Sourcing Strategies
I’ll admit it…I like a good strategy board game, you know the ones that come with the long rule books and take hours to play. I like modeling scenarios and playing them through, trying to beat the problem or the clock, learning from the outcomes and repeating it all again. When my manager came to me with a profitability problem and asked me to come up with a way to win through our sourcing strategy, I was all in…. ALL in. What? This is fun. To properly put this story into perspective, we have to time warp back to 1999. Yes, I had SAP in my toolkit and I was just getting started.
Unfortunately, I was woefully uninformed on how to use SAP or what SAP offered. I thought as a sourcing and procurement specialist, that SAP was a tool in my toolkit. I didn’t understand that SAP was THE toolkit that I should be using an entire system equipped for just the problem I was attacking. You don’t know what you don’t know. At this point, SAP and I were communicating on one level, that I knew SAP had data.
As one does in these situations, I attacked the system with gusto. I wanted to know all the secrets. I wanted to know all the things. Then, I wanted to take all of that information and put it into my data model, which I carefully and PROUDLY engineered in Excel which I fed into FileMakerPro because you know, that seemed more “pro”. I was well equipped with MB51, and I had supplier pricing and delivery performance information in a few spreadsheets- and LOOKUP and pivot tables on lock. Let’s do this!
Discovering a New Way to Manage Business
Time passed…iterations were run, my models became more comprehensive and complex. I gathered data from all kinds of sources outside of SAP (some reputable and some….not so much), and eventually, the toast popped up and we were bought into a new way to think about how we would award and manage our business. It was great. We would be able to diversify our portfolio, reduce lead times, controlled out costs better, and built more strategic partnerships by managing the flow of raw materials to our co-manufacturers based on their capacity and percentage of business awarded.
Game On! I was feeling great. Life was good and I put all this fantastic, collaborative data-informed work into my portfolio to talk about in interviews for the next ten years. But there was a problem, we managed all this outside of the SAP system. As I mentioned earlier, you don’t know what you don’t know, and we gravitate to the things we do know. It was HARD, and we didn’t really know how we were doing. Were we winning? We could figure it out, but it was not easy and not everyone could perform that analysis.
I tell this story because it’s not so different from the stories we hear from clients today. We do a lot of work and heavy lifting and we let SAP sit idle. Had I known that I could analyze spend directly in SAP, leverage source lists to qualify or block suppliers, tell MRP which sources to base our proposals on, evaluate our spend vs forecasts of award to our suppliers via outline agreements, handle make/buy or multi-source situations via quota arrangements, be armed for negotiation or performance conversations via the buyer negotiation sheet, or develop price conditions consistent with our new matrix pricing strategy (including tier pricing and rebates) with the right price condition technique—not only would we have beat the game from a strategy perspective, we would have had something we could dependably execute to IN the system. Year two, I got smarter, I put SAP to work and taught the team. With SAP’s help, we could execute and capture our cost savings.
SAP Does "Do" That
We hear it all the time…we’re using MRP but we WRITE purchase requisitions or PO’s manually; quota arrangements don’t work, we have to manage tiered pricing or rebates manually and we don’t know how to evaluate spend or performance, SAP doesn’t do that.
Here’s the great news, SAP does “do” that. If we map the right tools in this toolkit to the right job to be done and invite SAP to play in this strategy game by informing it of ALL the rules, we don’t have to do all that heavy lifting alone. SAP will help us develop our strategy by arming us with information and then execute our strategy by playing by the rules of the game. Put SAP to work for you. If you need help applying these tools, phone a friend!
This article is a continuation of our Sourcing and Procurement series. If you missed our first article, Embrace Frictionless Procurement by Living in the System, check it out! Continue reading this series to learn how to manage multi-source environments.
To learn more around this topic, read our white paper on how to Reduce Purchasing Spend by 10-15% While Maintaining a High Material Availability.
