Supply Chain Brain - January 2010

SOURCING & PROCUREMENT SOLUTIONS
Being a Leader Means Taking Costs Out
The number one strategy for sourcing and procurement executives is taking costs out. But that
requires an enterprise view of procurement and sourcing resources, including spend, business
process, supplier contracts, organizational structure, and employees. Leading organizations
have accelerated their strategic cost-reduction activities to ensure immediate sourcing and pro-
curement ROI.
—Mickey North Rizza, research director, AMR Research

ourcing and procurement is finally delivering the value. Capitalizing on the economy, 92 sourcing and procurement organizations interviewed by AMR found the most value when they focused on taking costs out. Many organizations utilize suite technologies, including spend analytics, sourcing and contracts because they facilitate cost reductions and improve the time to value for savings. However, almost all of these organizations noted that technology is only a portion of the cost take-out equation. Our research found that in the past eight months, 70 percent of companies had also restructured their organizations and added training programs; 65 percent outsourced their non-value-added transactional work; and 45 percent had capitalized on suppliers' ideas to reduce their processing costs.

• The restructuring of procurement and sourcing organizations consisted of either centralizing key areas such as procurement and commodity management or creating shared service centers for procurement and finance. All restructuring focused on reducing business processes, control of spend, and improving working capital.

• Training critical employees in negotiation, finance, analytics, quality, and lean was paramount for organizations that needed more value from current employees.

• Outsourcing was also a key consideration for taking cost

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out, especially when teamed with accounts payable and settlement activities. The labor arbitrage was immediate, especially if the work was moved offshore. Outsourcing of non-critical sourcing components was also considered as long as it wasn’t core to a supply chain.

• Supplier value-adds to reduce costs in processing and changing of material specifications were highly regarded by companies trying to find alternative solutions to one-sided negotiations.

The Outlook

In 2010, expect to see a variety of sourcing and procurement ini-
tiatives that will continue to focus on “cost-out”:
• outsourcing of expensive transactional business processes
• outsourcing of non-critical item sourcing and procurement
• utilizing sourcing services to facilitate lower costs of
untapped spend
• green supply chain initiatives where companies commit to
design, source, manufacture and end-of-life all of their products
in an environmentally and socially responsible manner
• developing green packaging and re-furbishing products to
avoid waste going into landfills.