Supply Excellence
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A Holiday Sourcing Tale

December 22nd, 2006 · by Tim Minahan · 4 Comments · best practices, sourcing

Returns from PNC Wealth Management’s 22nd annual survey of the costs of gifts in the holiday classic, “The 12 Days of Christmas,” unwrapped a 3.1% increase over last year. PNC pegs the increase on low unemployment and rising service costs. But a peek under the tree suggests that the boost was due to PNC’s heavy reliance on sole sourcing and outmoded sourcing processes.

According to PNC, the cost of the 12 Days climbed to $18,920, thanks in large part to supply constraints and increases in wages for nine Ladies Dancing, Lords a Leaping, and various musicians. But the biggest boost came for the price of a Pear Tree, which climbed 44% this year, due to robust demand for ornamental trees for landscaping in commercial construction. (See PNC’s full cost rundown below.)

Click to enlarge.

12 days graphic.jpg

 

Now, I don’t claim to be a category expert in the Maids-a-Milking market. (Although I do have some experience sourcing drummers — but only when packaged with an eight-piece swing band.) However, a little historical digging on the Web revealed that PNC continues to use many of the same vendors each year to assess the costs the 12 Days’ goods and services. (The Philadelphia Dance Company seems to be PNC’s perrenial favorite.) And there is no evidence that PNC used competitive bidding to secure true market transparency.

By comparison, Barron’s Online reports that it managed to spend only $6,066.95 on the 12 Days by comparison shopping on the Internet. That’s 80% less than PNC paid. It’s also a 32% decrease from Barron’s 2005 tab for the same items. Barron’s claims to be “value conscious” but there was no word on how product or service quality compared to those purchased by PNC. (Unfortunately, access to the full article requires a Barron’s Online subscription, which is too high-priced for my holiday budget. So, I am unable to provide further detail.)

Regardless, the disparity between the two reports illustrates the measurable impact of combining strategic sourcing methods with true market transparency and competitive bidding enabled through online tools.

Industry reports find that e-sourcing yields an average of 14.2% cost savings above and beyond traditional sourcing methods. And users report savings even on their most frequently sourced and well managed categories. Finally, as noted here in previous posts, there is ample evidence that e-sourcing can be applied to complex business services, such as print, advertising, legal, temp labor, and consulting.

In short, when it comes to e-sourcing, there are no sacred cows. Online sourcing tools have come a long way from their roots at tactical, price-only reverse auctions. In fact, depending upon the e-sourcing solution, even reverse auctions now support the competitive negotiation of multiple price and non-price factors.

Whether it be software development services or 11 Pipers Piping, everything can be e-sourced. And much of it can be reverse auctioned. (More on that in my next post.)

For your New Year’s resolution, I challenge you to question authority. Overcome the naysayers that grumble, “…this category is too strategic, complex, or unique to be sourced online…”). Instead, start from a position of “Why can’t this spend category be e-Sourced?” Make your category managers — and reluctant stakeholders — prove why not. If the cost differential of traditional versus online sourcing noted in the above 12 Days’ costing exercise is any indication, your company will be glad you did.

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4 responses so far ↓

  • 1 Mark Usher // Dec 22, 2006 at 1:27 pm

    Tim,

    While we’re talking about sacred cows I would also challenge supply managers in centralized or center-led procurement organizations to question authority when it comes to deciding which commodities should be sourcing locally vs centrally. Certainly there are valid commodities for local sourcing but in my experience a few too many squeeze through the net. The oft quoted examples of snow removal and building maintenance are 2 examples. National providers exist today that can service a company’s requirements in these areas perfectly well in multiple geographical locations and obviously with potential for savings over the combined cost of local companies. Again, not to say there aren’t valid categories for sourcing locally but certainly have the sacred cow radar out and ready.

    Happy holidays!

  • 2 Charles Dominick, SPSM // Dec 22, 2006 at 5:48 pm

    Tim,
    This was a great post to close out one’s final pre-Christmas blog reading!

    Charles

  • 3 Tim Minahan // Dec 23, 2006 at 9:16 am

    Both points well taken. No one said improving sourcing, contract, or supply management performance would be easy. The best practices revealed on Supply Excellence are merely guideposts for what has worked for others. Making them work for your company requires dedication, discipline, and integrity to the process. Just challenge yourself, your team, and your organization to make this commitment. The returns you’ll get will make glad that you did.
    Happy Holidays.

  • 4 Supply Excellence » Inflationary Christmas // Dec 17, 2007 at 10:06 am

    [...] According to PNC Wealth Management, which compiles the Index, the cost for the 364 items referenced in the song — from a single partridge in a pear tree to 12 drummers drumming — is up 4% over last year. Those of you crazy enough to purchase these items would ring up a $78,100 tab — although I’m not sure how romantic eight maids a milking is to anyone outside Wisconsin. [...]

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