"Given today's difficult economic climate, companies must not only understand their spend, but the dynamics of global markets and regulatory requirements that may impact their operations," said Patrick Furey, Director of Global Category Management, Ariba. "And this means not just running sourcing projects, but instead, developing a long-range global category plan that can drive more holistic, sustainable supply chain management."
To get such plans in place, Furey recommends the following:
1. Know your Spend:
In order to rein in costs, organizations must have a clear view into where they're spending money, how suppliers are performing, and whether procurement and sourcing processes are working. Through an analysis of past spend, companies can make better-informed sourcing decisions, rationalize supplier relationships for improved service, reduce maverick spending and accelerate savings.
2. Understand cost structures:
It's impossible to manage costs without understanding the factors that influence them. For indirect services, this primarily means gaining a thorough understanding of labor rates in various industries, geographies, and skill sets. For direct materials, it involves understanding the relative contribution of key factors such as labor and raw material costs to the overall supplier pricing model, particularly for highly volatile components which could have a considerable impact on bottom-line cost.
3. Factor in globalization:
There's no denying that sourcing and procurement are global activities. Demand for raw materials in China is impacting the prices of everything from steel to resins. Natural disasters that occur half way around the world can affect supply chains close to home. And exchange rate fluctuations can turn a profitable product line or service offering into a cash drain in a matter of weeks. To effectively manage the impact of globalization on spend and overall business strategies, companies must enlist local category support staff across major supply regions to assist with supplier qualification, market analysis, cost and logistics management, and risk mitigation strategies; consider all risk factors, and develop backup plans to cope with unexpected downtimes.
4. Manage demand and drive compliance:
Demand and compliance management are among the fastest, most efficient ways to drive near-term savings. To effectively manage demand, companies must understand who is placing orders, what is triggering them, and how quickly they need to be filled, as well as cost drivers, unit costs and volumes. To drive compliance, they must enlist executive sponsorship, educate employees on their roles in driving cost reduction, standardization and quality improvement initiatives and track and manage progress to control spending.
5. Communicate and manage change:
People are by nature resistant to new ways of doing things. To effect change, category managers must communicate their sourcing and spend management strategies and enlist the cross-functional support needed to drive them. This means:
* Getting key stakeholders involved early
* Developing a detailed plan of action and educating teams on their roles and responsibilities
* Clearly defining goals and metrics and regularly monitoring progress
Executing effective category management plans requires more than just technology. Delivered in the Ariba Commerce Cloud as part of Ariba Managed Commerce Services, Ariba Category Management Services provides companies with everything that's needed to transform sourcing into a strategic activity that delivers substantial results, including:
* Market-leading applications to manage spend from source to settle - all delivered as scalable, cost-effective and burden-free cloud-based services
* Unparalleled market, category, technical, strategic and other expert capabilities that can be accessed on-site or remotely via the Web as needed to support ever-changing business needs and objectives
* The Ariba Network, the world's largest Web-based trading community, empowering more than 300,000 global businesses to discover, connect, and collaborate for better commerce
"With Ariba Category Management Services, companies can balance their internal resources with external skills and capabilities that can be scaled to accommodate their business needs as they evolve and change," Furey added. "These companies benefit from the application of industry-leading technology and best practice processes that allow them to see where they are spending their money, find trading partners, negotiate optimal terms and prices, manage supplier performance, place orders and better manage commerce flow."