Raising the Stakes for e-Sourcing

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Raising the Stakes for e-Sourcing

UNIQUE CHALLENGES
Speed

A leading Zycus iSource customer from the industrial automation and control industry recently and successfully executed an eRFQ spanning some 7,500+ line items and 98 suppliers worldwide. The global competitive cost discovery and sourcing efficiency represented in such a large-scale event was unimaginable just a few years ago before e-Sourcing solutions had evolved to their current state of the art. It is a sign of the times in which sourcing teams push the envelope on global e-Sourcing adoption, utilization and innovation.

Some of the unique challenges faced by sourcing professionals are as follows:

In general market benefits accrue to first movers, so sourcing teams must be equipped to move hyper fast and on short notice in support of product innovation, roll out, engineering changes and ramp to volume.

Global ubiquity

With globalization, sourcing teams have virtually no option to be regionally or locally focused; they must be equipped to source, build and sell anywhere in the world.

High volume & complexity

Bills of materials (BOMs) for certain products are extensive and highly variable in terms of attributes, volumes, supplier characteristics, locations, and so forth. What is more, these complex, high-volume BOMs need to be sourced at high frequencies for globally distributed business operations and divisions.

Disintegration

Companies that dream, design, build, market, sell and distribute their own products are rare. Very often, the nexus of control over profitability resides with suppliers, demanding different kinds of supply relationships, intense focus on product/service quality and other supplier performance metrics and more rigorous approaches to managing supply risk.

Transitory

Products live relatively short lives and often follow unique pricing curves, starting high then dropping quickly and steeply. Each phase in the product life cycle demands different sourcing strategies.

Volatility

Supply chains have become exceedingly unpredictable due to reliance on commodity inputs such as rare metals, patent and licensing intricacies, globalization, and lean manufacturing and inventory practices that add calculated risks.

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With so many complex challenges, it is no surprise that sourcing teams that have been among the earliest and most enthusiastic adopters of sourcing process automation (e-Sourcing) solutions. may be reaching a level of eSourcing maturity that is outgrowing their early solution deployments. A look at e-Sourcing specifications at the moment suggests the early adopters are now craving more flexible solutions and more comprehensive e-Sourcing functionality that can support truly global, end-to-end management and control over well defined and well informed sourcing processes.

The remainder of this paper explores the e-Sourcing features and functions that sourcing teams are specifying most frequently and the benefits they are hoping to realize from the upgrades.

ACHIEVE MASSIVE CYCLE-TIME REDUCTION

With Zycus iSource a large scale sourcing event was completed in just over one month, representing a massive 65% reduction in cycle time from the company's prior fivemonth average for sourcing similar varieties and quantities of components.

In business environments, where entire product lifecycles can be as short as a few years, anything that contributes to speed is a good thing. Of note is that the very large-scale sourcing event referenced at the beginning of this paper was completed in just over one month, representing a massive 65% reduction in cycle time from the company's prior five-month average for sourcing similar varieties and quantities of components. And, while it is well understood that e-Sourcing solution deployments can yield substantial cycle-time reductions, a key driver of that 65% improvement was the inherent scalability of the solution used, which accommodates virtually unlimited numbers of line items and suppliers. Before upgrading to the advanced solution, the company would have been forced to complete five or six separate e-Sourcing events to cover the same ground.

REACH INTO ALL REGIONS OF THE GLOBE

Along with global ubiquity comes a need for true global reach in three key areas: innovation, competitiveness and collaboration (both within a company and externally with suppliers). Global reach engenders true global supplier and market price discovery and also dramatically expands and improves the business intelligence available to procurement for such mission-critical activities as target costing in new product development.

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To reach globally, sourcing teams want e-Sourcing solutions that simultaneously empower them to: Key e-Sourcing solution features that support these objectives include :
n Gather and structure large volumes of detailed information from

global bases of suppliers, including technology roadmaps, manufacturing, process control, quality, inventory management, information security, environmental sustainability, labor and otherpractices, adherence to industry standards and government regulations, diversity status, and key financial risk factors, to name just a few
n Involve maximum numbers of qualified suppliers from around the

Unlimited event sizes and scopes Multilingual user interface 24/7 secure web access Best-in-class web security Configurable workflow and permissions control Easy import/export from and to popular desktop applications One-to-many communications functions such as forums

globe in competitive bidding events and

n Promote collaboration with suppliers and amongst globally

distributed networks of sourcing, engineering, manufacturing, logistics, finance and other relevant company personnel

DRIVE TO REAL TCO MODELING & DECISION MAKING

While many e-Sourcing solutions offer sophisticated modeling and computing capabilities, very few offer the full range, and even fewer package advanced features in ways that are both easy to access from lower levels of e-Sourcing maturity and fully extensible as procurement organizations move up the eSourcing maturity curve

Total cost of ownership (TCO) modeling is another area where sourcing teams are pushing forward with e-Sourcing maturity. They want fullfeatured solutions that empower them simultaneously to:
n

Flexibly model both BOMs and services cost breakdowns, sourcing virtually all categories electronically,

Incorporate hard data regarding suppliers' quality, delivery and other performance parameters into sourcing-decision models,

Invite engineering, production, logistics and other key personnel to influence how various supplier performance and other factors get weighed in sourcing decision making,

Dynamically analyze and refine weighting decisions in context of information extracted from supply markets, and document, demonstrate and validate for key stakeholders and executives the mathematical and factual rigor of critical sourcing decisions.

What is more, sourcing teams want to be able to accomplish all of those things without being forced to step outside their e-Sourcing solutions into electronic spreadsheets or other applications that specialize in advanced computation. The sourcing teams want sophisticated capabilities for processing massive quantities of data accurately within very short time frames and for allocating business optimally among suppliers based on a multitude of variables.

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The eSourcing solution must enable the end user in,

n n n

Building valid, complex sourcing decision models Exploring what-if scenarios Modeling constraints for business-award optimizations

Process control plays a crucial role in producing reliable, high-quality

DEPLOY & CONTROL SOURCING PROCESSES GLOBALLY

e-Sourcing capabilities for creating and deploying standard sourcingevent templates and for monitoring and managing sourcing program execution are critical

products that consistently delight consumers. Sourcing teams hence are looking for e-Sourcing solutions with embedded project-management and global monitoring functions that enable process-control principles to be extended to their sourcing processes. They want solutions that empower them to:
n

Codify specific best sourcing practices into workflows that can be extended easily across multiple and globally distributed sourcing operations, and

Gain enterprise-level visibility into statuses and process compliance at all stages of all active sourcing programs.

In a similar vein, sourcing teams looking to advance their e-Sourcing maturity want capabilities that allow them to embed risk avoidance practices upstream in sourcing processes rather than merely reacting to risk downstream as it arises in operating supply chains. For example, where a factor such as information security is a critical concern, procurement management wants to define and control a standard set of security hurdles that all suppliers must clear rather than leaving the issue open for each successive sourcing team to define and address in an uncontrolled manner. e-Sourcing capabilities for creating and deploying standard sourcing-event templates and for monitoring and managing sourcing program execution are critical for achieving these objectives.

It is imperative that different types of information get synthesized into

SYNTHESIZE BUSINESS INTELLIGENCE

sourcing event modeling and decision processes. Using historic spend data to inform the process of identifying suppliers for competitive bidding is one way to support such objectives. Historic spend data may also be applied to ensure supply-base rationalization objectives are always factored into business award and allocation decisions.

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Use historic spend data to inform the process of identifying suppliers for competitive bidding and ensure supply-base rationalization objectives are always factored into business award and allocation decisions.

Where market volatility comes into play, procurement teams want to be able to integrate external market intelligence into sourcing decision making. For performance objectives such as product quality, speed to market and supply risk minimization, an ability to integrate hard data around suppliers' operational performance into business award decisions is a must-have capability. As a consequence of these requirements, sourcing teams are increasingly looking at e-Sourcing solutions that integrate with both their up and downstream procurement automation solutions such as spend analysis, global market price/cost monitoring, supplier and contract management and P2P.

Zycus expects that procurement leaders in the high tech-industries will

WIN COMPETITIVELY

continue to move the meter forward on e-Sourcing maturity. To give their companies a competitive edge, they are in hot pursuit of:

Massive sourcing cycle-time reductions Truly global supplier and price/cost discovery Consistent global deployment and execution of best sourcing processes Rapid collection, accurate synthesis and sophisticated use of business intelligence Risk avoidance Sustainable cost competitiveness via early supplier involvement and Tight sourcing process control

CPOs hoping to keep pace competitively should be asking if their current eSourcing solutions have the potential and capabilities to yield the same set of benefits.

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About Zycus

At Zycus we are 100% dedicated to positioning procurement at the heart of business performance. For more than a decade we have been the world's most trusted leader in Spend Analysis. With our spirit of innovation and a passion to help procurement create even greater business advantages, we have evolved our portfolio to a full suite of Procurement Performance Solutions Spend Analysis, e-Sourcing, Contract Management, Supplier Management, Financial Savings Management and Procure-To-Pay. Behind every Zycus solution stands an organization that possesses deep, detailed procurement expertise and a sharp focus on being responsive to customers. We are a large 600+ and growing company with a physical presence in virtually every major region of the globe. We see each customer as a partner in innovation and no client is too small to deserve our attention. With more than 200 solution deployments among Global 1000 clients, we search the world continually for procurement practices proven to drive competitive business performance. We incorporate these practices into easy-to-use solutions that give procurement teams the power to get moving quickly from any point of departure and to continue innovating and pushing business and procurement performance to new heights.

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