Procurement and Strategic Sourcing

Synopsis

Procurement can be tough to handle, as lack of internal communication, obscure focus and failure to streamline the process often stand in the way. This is why we developed the Procurement and Strategic Sourcing presentation so you can create an action plan to achieve procurement objectives and improve areas of implementation. Also, to get ahead, learn how IBM is successfully reimagining its procurement systems.

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What is Category Management?

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Category Management is a strategic approach aimed at organizing procurement resources to focus on specific areas of spends. This approach involves segmenting the spend into categories which are goods or services that are similar or related to the market they serve. The categories are then managed as a portfolio of business-led projects. Category Management allows for deeper understanding and strategic management of spend leading to enhanced performance and competitiveness.

IBM, for example, has been successful in reimagining its procurement systems by leveraging advanced technologies like AI and Blockchain to streamline and automate their procurement processes. This has led to increased efficiency, reduced costs, and improved supplier relationships.

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Slide highlights

With this slide, communicate your procurement objectives. Some examples are: supporting operational requirements, managing the supply base efficiently and effectively, cost savings and risk mitigation, as well as talent development.

Use this slide to cover your supply chain management Key Performance Indicators (KPIs). These may include cash-to-cash time cycle, inventory turnover, Gross Margin Return On Investment (GMROI), freight bill accuracy and on-time shipping.

Mapping out your procurement processes helps to gain greater supply chain visibility and identify potential threats and avoid them. With this slide, introduce your procurement map and walk your team and stakeholders through the strategy.

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Application

Procurement and sourcing are two related, but different terms that are often used interchangeably. The main difference between them is that sourcing concentrates on direct goods and services and procurement deals with indirect goods and services. EPS News suggests this seven-step model for applying strategic sourcing principles to modern procurement:

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1. Procurement plan – select your team and begin with a project kickoff. It's important to collect your current analysis of the industry, customers and suppliers and determine procurement expenditures before moving on to the next step.
2. Supply market analysis – when you gather data, consider both team members and stakeholders and their priorities, which secure more guidance for you in the future. "Issue detailed requests for this data from stakeholders and suppliers as needed to create a unified document," the experts say.
3. Develop a strategy – when you gather data, consider both team members and stakeholders and their priorities, which secure more guidance for you in the future. "Issue detailed requests for this data from stakeholders and suppliers as needed to create a unified document," the experts say.
4. Requirements and evaluation criteria - pinpoint the requirements for your suppliers and determine how they'll be evaluated. For example, service, quality, transparency, delivery time and total unit cost.
5. Implement - indicate the required activities to implement the contract, such as a work plan, communication strategy and benchmarking.
6. Review and establish areas for improvement - once you've established the basis for a strategic sourcing framework, the experts point out, there will always be opportunities for improvement. "Maintaining suppliers relationships is key but being aware of potential risks and revisiting the strategy annually are also essential elements of your ongoing success," they say.

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Case study

IBM

IBM posted a Procurement Transformation case study on its website to show how the company is reimagining its own procurement systems. "With operations in over 170 countries and over 13,000 suppliers, procurement has always been the lifeblood of IBM. However, long-entrenched processes and siloed data across this heavily matrixed organization were leading to frustrations with the procurement process. IBM needed an updated approach to their procurement capabilities," IBM shares. At some point, the company had to figure out whether it had competitive pricing, as well as what the target prices for an in-flight deals were and the way to manage non-core transactions.

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After these puzzles were solved, the IBM team came up with the following procurement solutions: master data management, analytics and insights, sourcing and contracting, content management, order management and helpdesk and payables. The new procurement process allowed IBM to deliver $67 million in savings in the first year, reduce procurement costs by 13% and achieve an immediate four-point improvement in Net Promoter Score (NPS).

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