Strategic Procurement in the Post-Sourcing Era

Face it sourcing, CPOs just aren’t that into you.

Last week, the team from Ardent Partners shared the results of their research: CPO Rising 2018: The Age of Intelligence in a webinar with Determine. This year’s report includes input from 324 participants, 62% of which are Director level, VP level, or C-level. No one industry accounted for more than 13% of the research data, although approximately 70% of the responses were from large (>$1B) companies in North America.

Of all the insights drawn from this initial look at the research results, one stands out to me as particularly compelling: sourcing is being de-emphasized as a spend management strategy.

Falling from #1 in 2009, to #7 in 2014, to #11 this year, the trend is impossible to ignore. This doesn’t mean that sourcing isn’t still being applied to a significant portion of addressable spend; the percentage of spend brought under management using strategic sourcing actually hasn’t changed that much from 2009, falling from 65.7% to 55.8% to 46.9% respectively in the same years as listed above. The difference is that as of 2018, sourcing is no longer a top 10 strategy for leading CPOs.

There are multiple implications of this shift, and while it has been coming on gradually but steadily for almost a decade, some procurement organizations may still be caught off guard. Introspective teams would do well to ask themselves a few questions — and give very careful thought to the answers.

Why is sourcing falling out of favor?

The fast answers to this question are (a.) because internal stakeholders hate it, and (b.) because suppliers hate it more. Procurement is working hard to build better relationships with both of these groups and, as such, may be predisposed to give greater weight to their preferences. But we’re also a function that expects to face and overcome a certain amount of pushback in the execution of our duties. After all, we exist because it is better for the bottom line to have one central team serving as a guardian over spend utilization.

I would argue that the real reason sourcing is no longer a top 10 strategy is because the categories of spend (and their value potential to the enterprise) do not lend themselves to this kind of approach. Sourcing is, and always has been, about achieving scale and consistency and driving savings by leveraged volume. It has much less relevance in a highly strategic environment where procurement is asked to help the business achieve one-off objectives.

Does procurement have the talent and capabilities to excel in the post-sourcing era?

Here’s the really scary thing — I consider it the second big reveal of this year’s CPO Rising report: sourcing capabilities are still on the rise. The “Ability to leverage spend data to identify sourcing opportunities” was the top capability in 2014, with 51% of respondents replying affirmatively. In 2018, that same capability is at 71%. Procurement is becoming better and better in an area where we are no longer needed. As much as CPOs are focused on the challenges of talent and recruiting (“Improve Staff Capabilities” is CPO Strategy #5 this year), there is a lag between where we are focusing our training and hiring resources and what they need to be in order for procurement to be ready and able to take on the challenges and opportunities of the coming year — let alone the years to come. Given that the top business pressure in 2018 is “better communicate value and performance”, it may be wise to invest in areas such as PR and branding — even within procurement.

Does this mean strategic sourcing is (finally) dead?

Don’t get too excited at the prospect of a post-sourcing world. RFPs aren’t going away anytime soon. In fact, given the improved usability of procurement technology and the increased digital comfort of our non-procurement colleagues, I think the conditions are perfect for procurement to distribute sourcing capabilities just the way we handed off buying through enterprise adoption of eProcurement. Most of the “low hanging fruit” has been competitively sourced at this point anyway, and any new spend is unlikely to be tactical in nature.

If procurement can let sourcing go (which won’t be as easy as it sounds given how good we’ve gotten at it), this will truly be the dawn of the Age of Intelligence, an era where procurement turns data into intelligence and therefore enterprise value through the strategic management of high impact spend.

Annual reports like CPO Rising are an important opportunity for procurement to reflect as an industry and as individuals and teams. Organizations that are leading the way in the post-sourcing era will have to course correct from a skills perspective, but those that are in the middle of the pack and behind have an opportunity to make the same correction before skills fall out of alignment with strategy. An opportunity exists for all teams to learn and improve performance — as long as they chose to seize it.

If you’re ready to rethink your procurement / sourcing relationship, learn how we can help improve your performance in both areas — schedule a personalized demonstration of the Determine Cloud Platform.