Strategic sourcing is focused on reducing the Total Cost of Ownership (TCO) while also delivering results, agility, and innovation. Private sector is well on its way to capitalizing on strategic sourcing, and in many industries, companies grow and die by how well they do strategic sourcing. Many of the public sector organizations, including federal, state and local governments, K12, colleges and universities, and international development organizations, have either already launched their strategic sourcing initiative or are planning to launch it. Either way, this is an area for focus in the US today.
What is Strategic Sourcing?
Strategic sourcing is an institutional process to continuously discover, assess, evaluate, and improve on the IT procurement activities of the organization.
Steps in Strategic Sourcing
Strategic sourcing starts with understanding where the organization is in its spending habits, then figuring out were it can improve to lower the total cost of ownership and increasing competitive advantage, and finally, developing and implementing an infallible strategy to get there. Once the organization has reached the desired destination (and this will take some time, especially in large organizations), it is time to start reassessing new spending control opportunities that may have become available due to the changing spending habits of the organization.
The “Big” Hurdle
The area that trips most strategic sourcing initiatives is getting clear visibility of the spending habits of the organization. In order to identify cost savings opportunities and efficiencies in procurement, management first needs better, more accurate visibility of how much is being spent, on what, with and by whom. The unfortunate reality is that the spend data is often poorly organized, inappropriately classified, exists in many different systems, and is difficult to access and analyze. Addressing this ‘knowledge deficit’ with automated data collection, cleansing, classification, enrichment, redaction, collation, and reporting through cloud based systems from industry innovators like Spikes Cavell can significantly improve management’s ability to drive millions of dollars of incremental value from its spend data.
Spend Analytics Process?
No single financial management or purchasing system contains a truly complete and sufficiently granular analysis of an organization’s spending. Therefore, methods, tools, and technologies have been designed by leaders like Spikes Cavell to make the best use of multiple data sources, including payables, purchase cards, purchase orders, and contracts, through a seven step proprietary process:
- SOURCING: Identify raw spend and contract data from the organization’s payables, purchase orders, purchase cards and contract management systems
- COLLECT: An accurate extraction of the raw financial data with minimum effort on the organization’s part to ensure that the raw payables, purchase orders or purchase card data is fit-for-purpose
- CLEANSE: This process standardizes the data, removes duplicates, and identifies and fixes errors in preparation for subsequent processing
- CLASSIFY: Rapid, accurate, and cost-effective classification of the vendors, purchase cards, and, where available, purchase order data
- ENRICH: Enrich the data by appending supplemental attributes from licensed 3rdparty reference data sets to each of the core trade vendor records
- REDACT: This is the identification and redaction of payments made to individuals (for example, foster parents and vulnerable adults in local government) or where national security, personal security, or foreign relations might be compromised
- COLLATE: Aggregate all of the spend and related data into a single, unified, and consistent master database for viewing, reporting, and analysis on the cloud
Spend Analytics is an art and a science. If you want to learn more about this discipline and available products like Spikes Cavell, talk to GOVonomy – the Strategic Technology Sourcing Initiative. GOVonomy, headquartered in Silicon Valley, California, serves the $200 billion US public sector technology marketplace. GOVonomy’s goal is to drive increased public value by regularly locating and introducing cost-effective, cutting-edge, targeted product technologies that specifically address the challenges and opportunities facing the public sector. GOVonomy connects public organizations with new technology products and productized services from growth companies and helps arrange strategic discussions, demonstrations, and pilots for increased understanding, education, purchasing, and integration.
About the author: Nitin Pradhan is a former CIO of DOT, and the co-founder of GOVonomy, an initiative to introduce cost-effective, cutting-edge, targeted technologies that specifically address the challenges and opportunities facing the federal, state, and local governments. He can be reached viaLinkedIn or followed on Twitter.