Author: Paul Ireland
Findings from IIAPS Research, Benchmarking & Improvement Methodologies
In working on a forthcoming publication my colleagues and I at IIAPS have considered the current state of category management and strategic sourcing thinking in the profession. This has led us to a simple question:
Most leading organisations have developed a category management and strategic sourcing process, so why do so many of them only deliver poor value for money outcomes?
Over the last decade, using the PSCM Index Methodology, IIAPS has benchmarked a large number of organisations against 184 attributes of procurement and supply chain management competence. The figure below demonstrates the current performance of organisations by sector against a potential world-class top score of 100%.
The fact that only a few organisations score over 75% demonstrates the current lack of overall use of all of the tools that are potentially available for managing procurement and supply chains effectively. Interestingly enough, when we analyse only the use of tools for category management and strategic sourcing in our database, it is clear that there are significant gaps in particular steps in the process.
The figure below demonstrates that organisations score highest for the use of tools in Steps 5 and 6 (the heartland for ‘tactical’ procurement—the market test and negotiation process). They also score reasonably well in Step 3 (supply market analysis). The evidence shows, however, that there are significant gaps in performance in the pre-contractual Steps 1, 2 and 4 and post-contractual Steps 7 and 8.
It is our contention that in these poorest performing Steps that the greatest impact can be made in leveraging improved value for money. This also led us to question why is performance sub-optimal and so weak in these areas?
IIAPS benchmarking research indicates that there are 12 major causes why sub-optimal performance in category management and strategic sourcing occurs:
- Lack of cross-functional buy-in so that all value for money options are never considered.
- Lack of early involvement so that options are closed before procurement involvement in the sourcing process.
- Insufficient time and resources to undertake the appropriate level of analysis of options.
- Excessive fragmentation of spend, with short-term management philosophies dominating organisational sourcing thinking.
- Lack of rigorous and robust current and future spend management data with a lack of segmentation methodology to identify categories of spend.
- Lack of embedded performance management culture using rigorous and robust KPIs for all categories of spend, with focus only on price/cost savings rather than value for money KPIs.
- Endemic maverick spend, with a lack of mandate for Procurement staff to be involved in the whole of the sourcing process pre- and post-contractually.
- Lack of embedded and on-line processes/systems to manage categories of spend, and to undertake sourcing strategy development and/or supplier relationship management.
- Lack of use of sophisticated power and leverage positioning analytical tools to develop sourcing strategies.
- Lack of knowledge management, leading to staff constantly reinventing the wheel when developing sourcing strategies.
- Lack of fully competent staff, with a fully rigorous methodology to analyse all value for money trade-off options.
- Failure to fully develop supplier relationship management options in the pre-contractual steps of the process.
In our benchmarking experience (as discussed in many IIAPS White Papers) these issues recur across all organisations, irrespective of industrial sector and geographical location, time and again.
We will be presenting potential solutions to these 12 key causes of sub-optimal performance in a series of future posts and the forthcoming publication (to be published in Summer 2016). In these blogs my colleagues and I will try to explain IIAPS thinking about how to resolve these issues and improve competence in category management and strategic sourcing.
Professor Andrew Cox, Vice President, International Institute for Advanced Purchasing & Supply (IIAPS) latest book “Sourcing Portfolio Analysis” is available now from www.amazon.co.uk (not amazon.com) or www.earlsgatepress.com