It’s fairly easy to discern overall procurement maturity within a particular organization based on spend and supply visibility maturity. To this end, I recently started to explore some arguments about spend visibility, based on a Spend HQ webinar that I co-presented, The Spend Visibility Curve: Where Do You Stand.
The centerpiece of my argument in this talk was a 4-stage spend visibility maturity model that begins with what I termed “sourcing and measurement” and progresses through to “spend and supply” and in stages 3 and 4, “continuous improvement” and “predictive and proactive” analytics.
Today, I continue this series on Spend Matters with a discussion of what I have termed the continuous improvement stage (Level 3). If you guessed this stage was inspired by lean manufacturing principles, you would be spot on. The concept of continuous improvement of spend and supply analytics and procurement activities overall relies on using data to improve process efficiencies in all manner of spend, sourcing and supplier engagements by eliminating wasteful or unnecessary activities – and improving existing activities on a continuous basis.
From a sourcing perspective, we might refer to the concept in part as “lean sourcing,” a term our CEO coined, which does not focus on the specific purchasing process steps or the elimination of waste in the production process but rather relates to the elimination of waste in identifying, negotiating and awarding supply contracts. It requires organizations to consider and weigh all factors when making sourcing decisions that affect total enterprise cost.
And this is where analytics to drive continuous improvement comes into play. Procurement organizations at this level of maturity use spend visibility and analytics to improve overall supply and business relationships by treating data as a single source of truth and reference – the centerpiece to drive activities. Let’s assume, for the sake of argument, that companies at this level have already sourced the majority of their spend portfolio and have category management processes in place (except for, in both cases, perhaps, tail spend items).
No doubt, sourcing and category savings still matter. But at this maturity level, data becomes a baseline to drive a range of programs, including supplier development and management initiatives that jointly take cost out of the supply chain together. At this level, procurement organizations are likely to practice aspects of overall Six Sigma and lean initiatives, even if they don’t call them by these names, centered on measuring, engaging, pursuing and managing activities with an eye to always improve them, even if the underlying data sets do not change.
In summary, at this level of sophistication, companies tend to:
- Combine spend data with external information sets, which may or may not originate in procurement systems.
- Use evolving metrics to measure overall procurement performance based on spend and supply analytics programs. These can include those focused on demand management, risk management, compliance, working capital and more.
- Emphasize cost take-out initiatives where data serves as the fuel for overall continuous improvement, supplier engagement and stakeholder engagement.
Finally, data-centered procurement savings at Level 3 maturity primarily come from initiative-based programs born from underlying data and visibility constantly being refreshed and analyzed.
(Cross-posted @ Spend Matters)