In a market where inflation is accelerating, but capacity is scarce, procurement leaders are left wondering what the best strategy to empower their sourcing teams should be. In addition, recent volatility has been a wake-up call for many that strategic sourcing has endured poor systems for managing bid events for too long; manually driven sourcing processes require too much back and forth communications and too much data checking and corrections to be executed swiftly enough to achieve the best results.
To cope with the chaos, the most innovative sourcing leaders are now evolving from traditional cycle-based sourcing to what Keelvar has coined dynamic market sourcing: a strategy that leverages agile processes backed by automation to elevate sourcing teams out of tactical firefighting and into the role of strategic category managers. Find out more in our latest white paper.
What is Traditional Cycle Sourcing?
Businesses today must take rapid action backed by data-driven insights to fuel their operations in the face of variable demand and supply chain shocks. However, most sourcing functions have been so focused on reactionary measures that one of the most effective ways to save money and increase capacity typically passes them by – using modern eSourcing solutions backed by optimization.
Instead, the sourcing team responds to volatile conditions using traditional processes from stable (Pre-Covid) markets. Sure, their annual events leverage technology, but off-cycle events to manage new lanes and route guide failures tend to be manual with Excel and Emails. This process typically lags the sourcing cycle needed for today's market, and events take greater effort with limited repeatability.
Features of traditional cycle-based sourcing strategy include:
- Annual events include all known lanes and prices fixed for 1-2 years.
- Event set-up requires 1-2 months and an additional month to deploy new rates across systems.
- Annual and spot buys are not always in sync with annual buying business rules but are typically new requirements.
- Older technologies make it harder to adhere to common rate and award structures across these event types.
- Speed to deploy events and results are less critical because they are fixed for long periods, and suppliers work with extensions.
- Pricing becomes rapidly stale, and routing guides erode through the year.
- Long cycle time prevents more rapid actions.
Why It's Time To Evolve From a Traditional Sourcing Strategy
The need for speed in sourcing has never been greater. Traditional cycle sourcing is insufficient for sourcing teams looking to become leaders in a volatile market; firefighting issues that emerge almost daily is leaving teams drowning in work and with little time for strategic tasks – particularly if they are still heavily relying on Excel spreadsheets and offline practices.
Leaders in the space actively seek technology solutions that enable them to shift away from traditional cycle sourcing to dynamic market sourcing that allows for true sourcing excellence to occur by managing risk effectively, learning from earlier efforts, and exceeding business goals.
What is Dynamic Market Sourcing?
In this new normal, many suppliers are at capacity and unwilling to hold rates for one year – meaning more buyers have to rely on more frequent spot bidding to meet demand. The savviest of these have moved into dynamic mini-bid monthly/quarterly cycles with adjustments made throughout the year to accommodate capacity or material scarcity fluctuations. This move has been called a sourcing "refresh," allowing for a fair and transparent process to run events at the cycle needed to lock in rate and capacity.
Industry leaders have responded to the volatility by shifting from traditional to dynamic market sourcing practices. Implementing dynamic refreshes as needed means that the process has also improved CFO reporting from annual based on old rates to more current rates at each refresh. The annual events remain in place to align business requirements while off-cycle events are used to fill gaps and confirm market rates.
Dynamic market sourcing follows a resourceful sourcing strategy to manage risk, which is characterized by:
• Annual and off-cycle events are all part of a single-threaded collaborative sourcing process.
• Sourcing events are low effort, highly repeatable, standardized, and normalized.
• The refresh cycle frequency is adjusted to stay current with market changes or expiring rates, allowing for competitive market rates and robust capacity options.
Businesses must rely on rapid, data-driven insights to fuel their operations in the face of variable demand and shocks rippling throughout the supply chain. Using archaic, old-school technology to manage large RFP projects can take hundreds of hours of productivity from your team that would be much better spent elsewhere.
Sourcing teams need a high level of automation to keep up with the pace of changing business conditions and ensure they remain in the driver’s seat of their costs and services. But because they are so focused on reactionary measures, they are missing one of the most effective ways to save money and increase capacity. Implementing a modern technology solution that can help them switch from cycle-based to market-based sourcing will free up their time, elevate their quality of work, and improve their bottom line.
Automation can drive significant advantages because not only does it allow best-in-class teams to improve their speed of execution, it unlocks time for them to focus on strategic priorities that get overlooked when firefighting essential operational activities. The right sourcing automation technology can significantly lighten the workload and drive higher standards – particularly if sourcing optimization is baked into the e-sourcing tool to collect the data the ‘smart’ automation relies on.
The good news is that optimization and intelligent automation sourcing solutions, such as those offered by Keelvar, have the power to deliver the results you’re looking for. If you are struggling to find the time to learn the technical side of our products, Keelvar’s Professional Services team is on hand to provide an initial boost of support to help build a strategic platform that will elevate your business from market challenges.
Meanwhile, your people can focus on being strategic, creative, and making those final award decisions to achieve excellence. Request a conversation with our team if you want to learn more about making Keelvar’s solutions work for you.