- Sourcing Consultant, General Administration Expenditures, Financial Services Sector, Madison, Wisconsin. Permanent Hire Position, Base Salary Between $75K and $95K, Excellent Bonus and Benefits Package. Relocation Negotiable. 

Over the last decades the field of supply management has transitioned from transactional procurement to a foundation based upon Strategic Sourcing. The latter stage has certainly yielded great financial results for many leading organizations, with a high proportion of Fortune 500 sized firms having utilized the process. But some experts estimate that only 30% of companies in North America, 20% in Europe, and 10% in Asia have comprehensively applied Strategic Sourcing across all spend categories. So there is still great opportunity for many organizations.

But what if you've employed a Strategic Sourcing model for some time, where can additional savings be found? A few years ago, the Chief Procurement Officer (CPO) of a global petroleum enterprise commented to Strategic Procurement Solutions leaders that, "Gentlemen, we've sourced every one of our spend categories multiple times. Doing it yet again is not going to yield the same benefits that it did initially. So now we need to move upstream if we want to yield more benefits".

What did he mean by "move upstream"? This expression is one that some of our leading clients are beginning to use with more-frequency.

This article will describe several ways to move upstream:

The Entire Supply Chain Is Now Fair Game - It used to be that sourcing groups focused primarily on the suppliers closest to us in the distribution chain. But today, everything on the upstream side of the supply chain is fair game for source optimization. Negotiating with multiple segments in the supply chain can yield surprising results.

Decoupling the Supply Chain Can Yield Greater Savings - Today's sourcing groups are increasingly decoupling segments of the supply chain, and putting it back together to achieve lower TCO. For example, a large healthcare industry client of Strategic Procurement Solutions is installing a new enterprise-wide ERP system. Rather than hiring an expensive consultancy to handle all tailoring and implementation work, however, the procurement group has broken the integration tasks apart and has selected optimal cost providers to perform key tasks (project oversight, programming, testing, training, etc.). A majority of the standard coding activities will be performed offshore. And the consulting oversight role has been significantly reduced. This all has resulted in significant savings.

Note: Decoupling can increase risk if the buying organization is now responsible for the completed deliverable. Various ways exist to mitigate this risk, via prime/sub contracts, dependent deliverables, careful scope definitions, etc.

Leveraging Combined Purchases with Suppliers - Are there products and services that your organization procures, that are also bought by your suppliers? The oil sector CPO mentioned above, asked Strategic Procurement Solutions to work with the firm's prime suppliers to determine whether group leveraging opportunities existed on shared expenditures. So if a key contractor would be building a pipeline for the energy company, could that supplier buy valves, tubing, concrete, etc. off of the energy company's contracts for those products? And if so, could the energy company's project costs be reduced?

Inbound Freight Is Being Removed from Supplier Oversight - As many studies have shown, an organization's suppliers rarely charge exact freight costs when invoicing a customer for a delivered product. Strategic Procurement Solutions' experience has indicated frequent overcharges of 18% - 35% in the "pass through" freight charges imbedded in many suppliers' invoices. As one of our freight sourcing services, we often help clients to move inbound freight charges to their own accounts, and to subsequently leverage their outbound rates to reflect increased volumes. That has resulted in savings on both the upstream and downstream side. Note - But care must be taken to minimize the associated "risk of loss" exposure which can occur.

Savings For You...Are Savings For Me - The aforementioned CPO asked if Strategic Procurement Solutions could perform our 360^o Supply Management Efficiency Review with the oil firm's key suppliers. Any cost reduction or efficiency findings we found could then be discussed by the management teams of both the Oil/Gas enterprise and the supplier organization to calculate the net benefit.

Going upstream isn't always easy, but it is where top supply chain organizations are now focusing their efforts. We hope these ideas help readers who are seeking new ways to reduce costs. Email Info@StrategicProcurementSolutions.com if you would like more information about our onsite Expert Strategic Sourcing™ training workshops or a 360^o Supply Management Efficiency Review.

About the Author - Mark Trowbridge is one of Strategic Procurement Solutions' founding principals.  His 27 years of procurement leadership experience have included 12 years in the consulting industry, following successful corporate positions in the Manufacturing, Transportation, and Financial Services sectors that culminated in a role directing all Contracting Management and most Strategic Sourcing activities for Bank of America (then the USA's 3rd most-profitable company).  Mr. Trowbridge's business travels have taken him throughout North America, Europe, Asia, Malaysia, and the Middle East.  He is a frequent author for publications like Inside Supply Management Magazine, Supply Chain Management Review Journal, and eSide Supply Management.