An Introduction to Sourcing Optimization - Part 3

Creating mutually beneficial relationships with suppliers and stakeholders for Procurement to become the strategic business partner it should be

In Part 2 of our introduction to Sourcing Optimization we have explored how Sourcing Optimization allows organizations to increase the impact of every sourcing manager in every sourcing event by making holistic sourcing decisions. In Part Three we will discuss how suppliers benefit from sourcing optimization, which pitfalls to avoid when implementing advanced sourcing software and how Archlet rethinks strategic sourcing software from the perspective of its users.

Creating benefits for suppliers as prerequisite for value creation

While many of the discussed benefits of advanced sourcing tools like increased efficiency, improved savings delivery and better stakeholder relationships (Read Part 2 for a full overview) support sourcing managers, there are a number of benefits for suppliers as well. Today, suppliers are often forced to work with multiple tools that are designed for buyers and only provide limited capabilities to the supplier. They often feel disjointed and constant trouble shooting and outside communication is required. Sourcing optimization provides suppliers with more options to engage with sourcing events and achieve mutual benefits, potentially resulting in improved relationships and increased value for both parties.

The caveat is that the tool needs to be intuitive and easy to use. Failing to provide an intuitive and satisfying experience will most likely not result in better than average engagements and proposals. Only if suppliers are able to provide their most competitive commercial proposal as a combination of prices, bundle discounts and rebates, will buyers benefit from the capabilities. This requires a clear commitment of tool providers to extend great user experiences towards the supplier side of their tools as well. Intuitive features and focused support materials are as important as clearly communicating their options to design a proposal in the system. Archlet aims to bridge the gap between buyers and suppliers and is therefore committed to delivering intelligent software that allows both sides to deliver great value to their organization.

Sourcing optimization benefits:

Savings often result from the provision of detailed feedback on commercial performance. The ability to provide detailed and specific feedback gives suppliers visibility on their competitiveness early on in the tender process. And it is very different to receive line-item feedback compared to a general “You are too expensive. Everywhere.”. Providing transparency results in an overall richer user experience for suppliers.  Allowing suppliers to provide proposals on alternative product designs or tailored discount schemes adds to their experience. This concept is known as “expressive bidding”, as it allows suppliers to express their individual strengths and preferences most effectively.

The notion of holistic sourcing decisions also extends to the realm of suppliers, as the inclusion of factors likerisk, quality, sustainability and performance indicators in addition to commercial metrics ensures that suppliers feel valued beyond price. This improves the overall relationship between Procurement and its supply base as it fosters the understanding that decisions are made holistically, not based on a single criterion.

How commercial models influence value delivery through sourcing software

When selecting sourcing software, different license models are available that align business value and the expected breadth of adoption (see image below). Models include fixed fee models, user-based pricing or some level of transaction-based pricing. Without going into details on the respective pros and cons of each model, some aspects are noteworthy when considering how the model impacts adoption across the organization.

Fixed Fee models provides a price point based on module or solution level, which makes it easy to understand, comparable and provides planning security. Cost per Spend models use the managed spend in the platform as the reference point for how much value the solution generates. Cost per User models attribute a cost to different capabilities or users in the tool, highlighting the value it generates for each type of user. Lastly, Cost per Transaction models use the number of transactions or events managed, which make them hard to plan for both parties.

Different license models:

While all models being pecked to the value the tool or users can generate, fixed models tend to support the wide adoption across the company as they provide planning security, even when business grow through acquisition. User and event-based pricing models can be beneficial for set-ups with limited numbers of users or annual events. While they are beneficial when the business shrinks and less people or events are needed, they don’t support sudden growth well. They therefore often limit the adoption to selected events or users, not maximizing the value delivery across an organization.

Navigating the stumbling blocks to deliver on the promise of improved value

The idea of implementing a technology solution often brings up memories of lengthy and costly past endeavors. Advanced sourcing tools today are Software as a Service (SaaS) offerings, that are ready to use within a couple of minutes (after the logins are set up users are ready to go) and don’t require much IT involvement unless integrations to ERP systems or other Procurement tools are required. Nevertheless, to realize the full potential of the technology, organizations need to take a holistic approach on enabling their organization and managing expectations. This includes activities like training, communication, expectation and change management as well as hands-on support for making the first steps with live projects. A clearly defined approach ensures that sourcing managers can deliver the expected value quickly.  In addition, company-wide adoption is driven through word of mouth and lighthouse projects, quickly resulting in a measurable return on the investment.

There are a couple of stumbling blocks that need to be avoided to make the implementation of advanced sourcing tools successful. Firstly, organizations often fail to clearly communicate the added benefits and relevant use cases across the organization that inspire interest and curiosity. A clear communication strategy can help with creating awareness and alleviating potential concerns. Especially where automation triggers fears of tools replacing jobs, a clear commitment to empowering users and delivering more impact with every sourcing manager can be a powerful force for driving adoption.

Secondly, organizations often start with a limited scope of categories. While this is a perfectly fine approach to test the value of analytics and optimization, a prolonged trial period carries the risk of tools being considered category focused (“This only works in Logistics/Packaging/Indirects/etc.”), which can limit value delivery in the long run. The communication and training efforts therefore need to ensure that use cases are created in a variety of commodities simultaneously. Running category workshops that highlight specific use cases will create visibility and awareness. On top, these workshops can be used for the creation of customized event templates that further reduce adoption hurdles and the perceived complexity of new tools.

Lastly, the lack of a clear support infrastructure that provides ongoing counseling and ensures individual success can prohibit the willingness of experimenting with new tools. Ensuring there’s a clear understanding of the available resources reduces fears of getting stuck when trying something new. The support infrastructure can consist of super users, a dedicated support team or simply the success management team of tool providers. The more intuitive the tools are, the less resources will be required. Archlet is therefore focused on creating user experiences that guide sourcing managers and suppliers through the sourcing event with a clear focus on required activities and actions. The provision of best practice templates and success managers supporting the roll-out ensures stumbling blocks are clearly identified, addressed and avoided.

Archlet's take on sourcing optimization

Fight fire with fire and everything will burn. While this an absolutely valid approach in some instances, it’s usually not the first choice that comes to mind. Today, sourcing optimization is usually connected with the most complex tenders with hundreds and thousands of line items, numerous suppliers and a variety of rules. Looking at the average company, those events are a dime a dozen, not reflecting the truth of most Procurement organizations. While responding to complexity with complexity might very well be necessary in some situations. We believe that sourcing managers would be better off with focused and user-friendly tools that can scale with the challenge at hand and deliver value across all types of complexities in sourcing events.

Archlet is a user-first sourcing software company that helps companies and sourcing managers make better sourcing decisions faster - independent of company size, maturity, industry or category. We believe that easy to use and data driven sourcing decisions should be available to every organization in every negotiation. Therefore, we focus on the capabilities that drive the highest value for our users and ensure the usability of these features. We drive organization-wide adoption by harnessing the intrinsic motivation to deliver the best results to the organization and their stakeholders. Without force, but by seamlessly integrating into the ways of working of sourcing managers we are delivering an intuitive and playful user interface for buyers and suppliers alike.

We have designed Archlet to be used either as a standalone solution for managing the end-to-end sourcing process from RFx to negotiation or as an augmentation to existing Procurement Suites (e.g., SAP Ariba or S4 Hana) via API integrations. This way, we can ensure it easily enhances existing technology ecosystems and supports organizations along their Procurement digitalization journey.

Delivering on the promise of digitalization with intuitive and user-friendly sourcing software

Procurement is a great place to be in! The amount and speed of digital disruption is intimidating and thrilling at the same time. Expectations towards Procurement are continuously rising, with objectives pulling CPOs and Procurement teams in many directions at the same time. The C-Suite demands increased efficiencies, higher savings, lower operational costs, more sustainable and resilient supply chains and much more. Faster, better and cheaper – it still doesn’t quite work that way.

Sourcing Optimization is an important building block in the digitalization journey towards more efficiency and impact. It allows to balance the conflicting objectives of businesses by assigning a clear value to each of the business rules and constraints, enabling more meaningful conversations and holistic decisions on the available options. By bringing this transparency to the business, Procurement can truly establish itself as a strategic business partner.

Sourcing optimization delivered through Archlet will empower your team to deliver more savings from more events by making better decisions faster. In short, Archlet will improve the return on your Procurement investment. Contact us to learn more about our products or philosophy and discuss how to deliver value with your team!

Sincerely yours,

Archlet. Your Source to Impact.

Author: Fabian Lampe

Archlet is a user-first sourcing software company that rethinks strategic sourcing in a way that allows sourcing managers make better decisions faster. In our blog we discuss different topics around Digital Procurement and advanced sourcing. Follow us on LinkedIn or sign-up to our newsletter to stay up to date with our pioneering thoughts and the latest company updates.