Executive Briefings

Sourcing & Procurement: Plenty of Procurement Programs, But Which Is Right for You?

Analyst Insight: Before investing in new programs for procurement or other functional areas, organizations must evaluate each program thoroughly as implementation can be a time-consuming and expensive process. However, in many cases the long-term benefits may compensate for the short-term pain.

Participants in APQC's Open Standards Procurement Research have invested, or plan to invest, in a variety of procurement programs. It is interesting to note that those programs organizations most wish to have are those they are least likely to have already initiated. Currently 83 percent report that they have invested in global sourcing, 73 percent in category management, 63 percent in spend analysis, 61 percent in formal supplier relationship management, and 60 percent in supplier development and key performance indicator (KPI) programs.  However, when you include organizations that plan to initiate these programs, more than 90 percent of them will invest in formal supplier relationship management, supplier development and global sourcing.

Supplier relationship management is a critical, interdependent aspect of procurement; an organization cannot fix the processes inside its boundaries without getting everyone in the chain on the same page. Supplier management can benefit from thorough spend analysis, the use of blanket/contract orders, and the effective use of technology.

Focusing on supplier development and measuring performance with KPIs helps organizations evaluate and approve potential suppliers and re-evaluate the performance of existing suppliers. These evaluations ensure that suppliers meet an organization's requirements. One major benefit of supplier approval programs is a decrease in maverick spending, which occurs when employees go outside the formal procurement channels.

Global sourcing has become a very popular way to decrease costs by leveraging labor and materials from countries with low-cost work forces.  Although it may be the best choice for an organization, it should not be undertaken blindly. APQC's research has found a number of potential drawbacks to global sourcing, including longer supplier lead-times and fewer orders received on time.

The Outlook

Moving forward, APQC encourages organizations to further explore each of these potential procurement programs to determine whether each one is a good fit and to consider their strengths and weaknesses. It may be that the best option is to invest in a combination of several of the programs, as each is likely to help solve a different problem.

Participants in APQC's Open Standards Procurement Research have invested, or plan to invest, in a variety of procurement programs. It is interesting to note that those programs organizations most wish to have are those they are least likely to have already initiated. Currently 83 percent report that they have invested in global sourcing, 73 percent in category management, 63 percent in spend analysis, 61 percent in formal supplier relationship management, and 60 percent in supplier development and key performance indicator (KPI) programs.  However, when you include organizations that plan to initiate these programs, more than 90 percent of them will invest in formal supplier relationship management, supplier development and global sourcing.

Supplier relationship management is a critical, interdependent aspect of procurement; an organization cannot fix the processes inside its boundaries without getting everyone in the chain on the same page. Supplier management can benefit from thorough spend analysis, the use of blanket/contract orders, and the effective use of technology.

Focusing on supplier development and measuring performance with KPIs helps organizations evaluate and approve potential suppliers and re-evaluate the performance of existing suppliers. These evaluations ensure that suppliers meet an organization's requirements. One major benefit of supplier approval programs is a decrease in maverick spending, which occurs when employees go outside the formal procurement channels.

Global sourcing has become a very popular way to decrease costs by leveraging labor and materials from countries with low-cost work forces.  Although it may be the best choice for an organization, it should not be undertaken blindly. APQC's research has found a number of potential drawbacks to global sourcing, including longer supplier lead-times and fewer orders received on time.

The Outlook

Moving forward, APQC encourages organizations to further explore each of these potential procurement programs to determine whether each one is a good fit and to consider their strengths and weaknesses. It may be that the best option is to invest in a combination of several of the programs, as each is likely to help solve a different problem.