Seven Keys ToBetter Sourcing and Supplier Management

Andrew Bartolini,
Chief Research Officer

Ardent Partners
May, 2014

Seven Keys to Better
Sourcing and Supplier
Management

Underwritten by:

Seven Keys to Better Sourcing and Supplier Management

2014 Ardent Partners, Ltd. www.ardentpartners.com

1
REPORT SPONSORSHIP
The views and opinions in this report represent those of Ardent Partners at the time of publication.
While the report topic was agreed upon in advance, Ardent singularly determined the research
approach taken and the reports final content including its ideas, strategies, case studies, and
recommendations. The contents of this research report are the exclusive property of Ardent
Partners. Please direct any comments or questions regarding our research sponsorship policy to
Ardents Chief Research Officer, Andrew Bartolini at abartolini@ardentpartners.com and/or
617.752.1620.

Sponsor:

Zycus is dedicated to positioning procurement at the heart of business performance. With our
spirit of innovation and a passion to help procurement create even greater business advantages,
we have evolved our portfolio to a complete Source-to-Pay suite of procurement performance
solutions which includes - Spend Analysis, eSourcing, Contract Management, Supplier
Management, Financial Savings Management, and Procure-to-Pay. www.zycus.com
Contact:
For further information, please email information@zycus.com.



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How and what you communicate during the sourcing process sets the stage for the resulting supplier
relationship. And while that relationships may never become a true marriage of equals, there are
several things that sourcing and supply management professionals can do to get things started on the
right foot. This report highlights seven important strategies and tactics that procurement organizations
can use to drive savings while also maintaining and improving key supplier relationships.
The past few years have been very good to procurement organizations
with their stable supply markets, limited price volatility, few global
disruptions, more executive support for procurement programs than ever
before, and an easing of internal pressure to deliver savings. But,
procurement leaders must be wary of complacency and the risk of being
left behind or caught unaware by the next market shift. Now is a great time
for procurement teams to stave off boring, business-as-usual approaches
and sharpen their soucring and supplier management skills. Ardent Partners offers seven keys to
help facilitate that process.
1. Knowing Your Spend
Simply put, a procurement department cannot claim to be a strategic function if it does not
understand its spend: what it is buying from whom, and at what terms and cadence. And yet, in
2014, far too many procurement organizations continue to operate without good visibility into
their spend. Like a sales organization that does not track its pipeline or an accounting team that
does not understand basic reporting requirements, procurement groups that are literally sourcing
"blind" should be considered functionally inept.
After all, the foundation of operational excellence within the procurement function is spend
visibility... and an ability to take action on it. When a sourcing team has the ability to leverage
spend visibility across its operations, it can improve results by making better, more-informed
decisions to help build better sourcing pipelines, optimally allocate resources, and engage and
support business stakeholders. For example, procurement organizations manage, on average, just
over 60% of total enterprise spend, leaving nearly 40% of all spend beyond their influence and
control. To place more spend under management, most procurement teams must seek out and
engage new stakeholder groups. To attempt to do so without a clear understanding of what each
group is spending limits procurement's credibility and the likelihood that any new group will want
to collaborate.
2. Early Engagement
Industry research has shown that the timing of when procurement gets involved in the sourcing
process has a direct impact on results. Sourcing projects save more money when procurement is
engaged at the front end of the process rather than later. The difference between serving as an



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order-taker or as a strategic partner is not subtle so,
the challenge for CPOs and their teams is to figure out
how best to engage the budget-holders in proactive
planning discussions and formalize their levels of
interaction and support. One recommended strategy
is for CPOs to "embed" their staffs in the business by
sending them into the field for a period of time to
engage and work side-by-side with the large teams
and key business stakeholders. When procurement professionals are able to sit in business staff
meetings and planning sessions, become active participants in the budgeting process, and
understand the objectives and priorities of the business and how its staff is rewarded, they
develop a much better understanding of the business needs and how to support them. By
increasing the level of professional and personal interaction via physical proximity, higher levels of
trust and communication are established, bridging the way for procurement to be engaged on
more sourcing projects from the beginning.
3. Tighter Specifications
One of the many benefits from the 'early engagement' in sourcing projects discussed above is that
it gives sourcing teams more time and a better opportunity to shape and rationalize end-user
specifications. A better understanding of the business need and use of a specific good or service
allows for sourcing professionals or teams to exert greater influence on the bid package which can
result in improved pricing, better quality or service levels, and frequently all of the above.
With enough time, sourcing teams are better able to engage internal stakeholders to clearly
define the business need and desired outcome from the sourcing project and help the team
discern between "must have" and "nice-to-have" requirements. Additionally, more time allows a
sourcing team to better research the category and underlying supply market. For example, a
sourcing team may choose to begin the process by sending an RFI (request for information) to the
suppliers in the hope of discovering a new trend, delivery approach, or innovation that could
significantly change the final bid specifications. Whether guiding internal stakeholders or
collaborating with suppliers, getting better specifications does not have to mean dialing back
requirements to focus on cheaper or inferior items/services. In fact, by spending more time with
internal and external constituents, a sourcing team could discover new information that leads to a
more expensive, but also, more valuable supplier contract.
4. Clear Communication
It is one of the procurement industry's dirty little secrets that some buyers and sourcing
professionals run sourcing projects even though they have predetermined which supplier
(generally the incumbent) will win the award. Unfortunately for these buyers, suppliers can usually
sense when the playing field is not level and as a result, spend much less time focusing on the
opportunity and delivering their best bids. Retaining an incumbent is frequently viewed as a
" The procurement functions relationships
with its suppliers are typically the foundation
of how sourcing and supply management
programs perform. Utilizing the seven keys in
this report can serve as a catalyst to a series
of processes that have a risk of becoming
stagnant and repetitive over time."



4
'low-risk' strategy but in this age of innovation and
heightened competition, market leadership is difficult to
sustain so failing to consider new sources of supply is actually
quite-often, a high-risk strategy. Take, for example, the
consumer electronics market where industry leadership can
completely change within a three or five year window and
one-time market share leaders can quickly find themselves on
the brink of bankruptcy. Be forewarned that similar shifts are
pervasive in most supply markets, even if the speed of
change varies.
One way to ensure that teams are fairly engaging the best
potential qualified bidders/suppliers in the process is to
standardize and centralize supplier communication during
the bid process, and, in particular, do a much better job in
supplier communication upfront. Clear, upfront
communication helps level the playing field and as a result, is
more likely to engage and attract the highest-value suppliers. Once the right suppliers are
engaged, the sourcing team must work to ensure that the RFx (industry term used to describe
buyer requests for information/proposal/quote/etc. from suppliers) process flows smoothly. They
can greatly aid their cause by clearly explaining their bid process requirements and providing
detailed specifications for the category being sourced. Remember, when suppliers lack clarity and
details for a bid opportunity, they will mitigate the "risk of the unknown" by submitting less
aggressive bids.
5. Efficient (and Robust) Evaluations
Before it launches a competitive bid, a sourcing team should have some established or general
criteria and/or methodology for evaluating bids. It is possible that new information will arise along
the way that will necessitate process and priority shifts. But, within the general framework, the
team should understand what it is trying to achieve, what it is looking for in the supply base, and
the general timeframe in which it will make its final decision. There are very few reasons this
information should be withheld from the bidders.
Perhaps even more important than communicating the evaluation process to prospective bidders
is the need for the sourcing team to conduct the evaluation process on the timeline and in the
manner that was originally communicated. Easily one of the most frustrating things for suppliers
involved in responding to an RFx is when, after investing significant time and effort in preparing a
bid, they fail to receive timely feedback or status updates from the buyer, much less a
confirmation of bid acceptance. Those suppliers who have been frustrated in the bid process are
much less likely to participate in one with the same group again.
Suppliers are Assets
Collins English Dictionary defines an
asset as a thing or person that is
valuable or useful. That description
should ideally be applied to all of an
enterprises suppliers - valuable and
useful. An asset is also something
that is worth investing in and
something that can grow in value
over time.
What would need to change for an
entire organization to begin treating
its suppliers like real assets? How
many procurement teams spend time
evaluating what should be invested
(time, resources, money, training, etc.)
to help key suppliers grow in value?



5
Sourcing professionals can add significant value to
the process by keeping their teams on task and
making sure that evaluations are both thorough and
timely. Since sourcing teams need enough qualified
suppliers willing to participate in order to run a
successful sourcing project. They should, therefore,
respect the time and effort that suppliers invest in the
bidding process by being efficient and responsive
after all the bids have been received. Finally, it is
important to note that efficient evaluations can also
be robust and thorough. If an evaluation is expected
to be difficult and time-consuming, simply communicate this fact to the bidders. Teams that build
in simple courtesies and interactions into the process can build sizable goodwill with suppliers.
6. Warm Welcome
For better or worse, the sourcing/negotiation process can have a real impact on the post-contract
relationship that enterprises have with their suppliers. A "win-win" negotiation is difficult to
achieve and, quite candidly, is not the goal for many procurement organizations that pursue the
best deals possible in an aggressive way. There is absolutely nothing wrong with taking a hard-line
approach to supplier negotiations, however, the aftertaste of a hard-fought and protracted
negotiation can make the development of a strong, post-contract supplier relationship difficult to
achieve. Ardent Partners believes that there is a fairly straightforward way to improve the tone and
tenor of most buyer-supplier relationships - warmly welcoming the supplier and on-boarding
them with a process that recognizes, and even, accommodates their needs and requirements. It
may take some time for suppliers to move beyond a tough negotiation, but sourcing and supply
management teams would be wise to use the on-boarding (or renewal) process as a means to set
or reframe the relationship in a positive light.
How much time and effort spent welcoming a supplier should depend on how important or
strategic each one is to operations and results. But, even tactical suppliers can be welcomed with
simple, standard communications that frame them as partners and assets. Not all negotiations are
confrontational or end with hard feelings; but, when they do, procurement departments will find
that a little etiquette can go a very long way in establishing a strong supplier relationship.
7. Proactive and Ongoing Supplier Outreach
A collaborative and productive supplier relationship, like any relationship, is built upon trust and
good communication. After warmly welcoming (and on-boarding) a supplier, procurement
departments should continue working to build and maintain strong and vibrant relationships with
their strategic suppliers. When procurement departments are able to view their suppliers as assets
and sources of value, this investment is easily justified.
"Establish meetings and calls where the
procurement team can interact with their
critical suppliers to discuss ongoing
challenges, corporate goals, plans, and
priorities (and how those suppliers can best
support those areas), ways to increase and
improve innovation, and the means for
improving their communication and overall
relationships for the mutual benefit of both
sides."



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Develop a regular conversation around topics in which the procurement team can interact with
their critical suppliers to discuss ongoing challenges, corporate goals, plans, and priorities (and
how those suppliers can best support those areas), ways to increase and improve innovation, and
the means for improving their communication and overall relationships for the mutual benefit of
both sides. While the level of information shared and the frequency of communication should vary
based upon the type of supplier, proactive supplier engagement that seeks to communicate goals
and expectations, align mutual interests, and build trust, sets a great foundation for more
productive suppliers and better results.
Conclusion
Engaging with and managing suppliers is a key component of any Chief Procurement Officers
priorities and focus. The procurement functions relationships with its suppliers are typically the
foundation of how sourcing and supply management programs perform. Utilizing the seven keys
above can serve as a catalyst to a series of processes that have a risk of becoming stagnant and
repetitive over time.



7
APPENDIX
ABOUT ARDENT PARTNERS
Ardent Partners is a Boston-based research and advisory firm focused on defining and advancing
the supply management strategies, processes, and technologies that drive business value and
accelerate organizational transformation within the enterprise. Ardent also publishes the CPO
Rising and Payables Place websites. Register for exclusive access (and discounts) to Ardent
Partners research at ardentpartners.com/newsletter-registration/.
ABOUT THE AUTHOR
Andrew Bartolini, Chief Research Officer, Ardent Partners
Andrew Bartolini is a globally-recognized expert in sourcing, procurement,
accounts payable, and supply management. Andrew focuses his research and
efforts on helping enterprises develop and execute strategies to achieve
operational excellence within their procurement and finance departments.
Andrew is also the publisher of CPO Rising, the first independent media site
written for and about Chief Procurement Officers and other supply
management executives (www.cporising.com).
Advisor to CPOs and leading solution providers alike, Andrew is a sought-after presenter, having
lectured and presented more than 150 times in seven different countries. Over the past decade
years, Andrew has benchmarked thousands of enterprises across all facets of their sourcing,
procurement, accounts payable, and supply management operations and his research is currently
part of the Supply Chain/Management curriculum at several US universities. He actively covers the
technology marketplace as well as trends in sourcing, procurement, supply management, and
accounts payable and has been published or quoted in leading business publications including
The Wall Street Journal, Business Week, Investors Business Daily, Forbes, and Fortune, as well as
the major trade publications focused on supply management.
Prior to becoming an industry analyst, Andrew developed, packaged, deployed, and used supply
management solutions on behalf of enterprises in the Global 2000 while working for Ariba and
Commerce One. Additionally, his experience in strategic sourcing (where he managed sourcing
projects totaling more than $500 million in aggregate client spend), business process
transformation, and software implementation provides a real-world context for his research and
writing.
Andrew has been named a Pro to Know by Supply and Demand Chain Executive three times and
holds a B.A. in Economics from The College of the Holy Cross and an M.B.A in Finance from Indiana
University. He welcomes your comments at abartolini@ardentpartners.com or 617.752.1620.



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REPORT METHODOLOGY
Ardent follows a rigorous research process developed from years of experience conducting
research on the supply management market. While the report topic was agreed upon in advance
with the sponsor, Ardent singularly determined the research approach taken and the reports final
content including its ideas, strategies, case studies, quotes, and recommendations. The views and
opinions in this report represent those of Ardent Partners at the time of publication. The contents
of this research report are the exclusive property of Ardent Partners. Please direct any comments
or questions regarding our research approach and sponsorship policy to Ardents Chief Research
Officer, Andrew Bartolini at abartolini@ardentpartners.com and/or 617.752.1620. For more
information on this and similar topics, please visit www.cporising.com and the research library at
www.ardentpartners.com.

Industry Standard Fine Print: The information contained herein has been obtained from sources believed to be
reliable. Ardent Partners, Ltd. disclaims all warranties as to the accuracy, completeness or adequacy of such information.
Ardent Partners, Ltd. shall have no liability for errors, omissions, or inadequacies in the information contained herein or
for interpretations thereof. The contents expressed herein represent Ardent Partners best analysis at the time and are
subject to change without notice.
2014 Ardent Partners, Ltd. All rights reserved. Reproduction and distribution of this publication in any form without
prior written permission is forbidden. Solution providers and consultancies should take special note that Ardent Partners
reserves the right to seek legal remedies including injunctions, impoundment, destruction, damages, and fees for any
copyright infringement (which includes but is not limited to usage in company collateral, presentations, and websites)
in accordance with the laws of the Commonwealth of Massachusetts and the United States.

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