Have you ever heard the phrase “If COMPANY only knew what COMPANY knows”? At its core, it describes the fact that information is available at some place in the organization without a clear understanding where, with whom and when. It’s a canny recognition that data silos exist and that information is not accessible, eventually duplicated, potentially inaccurate and definitely not utilized – it’s the ultimate definition of waste.
The true cost of data silos
While this challenge might exist throughout the organization, especially in sourcing this is a missed opportunity. Procurement is inherently complex due to the large amounts of information it needs to process. The information can be clustered into
- Internal demand data (item information, volumes)
- Supplier information (qualification, capacity, footprint, sustainability scores)
- Pricing data (unit costs, historic costs, cost breakdowns)
- External information (benchmarks, indices, risk assessments).
While considering each of these information individually is straightforward, considering multiple factors simultaneously gets unmanageable quickly. Nevertheless, many Procurement organizations still execute and analyze most sourcing events in Outlook & Excel. Where tools have been implemented, they are degraded to manage supplier communication, while analysis happens offline.
Not having these data points readily available is especially problematic when the best value for the organization requires balancing the cost of goods and services with other decision factors. Sourcing decisions are often influenced by additional internal business considerations like supplier performance, supplier preferences, demand volatility, risk distribution and others.
Especially in risk management and sustainability we have seen a lot of traction and development with companies like EcoVadis, IntegrityNext or RiskMethods focusing on traceability, certification management and risk prediction. These solutions create transparency and allow organizations to develop clear sustainability targets and supply chain risk management strategies. Nevertheless, they are not designed to be available to every single sourcing manager and are not integrated into the analysis of sourcing events.
The fact that all information is stored in multiple places and carries different weight in different situations makes considering it consistently when determining the optimal award strategy challenging. This lack of consistency and availability limits the ability to capitalize on the data and create insights and learnings for future sourcing events. Next to missed savings opportunities, this is the real cost of data silos.
Technology, the great enabler
Technology can truly drive efficiency and impact of information by making it available during the decision process and we have explored where sourcing optimization fits into the technology stack in our introduction to sourcing optimization. Organizations need to establish a clear understanding of the desired outcomes, the required inputs, the flow of information throughout the process and the golden source, the source of truth, to make data actionable for award decisions. Much of the inefficiency and lack of use of existing data stems from one of these pieces not being in place or thought through. MS SharePoint or a local file drive simply aren’t the solution, but part of the problem.
While data on suppliers like performance, risk, sustainability, diversity, or performance scores are often captured in appropriate systems, they are rarely integrated into an organizations’ sourcing tool or decision process. The same is true for external market data (e.g., price benchmarks), stakeholder evaluations and soft factors relevant to the overall evaluation. Advanced sourcing software can mitigate many of the challenges stemming from Excel based analytics or disjointed systems, enabling actionable insights for decision making.
Holistic sourcing decisions as enabler for strategic business partnering
Stakeholders expect sustainable sourcing decisions from Procurement that balance competing priorities instead of simply optimizing for price. By including internal & external information like supplier performance scores, credit risk ratings, sustainability indicators or diversity information next to the commercials in the decision process, Procurement can evaluate competing strategic alternatives and their respective opportunity costs.
Advanced Sourcing tools empower every sourcing manager to identify optimal award decisions in an easy and repeatable way. Enabled by combinatorial mathematics and linear & non-linear optimization, holistic evaluations include all relevant commercial & non-pricing information to model, analyze & optimize different award scenarios and strategies.
Holistic sourcing decisions empower Procurement to have fact-based discussions with suppliers and stakeholders by bringing transparency to the decision-making process. Clearly articulating the cost of competing business requirements allows Procurement to unlock additional savings opportunities. Most importantly though, it raises Procurement’s profile to being a strategic business partner that drives sustainable value.
We have explored the concept of holistic sourcing decisions in our webinar 'A practical introduction to Sourcing Optimization'.