Are Advanced Sourcing Tools For You?
PurchTips edition #242
By Charles Dominick, SPSM, SPSM2, SPSM3
Have You Researched The Latest Sourcing Tools?
For modern sourcing, leading companies have gone beyond the basic reverse auction and are making use of advanced sourcing tools to drive reduced costs, improved profits, and competitive advantage. Here are five types of advanced sourcing tools available today:
Sourcing Optimization - "The whole idea behind optimization is that rather than force suppliers to bid... on set criteria [and] set lot structures, that you begin to invite creativity into the process," according to Jason Busch, Founder of Azul Partners and Editor of spendmatters.com. With creative bid data captured, "you can run your own constraints against them and you can run scenarios and drive outcomes from them."
Commodity Management - Hedging is the practice of agreeing on a commodity purchase price for a future delivery in order to achieve cost certainty in a volatile pricing environment. Busch advises that commodity management tools "can help you better forecast and model where prices might go" and simplify compliance with hedging-related accounting rules.
Savings Tracking & Forecasting - Savings tracking and forecasting tools don't just identify what you might save - they track the money that is actually saved. Busch says that these tools also help procurement and finance teams answer questions like "How do we measure savings? How should savings affect budgets? And then how do we forecast savings and cash accordingly?"
Direct Materials Supplier Collaboration - "There are lots of platforms [which] tie together... the engineering, sourcing, and supplier collaboration side for direct materials," states Busch. He cites collaborating on material substitutions as just one example where direct materials supplier collaboration tools are used.
Total Cost Modeling - When buying direct materials globally, there are many components of total cost from packaging costs to duties to freight fees to inventory carrying costs and more. "We've got to look at all these factors together and be able to create these total cost models," says Busch. While building such models in Excel is possible, Busch notes that total cost modeling tools can facilitate "doing it within a sourcing context."
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