 days to the same task leading to a massive performance gain.
It is evident why that such frequent supplier engagement, strategic sourcing, and agile workflow allows leaders to get ahead of the pack. And this is possible predominantly because of the AI and analytics that allow for cognitive sourcing.
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