In response to the request of Sourcing Innovation’s Michael Lamoureaux, I posted last week about the different skill sets required as sourcing for single internal customer contracts progressed through a sourcing maturity model. And I promised a second post on a contrasting topic: the skills required for enterprise-wide sourcing in the future.
Well, my good friends, here’s that post…
Strategic sourcing has shown signs of maturity. Best practices have been implemented and stabilized at the Fortune 100 companies. And the rest of the purchasing world is beginning to catch up.
Today’s strategic sourcing decisions are made by sourcing teams who are led by purchasing representatives. The more complex strategic sourcing decisions usually involve a total cost of ownership (TCO) analysis or, at the very least, a multiple-selection-criteria analysis using a weighted average supplier scorecard. It is not uncommon for this analysis to be done within the context of an eSourcing solution.
So project management and analysis and spreadsheet skills are indispensable skills for successful sourcing today.
Both of the aforementioned analysis methods take into consideration the differences in cost, quality, delivery reliability, and service of the competing suppliers. And this pretty much works well and has worked well, positioning today’s strategic sourcing on somewhat of a plateau.
But I believe that the sourcing world is ready to get to another level. In the not-too-distant future, we’re going to look back at today’s supplier selection methodology and consider it archaic.
The purpose of putting together a TCO analysis or a weighted average supplier scorecard is to give some acknowledgement of the potential impact of differences in suppliers on the buying organization. But anyone that has ever negotiated selection criteria or relative weights with an internal customer or commodity team knows that each team member’s own personal speculation of the results greatly impacts the internal negotiation.
In the future, I foresee this speculative bickering to be replaced by the widespread watching of simulations of various scenarios associated with the various supplier selection opportunities. The sourcing team will see the risks and the impact on the buying organization if those risks come to fruition. These simulations will be delivered through technologies that factor in all of the variables associated with a supplier selection: supply chain logistics, material availability, supplier financial health, competition in the marketplace, etc.
The simulations will show the impact and probabilities of potential scenarios, large and small, such as:
- Materials getting caught in a customs delay
- A supplier having a major quality issue (think Sony laptop batteries)
- A supplier declaring bankruptcy
- Chronic billing errors
- Erratic lead times
- And every situation you can imagine!
These simulations will give the entire sourcing team a more comprehensive, tangible understanding of the factors that should influence the decision.
So does that mean that purchasing professionals will need fewer skills in the future?
The implication for purchasing professionals is that they have to be “smarter” than the simulators. Look, you can have a computer pick your suppliers for you and just quit your job. But, in jobs where levels of uncertainty are high, a human has to make decisions.
To be “smarter” than the simulation means understanding what factors the simulation considers and knowing how to evaluate those factors to arrive at the optimal decision.
What new and different additional skills will this require of purchasing professionals? Here are just a few…
- Skills in quantitative analysis, with an understanding of statistical probabilities, decision trees, etc.
- Knowledge of macro- and micro-economics
- The analytical ability to quantify the total cost of the supplier relationship, not just the total cost of ownership
Before the world gets to this new plateau of sourcing, there’s still a lot of “current-style” sourcing to be done with the comprehensive blend of skills that are in demand today for the successful execution of a sourcing strategy:
1. Purchasing fundamentals
2. Analysis and spreadsheets
3. Contract law
4. Project management
5. Purchasing best practices
I’d like to close by thanking Michael for the idea to coordinate this effort. I think that he has helped inject purchasing intelligence into the blogosphere and has inspired others to do the same.