Companies continue to wring costs in the lean times that are upon us, and procurement groups are under the gun to optimize. But a new breed of strategic sourcing may be necessary before businesses can take the next step.
Procurement groups have been tasked with ensuring the delivery of materials and services to the organization in the most efficient and cost-effective manner.
Corporations dove in to the automated indirect procurement craze of a few years ago and now must take the next step by making the sourcing of product and services strategic to the organization. A decade ago material planners would peruse their MRP runs and order materials based on price breaks offered by the supplier. Knowing their decisions weren't optimal, they used gut instincts and rudimentary spreadsheets to analyze and execute, even though an optimal sourcing strategy was nearly impossible.
The Hurwitz take: As companies continue to strive to reduce the internal costs of their products and services, more pressure is on the procurement group to source from the right supplier that can deliver as needed, at the right price, with agreed upon characteristics.
The sourcing equation becomes even more complex when government regulations and corporate mandates such as sourcing from minority-owned businesses are brought in to play.
Yet, companies must continue to strive to contain the costs of the materials and services that make up a product or service offering. Due to the complexity inherent in strategic sourcing initiatives, a new breed of procurement applications is needed that will support not only the complexities of managing a global supply chain, but also one that optimizes sourcing based on non-quantitative factors.
Applications are now coming to the market using sophisticated optimization engines that model a company's supply strategies. Emptoris is such a vendor that provides the functionality and process support required of global companies focused on improving their sourcing processes. By providing an application that closes the loop for sourcing with commodity and supply management, event management, integration, and analytics capabilities it is one of the front-runners that is able to support the needs of a complex supply chain.
As enterprises begin to peek from their bunkers, the market for procurement applications, or specifically strategic sourcing applications, should be a priority of these organizations' IT budgets. With little expectation of dramatic revenue growth, companies will remain focused on cost containment and operational excellence, and should focus on optimizing their purchasing of goods and services, in turn, delivering results to the bottom line.
Tom Cook is director of enterprise applications for Hurwitz Group. Hurwitz first published this article on Aug. 2, 2002.
