Strategic Sourcing & Procurement: Getting Results and Making Them Stick

How to Work with a Consulting Firm to Achieve Rapid Savings While Also Building Enduring Capability Within Your Organization

By Jay S. Lucas

“Gosh, its great to get the savings. But then the consultants leave – and we go right back to the old way of doing things. How can we make sure we end up with the ‘know how’ and ‘tools’ to keep making progress after those guys go away?”

As a consulting firm specializing in Strategic Sourcing over the past ten years, we have found this to be a serious concern at the outset of an engagement – from many of our most thoughtful clients. Through close collaboration with numerous valued clients over the years, we have developed a series of approaches and techniques to help ensure effective “knowledge transfer” into their organizations.

If you are considering embarking upon a Strategic Sourcing initiative – and contemplating how best to use an outside consulting resource – hopefully these several lessons distilled from our experience will provide some useful insight, and allow you to build organizational momentum and “know how” to ensure the long-term success of your efforts.

Making Strategic Sourcing “Cool”

Reducing our Purchasing costs. Not necessarily an initiative most people in an organization are going to get excited about when first learning about the idea. Therefore, we have found that it really helps to make it a culturally “cool” thing to be doing inside the company.

Visibility

Make sure it has the support of the senior management team – with the visible backing optimally of the CEO or equivalent business unit head – and is broadly communicated as a key strategic initiative. It should also get at least monthly attention from the entire senior team on a progress review basis. There is no better way to make a cultural statement than for the senior leaders to communicate an initiative’s importance through both their statements and their actions.

Working with the “Can Do” Business Leaders

In the early stages of this program, not everyone in the organization will want to get involved. However, there will be a few “can do” business leaders who will immediately see the general value of the program – and also will understand how saving money on purchasing can help their bottomline. Aggressively seek these people out. Work with them first. Their energy and receptivity will get things off to a rolling start – and begin to build a dedicated following for the sourcing effort.

Select Some “Quick Hits” and “Put Some Money in the Bank”

Getting those first savings – even if relatively small – just changes everything. Credibility. Momentum. It begins to feel like something good is really happening, and people start to get excited. I remember working with a $6 billion consumer goods company – where one of our teams found a $40,000 savings opportunity in the first few days of the effort. By negotiating with a supplier found to be selling product into two of our divisions at very different prices, these savings were immediately “put into the bank.”

Wow! The news rippled through the organization. The CEO wanted to hear about it. The story made its way throughout the senior team. Word was out – this effort is finding “real savings.” Over time, our combined efforts generated over $250 million of savings – but no initiative was even more important than this $40,000 right at the beginning.

Building the Database – the Diagnostic of Current Spend

Most companies new to Strategic Sourcing have a very limited understanding of what they buy, how much, from whom, at what price, etc., – let alone whether they could be doing better. Thus, at the beginning of your initiative, it will take some dogged determination – coupled with a massive amount of intellectually challenging “grunt work” to figure all this out – but you really do need to invest the time. It will provide a “Roadmap” for prioritizing your efforts and will be an enduring knowledge resource that can be built upon for years to come.

Part of the problem is that companies often have no easily accessible data. There is no central repository to easily look this up. Instead, the raw data resides in the Accounts Payable Ledger (listing names of vendors, checks, and amounts paid, with more detail sometimes provided by invoices – which sometimes match and often don’t), in contracts, in purchase orders, and in people’s heads. As a result, it takes real detective work to establish a baseline understanding.

Populating Teams

We have found that the most effective way to get rapid savings – and make them stick – is through the use of Category Teams – i.e. the teams of client stakeholders and consultants together responsible for attacking a savings initiative in a particular category of spend. The trick is in how to populate these teams to best “get the savings” and achieve a full knowledge transfer.

Our experience has been that there really need to be three distinctively different types of players involved in populating these teams.

Client Stakeholders

These are the people in the company who use the good or service being purchased, usually also have the best understanding of what they truly need, and who have the greatest stake in making sure that service levels and quality standards are not compromised in the quest to save money. Typically, there may be as few as one key stakeholder who needs to be involved, or more frequently, two or three – and sometimes, although not frequently, many more.

Client Strategic Sourcing

It’s very important that there be a representative of Strategic Sourcing who is part of the team from the outset. This person can help provide the process leadership, keep the initiative on schedule, ‘run the traps’ within the organization to get things done, etc., In addition, by being involved, he or she can accumulate the knowledge and experience associated with the particular savings initiatives to provide a knowledge base and continuity going forward.

Consultant Support

To help achieve rapid team progress, it is also useful to have on the team a dedicated consultant resource. This person, or sometimes small team of two or three consultants, provides the analytic support and quantitative “heavy lifting” often needed to be effective. The consultant can develop intelligence on potential vendors, construct benchmark pricing data, assemble the detailed purchase specs, prepare the RFPs, perform the comparative analyses of competitive vendor bids, and even help in negotiation and implementation.

The consultant’s role is to recognize that all of the client team members have “day jobs” and that the consultant can dramatically accelerate the time frames of the effort by doing whatever it takes to make the team effective – even if this means working late into the evening to prepare the team for negotiations – or doing something as mundane as copying invoices to capture spend data for an RFP – so as not to burden the client organization. In addition, because the consulting team has a depth of experience in the analytic techniques required, typically they can compress timeframes and deploy “best practice” strategies with respect to specific opportunities.

Organizing the Core Strategic Sourcing Team for Your Company

Many of our clients have started their strategic sourcing efforts – with no discernible “Strategic Sourcing Organization” in place. Often, there is a Purchasing or Procurement function – but this is more a transaction processing, order fulfillment, or administrative function. Its mission is not the achievement of Strategic Sourcing vendor relationships – nor the capture of major savings opportunities. As such, the people involved typically do not possess those skills required for this type of sourcing effort.

Therefore, a team must be assembled – usually starting with a Strategic Sourcing leader. Sometimes this person is “on board” at the beginning of your efforts, but in some cases not for many months thereafter. However, for effective “knowledge transfer” to occur, and for the development of an internal organizational capability, obviously “the sooner the better” – assuming you have the right person.

Who is the “right person?” Above all, he or she is an engaging personality – who is a great listener and team builder – who has a solid basic business “horse sense” – who is willing and eager to give credit to others and make them the “heroes” – and a person who can get genuinely enthusiastic about “putting money in the bank” for the organization. Additionally, it’s a real plus if this person is a great communicator. He or she is constantly going to be “telling the story” of what the strategic sourcing initiative is attempting to achieve, the anecdotes of recent successes, and how others in the organization can participate and help – in an effort to get thorough grassroots support. There is also a real communications skill that is helpful when negotiating with a vendor – and truly making him happy about the relationship, even when changing the terms and settling on a dramatically reduced price.

Finally, the sourcing leader needs to assemble the remainder of the team. These are the sticky receptacles of institutional knowledge who can carry the program forward once the consultants’ role is complete. Depending on the size of the company, this may mean one or two team members, five or six, or sometimes more. These are the people who will also help populate the teams and have continuing responsibility for clusters of vendor relationships. We have seen a variety of people, with differing skill sets and backgrounds, who have been successful in this role. However, there seems to be some common traits. They are confident and skilled in their quantitative capabilities, and they are entrepreneurial and energetic in their professional roles. Moreover, if there are some areas of substantial spend within the company, it is very helpful to have at least someone on the sourcing staff who has general familiarity – although not necessarily total expertise – in each of those large spend areas.

So, for instance, you might organize a Strategic Sourcing function composed of a team leader and team members in the following manner. If the three largest buckets of corporate spend are IT, Sales and Marketing, and Direct Materials, then perhaps three of the team members would have responsibility for those respective areas, and the fourth member would pick up responsibility in general corporate spend/other.

The Formal “Knowledge Transfer”

You definitely want your consulting firm to make a dedicated and proactive effort to ensure that their knowledge and experience gets transferred to your organization during the engagement. Put it in the agreement. Make it an explicit part of the workplan. Then, set about to make it happen. If you’ve been thoughtful and effective in executing the four steps outlined above, you’ll have a strong foundation – but there are three steps left.

Memorialize Each of the Initiatives

Make sure that every major initiative – including each of the Category Teams, the building of the Database/Initial Spend Diagnostic, and all other major efforts undertaken – is well documented. Make each one into a separate chapter, where all of the work-product materials are easy to access and understand – even for someone picking it up six months or a year later.

Debrief at the end of each initiative. Conduct a post-mortem. Tease out the “best practice” lessons from the effort. Have your consultant help document and compile this knowledge base as you go forward.

Learning – “On the Job”

Much of the most effective teaching and learning of Strategic Sourcing takes place “on the job” – doing the real-life work. To this extent, encourage your consulting team and members of your organization to “roll up their sleeves” and work together as much as possible. In fact, for this reason, a good question to ask when you’re choosing a consulting firm is: “are these smart, energetic, nice people that my organization will enjoy working with, spending time with, learning from, etc.,?”

Further, we have also found that it is useful to expose a broader audience to a more formal exposure to the approaches and techniques employed. Through a series of “Lunch and Learn” gatherings, you can conduct multiple sessions in a relaxed atmosphere – and invite anyone with an interest in knowing more about the Strategic Sourcing efforts to attend. In doing so, you can communicate the essence of some practical methodologies. Additionally, if linked to “case studies” achieved within your own organization, these sessions give people a real, tangible exposure to the positive changes that are occurring.

The Strategic Sourcing Knowledge Center

Lastly, the electronic Knowledge Center, or “portal.” With a manageable amount of extra effort, your consulting firm can help you construct a Knowledge Center. This serves as one convenient place where members of your team can house and access all relevant information about your Sourcing efforts.

This portal should include a description of your company’s purchasing policies and procedures, access to the main sourcing tools and templates such as draft RFPs and benchmarking methodologies, case study materials on completed sourcing activities, ongoing metrics – in short, whatever pieces of information that will be most useful to share throughout the organization. I would suggest that you make this a content-rich, substantive “one-stop shop” that is also a fun and lively place to go. The ultimate goal is to have a unifying site for your knowledge capture activities – which your workers actually use.

In Sum

Taken together, I hope these observations are useful to you as you attempt to build enduring capability throughout your organization. We have found that the consistent accumulation of knowledge and skills – coupled with the excitement of putting measurable savings in the bank for clients – together build a powerful momentum that ultimately creates enthusiasm, fun, and extraordinary value.