Monday, I provided ballast for recent findings from Spend Matters that insufficient (and, at times, non-existent) supply management capabilities are putting mid-market firms at cost and operational disadvantages.

But such reports only tell part of the story. They provide an historical perspective and overlook the telling trend that mid-market firms are now hiring and investing for the purpose of improving their supply management performance. Evidence: a recent Aberdeen Group report on the subject found that more than half of mid-size companies have either launched initiatives to formalize and improve strategic sourcing capabilities within the past 12 months or will embark on such programs within the next year.

Key drivers for what Aberdeen calls the supply management “echo boom” among mid-market companies include increasing pressures to reduce costs, compete globally, and respond to tougher executive and customer scrutiny of their existing supply management capabilities. According to the report:

“Most mid-size enterprises missed out on (and bore the brunt of) the first wave of supply management automation and improvements, being forced to compete as suppliers in price-based reverse auctions and drive year-over-year cost reductions in the face of rising energy and commodity prices. With continued pressure to reduce costs and compete in global markets, many mid-size companies view strategic sourcing improvements not just as a priority, but as a necessity for survival.”

Recognizing mid-size enterprises’ resource and budget constraints, Aberdeen recommends that mid-size firms employ the following practices:

• Develop and enforce standard sourcing procedures company-wide: More than two-thirds of mid-market firms either lack formal sourcing procedures or only use strategic sourcing approaches for their most critical spending. Standard procedures ensure consistent results, minimize regulatory and supply risks, foster knowledge transfer, and elevate the skill set of the entire procurement organization.
• Hire sourcing and commodity expertise, including consultants: Mid-size enterprises reported that their companies lack general strategic sourcing principles as well as domain expertise for key spend categories and supply markets. Top performers have aggressively hired sourcing and commodity experts. They have also used outside consultants to help define and improve their sourcing processes and performance.
• Improve access, quality, and analysis of corporate spending: Top perfomers in the mid-market have prioritized improving spend data accuracy and analysis, with most using or planning to adopt commercially available solutions and services to aggregate, classify, and cleanse spend data for analysis.
• Enlist executive support for resources and policy changes: Top performers in the mid-market cited executive support from the CFO and SVP of supply chain as the leading contributor to their success. Such support is critical for securing the requisite budget and resources to augment staff and fund sourcing automation investments. It also helps drive mandates and policy changes to ensure business unit support.
• Leverage supply management automation: Mid-size firms recognize the important role sourcing and supply management automation can play in helping to reinforce process standards, improve productivity, and increase negotiation and knowledge sharing capabilities. The Aberdeen report also found that mid-size firms were more likely to adopt broader solutions that combined sourcing and compliance (e.g., contract management) capabilities on a single, integrated platform. Aberdeen also found that more than half of mid-market firms will employ sourcing and supply management capabilities in a SaaS mode.

Aberdeen found that mid-size enterprises employing the above techniques reported more than four times greater procurement cost savings, better supply performance, and greater profitability than industry peers. You can view the full details of mid-market supply management approaches and results by downloading a complimentary copy of the complete Aberdeen report, Strategic Sourcing in the Mid-Market: The Echo Boom in Supply Management, here.Tomorrow we’ll conclude this series by examining the supply management approaches and results of one mid-market company. 

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