Jon Stegner’s famous article “Gloves on the Boardroom Table” is a classic example of not just leaders in denial (for my business school friends) but also the opportunity in procurement – specifically, strategic sourcing. The article can be found here. I’ll downplay the leaders in denial aspect in favor of the Supply Chain benefits in the article – Jon describes the opportunity in cost savings opportunities within his organization. Convinced of significant savings opportunities, Jon tasked his summer intern to gather various gloves (yes, something so simple) across the factories in his organization, and what he found was staggering… FOUR HUNDRED TWENTY-FOUR different gloves were being used across the factories. Many of the gloves were similar but their costs could vary greatly. In one case, two gloves which were nearly identical were marked one for $3.22 and the other $10.55. Jon Stegner proceeded to lay out all 424 gloves on the boardroom table for his peers to witness the opportunity at hand. Jon didn’t share the cost savings his company was able to reap, instead citing a general “a great deal” but as you can imagine, strategic sourcing in this example can yield significant results.
And so this brings to light the very simple, yet impactful opportunity in strategic sourcing to your bottom line. Synchronizing procurement efforts across an organization can have immediate effects to costs. This should come as no surprise as you think about companies who do this extremely well including Wal-Mart (the epitome of operational excellence), UPS, The Home Depot, etc. Strategic sourcing empowers your procurement organization reap the benefits of supplier competition. And today, there are many ways to empower your company’s procurement strategy…
- As a Consultant, I was part of a small team leading the transformation of the Procurement organization of a major IT outsourcing company with spend across global business units. Over the next several years, the organization looked to reign overall Procurement spend with immediate savings through an e-Sourcing solution.
- The implementation of an e-Sourcing system enabled the company to leverage RFx templates and run auction events to drive down costs and enable supplier competition for its more than 1,000 vendors and more than a 100 internal procurement categories.
- I spent a few years as a Procurement Analyst within a major third-party logistics company’s Procurement group within its Transportation organization. Third-party logistics companies are the very shining examples of strategic sourcing. I supported the management of largely truckload and less-than-truckload carriers on behalf of our customers analyzing transportation costs, rate changes, and provided lane-carrier recommendations. At the end of the day, upper-tier carriers are very similar. Yet, when you review RFP bids, some carriers bid with 30% premiums over their competitors.
- Further benefits of strategic sourcing (and 3PLs) include “soft” benefits which at first are hard to quantify until service failures arise (in this example). Aside from numbers, Procurement empowerment meant also assessing suppliers’ qualitative bid as well. For example, being a low cost provider counts for naught should a carrier’s on-time performance be well below top-tier standards (99.8% oftentimes).
- Other activities included the analysis of rate increase requests. Our strategic goal here was mitigate costs as much as possible reducing rate increases, fuel surcharge increases, accessorials, etc.
It’s a no wonder during the Great Recession, opportunities in Procurement were (and are still) the fad. Not many strategies can be implemented so quickly with such significant impact straight to your bottom dollar. Strategic sourcing, e-Sourcing solutions, and intelligent deployment of 3PLs can be a powerful advantage against your competitors. So the question is: how many gloves are on your table?