In Part One of my contribution to Sourcing Innovation.com’s series on Sourcing Innovation, I portended how decision support tools, such as advanced optimization-based analytics and role-based dashboards, would enable supply managers to examine and manage value-based sourcing decisions that were previously impossible due to insufficient data and limited analytical tools. I also discussed how sourcing networks would emerge to provide supply market intelligence, cost models, and category sourcing templates to provide invaluable content in context of the strategic sourcing process (and optimized for the leading e-sourcing platforms).

Today, I wrap up my predictions with an examination of Supply Chain Sourcing and Frontline Sourcing, which extend strategic sourcing (and e-sourcing) methods to supply partners and internal stakeholders, respectively.

Supply chain sourcing

Leading supply management organizations have begun partnering with suppliers to gain better visibility into costs and risks inherent in the sub-tier supply and to aggregate spend volumes and remove costs from the total supply chainThese supply chain sourcing approaches can be segmented into three categories:

1. Multi-tier sourcing empowers suppliers with sourcing expertise and systems for best-value sourcing and cost reductions in their own supply chains. It also improves visibility into underlying cost structures and risk factors in sub-tier suppliers. I am working with a large manufacturer and a global food service company that are currently employing these collaborative sourcing and e-sourcing methods with their top suppliers.
2. Co-sourcing aggregates spending volumes and/or shares contracts between buyers and suppliers to negotiate better terms and secure supply with sub-tier suppliers. Automakers, such as Ford, have been employing this co-sourcing approach for the past several years, allowing Tier Ones and sub-tier machine shops to purchase from their metals contracts.
3. Buy-sell arrangements are when large OEMs or buyers purchase commodities or parts and resell them to their supplier partners to reduce total product and supply chain costs — and to gain a bit of profit in the transaction. This practice is becoming popular in the high-tech sector where OEMs are tired of having limited visibility into the cost structure of their electronic manufacturing service (EMS) providers.

Frontline sourcing

If I’ve learned anything over my tenure in the supply management arena it’s that change is inevitable. By improving market transparency and process efficiencies, e-Sourcing has empowered sourcing managers capitalize on supply market changes. For example, I know of several companies that have increased the frequency of sourcing for particularly volatile categories — such as lodging — to better exploit seasonal or regional fluctuations in availability and pricing.

In the future, I expect to see enterprises to test market dynamics with regular purchases, particularly in categories like lodging, travel, and print, where supply and pricing frequently fluctuate. I already know of a handful of companies that have extended e-sourcing capabilities to the desktop of frontline employees to initiate sourcing requests and projects in a controlled environment.

Category-specific templates guide users through the process of specifying requirements, which are converted into an e-RFx that is distributed to a group of preferred and often contracted suppliers. In the latter scenario, the contract terms and pricing act as a ceiling price. Suppliers can then offer additional discounts off the contract price if they have excess capacity or stock.

This “frontline sourcing” speeds the requirements gathering process, getting stakeholders the goods or services they need faster and, thereby, lowering maverick buying. It also benefits preferred suppliers, enabling them to win new business and improve overall capacity utilization.

By no means are these the only innovations we’ll see in the strategic sourcing arena. But I’d bet money that these advances are the most likely of innovations to become mainstream approaches within the next five years.