I’ve been watching on the sidelines as Michael Lamoureaux of Sourcing Innovation coordinated a series of posts across several purchasing blogs regarding the topic of the future of sourcing. I was pleasantly surprised when Michael asked me to chime in as well.
Specifically, Michael said of the continuation of the series: “Round two is a combination of discussion and how it will affect the purchasing professional. I was wondering if you’d jump in and let our readers know how the future of sourcing could affect them as well as their employers on the training needs you foresee ahead (and any predictions of your own you might like to add). “
So, in this post, I’ll add some insights on the affect on purchasing professionals and the skill sets required for the future. I’m going to separate my response into two categories: those sourcing initiatives that only affect a single internal customer group within a company and enterprise-wide sourcing initiatives. In this post, I’ll address the former. In a future post, I’ll address the latter.
As I pointed out in the article “The Strategic Sourcing Plan of Attack,” sourcing initiatives usually address three stages in a certain order:
- The Easy Wins
- Bread & Butter
- Non-Traditional Categories
Because most large companies have gotten through the first two stages, I’ll talk about Stage #3: Non-Traditional Categories. Non-Traditional Categories are spend categories that have been traditionally managed outside of Purchasing & Supply Management. These areas include health benefits, advertising, travel, and fleet services.
I forsee major changes in how these categories are handled in the future. Specifically, I see a migration across a sourcing maturity model, meaning that sourcing of the categories will be handled differently and will require different skills. The four steps of the model are:
- Totally Decentralized – the sourcing process and decisions are handled entirely within the internal customer group (ICG) and Purchasing & Supply Management (PSM) is not involved at all. The work distribution is ICG=100%, PSM=0%.
- Totally Centralized – the sourcing process is executed by Purchasing & Supply Management with the internal customer group represented on a sourcing team. These internal customer group representatives usually have the opportunity to participate in the decisions, but Purchasing & Supply Management usually has ownership of the decision-making process. This seems to be where most organizations are today. The work distribution is ICG=10%, PSM=90%.
- Center-Managed – Purchasing & Supply Management will manage the process, still doing a lot of the work, but delegating some responsibilities to the internal customer group. The work distribution is ICG=25%, PSM=75%.
- Center-Led – The internal customer group will handle most of the sourcing work using templates, processes, and technologies provided by Purchasing & Supply Management. There will be a few checkpoints for Purchasing & Supply Management to step in and review progress, provide guidance, and perform some specialized duties. The work distribution is ICG=75%, PSM=25%.
Different skills are required at each step of this sourcing maturity model. Here are the skills required…
In a Totally Centralized situation, Purchasing & Supply Management must have strong sourcing skills (including skills in procurement negotiation). They do the lion’s share of the work. But they also must have good relationship-building skills as their entry into the category will not be well-received!
A prerequisite to moving to the next step of the maturity model is mastering – absolutely mastering – sourcing skills. Before any sourcing work is delegated, the delegator must have sourcing down perfectly. Purchasing & Supply Management must be like Mr. Miyagi in “The Karate Kid” by preparing the internal customer group for every possible situation, so that the reaction is perfectly executed and automatic. Wax on, wax off.
In the Center-Managed step, Purchasing & Supply Management must be very skilled at project management. Now, instead of executing the sourcing strategy, they are utilizing resources to accomplish the goal. During this stage, Purchasing & Supply Management must also utilize best practices in process improvement and process quality control skills. The next step will require them to delegate even more, so it is important that they have the ability to identify efficiency opportunities, variables, and ways to keep the process in control, not unlike someone skilled in Six Sigma.
By the time that the organization has reached the Center-Led step, the prior sourcing initiatives should have built up quite a sourcing competency within the organization. Traditional sourcing techniques are unlikely to add significantly to the bottom line. So, Purchasing & Supply Management will migrate to being a source of business intelligence for incremental impact. This can involve a variety of skills such as:
- Knowing where to find additional suppliers in previously untapped parts of the world
- Identifying alternative materials and processes to take cost out of the purchased product or service
- Understanding economic and geopolitical situations to identify opportunities for global source development, not just source selection
- Knowing the cost drivers and how to reduce the associated costs through advanced sourcing techniques
- Identifying opportunities to address sustainability concerns
But all of these new skill requirements doesn’t mean that the purchasing professional should ignore traditional skills. These are, and will continue to be, valuable. For example, while an eSourcing solution will certainly eliminate the need for some negotiations, some of the more involved sourcing projects will necessitate the need for personal negotiation. And I would always feel comfortable having my negotiator be someone who is seasoned in the art of negotiation rather than someone who last negotiated three years ago when the contract was last renewed.
There is a danger in progressing down the maturity model. If progression is done too fast, a company could jeopardize its competitive position for years. It is absolutely key that the Purchasing & Supply Management master sourcing skills before moving from the Totally Centralized step. There is always a desire for speed and progress, but I believe that the quality of the sourcing process must be the priority. This quality is contingent upon having the skills for success today first:
- Purchasing fundamentals
- Analysis & spreadsheets
- Contract law
- Project management
- Purchasing best practices
Based on skills assessments that we’ve provided to hundreds of purchasers across many industries, there is a lot of opportunity for improvement in these areas. I hope that today’s post encourages leaders to not try to make their organizations run before helping them learn how to walk.