One of the procurement function’s perennial aims is to improve the company’s “sourcing discipline,” or getting value for the money it spends.
And traditionally, procurement teams have thought the answer was to get involved in the sourcing process earlier. If they could only be there when line managers were discussing what they wanted to buy or what problem they were looking to solve, and the range of suppliers they thought could help, then – reason procurement teams – we could help them find the best deal.
This is because Procurement’s business partners are rarely interested in getting Procurement on board, because it’s difficult for managers to predict exactly when they need to buy something new or bring in some project support, and procurement staff lack the skills and capacity to pursue the additional work this would create.
Don’t Work On Trying to Get Involved Earlier…
But, more importantly than all that, all the effort that procurement teams put into trying to get involved earlier is not the best use of their time. The point at which Procurement becomes involved actually has very little effect on the level of a company’s sourcing discipline: CEB data on how the world’s procurement teams work show that companies’ sourcing discipline is essentially the same regardless of whether Procurement gets involved early or late (see chart 1).
What’s more, the data also show that there are statistically equivalent cost savings or time savings in the procurement process between those firms whose policies require early or late procurement involvement.
Chart 1: Overall sourcing discipline based on point of procurement involvement n=258 business partners, 88 procurement professionals Source: CEB 2015 Procurement Business Partners Sourcing Effectiveness Survey, CEB 2015 Procurement Professionals Sourcing Effectiveness Survey
Click chart to expand
…Help Business Partners Get Better at Sourcing
The fact that early involvement doesn’t seem to matter much is down to two reasons. First, Procurement may contribute less to discipline than expected. The function is under time constraints that make it hard for procurement teams to apply their process expertise as much as needed for every purchase and, even in the most effective procurement teams, not all staff have the necessary skills to help (see this post on the power of complementary teams).
Second, some business partners approach sourcing with more discipline than procurement teams expect. Years of communication from Procurement has succeeded in changing sourcing behaviors in many parts of the business. Plus, many business partners possess skills — like collaboration or strategic thinking – that help them make good choices without a perfect process in place. And business partners are more sensitive now than ever to cost and risk concerns.
Indeed, about one in four business partners who do not involve Procurement early nonetheless have a high level of sourcing discipline, and about twice that many have the potential to get there (see chart 2).
Chart 2: Level of sourcing discipline among business partners who do not involve procurement early* n=205 Source: CEB 2015 Procurement Business Partners Sourcing Effectiveness Survey
* – 21% of business partners seek Procurement’s support early
How to Increase Sourcing Discipline
To increase sourcing discipline, therefore, Procurement needs to push this significant number of business partners who are on the cusp of a high disciplined approach over the edge into the “high-discipline segment.”
This shouldn’t mean lowering the bar to what constitutes high discipline, and nor should it mean ignoring regulations or changing spend thresholds for procurement involvement. The answer also isn’t to re-create smaller procurement teams within their business units. Instead, Procurement should do three things.
- Build support structures and tools to enable independent business sourcing.
- Write policies that clarify what constitutes good sourcing.
- Enable business partners to do what they are already doing better.