The CPO’s Guide to Strategic Sourcing

A 10-step guide to strategic sourcing implementation

Chapter 10:
Creating an All-Star Strategic Sourcing Team

Successfully implementing an effective strategic sourcing process requires collaboration from both internal and external stakeholders. With so many people involved, your strategic sourcing team can make or break the success of your project. This chapter shows you how to select the right players for top-notch category management.

 

 

Introduction

Strategic sourcing initiatives usually originate with top management. At some point, they come to the conclusion that the costs of goods and services are not being managed well enough, such as when global price trends go down but the company’s procurement spend fails to follow suit. Or perhaps the decision is driven by poor supplier performance, and they want to motivate suppliers to improve.

Whether it’s one case or the other, the CEO may decide to hire a chief procurement officer (CPO). This newly hired CPO needs to dive into this sea of problems and search for opportunities to fix them. He/she needs support and guidance on where to start. While this guidance may come from outside sources, such as this strategic sourcing guide, the CPO will soon discover there’s too much for one person to handle.

Organizational structure

Before we describe the organizational structure at the category level, we need to address the big picture. By definition, Strategic Sourcing should be a strategic function. In order to run Strategic Sourcing, the responsible person needs to have the authority to operate companywide, beyond the borders of his or her own function.

In large corporations, Strategic Sourcing is typically run by the Supply Chain Manager (SCM) or Chief Procurement Officer. At the very least, he or she must hold a managerial position and be able to count on strong CEO support. If you break it down, a SCM is usually responsible for the full material value chain from supplier through production down to the customer. A CPO is typically responsible for inbound flow, sourcing and procurement. In small or medium-sized companies there are fewer management levels and fewer individual roles. For example, there may be a CPO or Head of Procurement, but their responsibility actually covers the management of the entire supply chain.

Large international companies tend to have a matrix organization structure. With this type of organizational structure, local CPOs may have more than two managers to whom they’re required to report. Usually the line manager is a local business manager, but functionally he reports to the country SCM and global business unit SCM.

Depending on the size and geographical coverage of your company, sourcing tasks can be divided into different categories and regions. In order to assemble your category team without creating conflicts with line management, you need to understand your company’s reporting structure. Team members should be nominated pending approval by their line managers.

How to build up your category team

Back in chapter one, we started with defining your category scope. This provides your team with a specific focus. Once you’ve defined your scope, then team members should be selected based on category team targets.

Let’s look at one global category as an example: roller bearings. Roller bearings are used in several industrial applications, such as robotics, motors and generators. In this example, these applications are used in different global business units, and they’re produced in different regions of the world. Take a look at the graph. The size of the bubble indicates spend volume by global business unit. When it comes to category teams, business units with a larger spend volume take the lead and coordinate category activity globally. For example, the BU Robotics category team member should come from the Americas, but he is responsible for coordinating volumes and actions with other the regions within the same BU. Similarly, the BU Generator team member should come from Europe, and so on.

category team selection for strategic sourcing
Fig.1 Roller Bearings Category Team Members

You should select team members based on the geographical, business and functional areas your category scope covers. Note that every interested group should be included. If your team members are from other units, then make sure you get approval from the management of those organizations. Your team should also have a similar knowledge base and a common understanding of strategic sourcing as a process. (The CPO’s Guide to Strategic Sourcing is a good base to work from!)

Once you have your team in place, you should agree on house rules and working guidelines. When you work in different time zones, you should have a proper document sharing platform. Sharing information and regular communication is absolutely necessary for effective teamwork. (This article has a list of seven online tools your global team can use to help boost productivity.) Team members should also play a role in setting up the decision-making process, and then have authority to enforce those decisions in the home unit.

Review board

In addition to the regular category team members, you may choose to involve experts from other functions like manufacturing, quality, IT, development, engineering or finance, depending on your team’s needs. The review board is responsible for evaluating ideas, providing specialized input and pre-approving team decisions.

Steering committee

Besides the review board, you also need to have a steering committee. The review board is more of an advisory board, and the steering committee empowers your team’s decisions and makes change happen within the organization. The steering committee usually includes the CEO or, in larger companies, the business managers who are most interested in the success of the category team. The steering committee sets the targets, and category manager reports back to the committee on the team’s progress and results.

The category manager can also brings up strategy questions for the steering committee to discuss. When strategic decisions go through the steering committee, it’s easier to enforce the category team’s decisions within the organization. Changing suppliers or components might look easy on paper, but these changes are often faced with resistance for a variety of reasons.

Team credibility

Did you know that 90% of end product costs are decided during the design and engineering phase? There is a huge potential for savings if an experienced category manager comes on board right away during the product design phase. However, if your final product has already in production, you have only limited cost saving potential. Without credibility, the category team won’t be invited to join the design and engineering workgroups, and the company will not reach its strategic sourcing targets.

Savings potential in different product lifecycle phases
Fig.2 Savings potential in different product lifecycle phases

Your category team should constantly be looking for ways to sell its value to internal stakeholders. One of the best ways to do this is adopt a more service-oriented mindset. Think of your stakeholders as customers. After all, your team’s goal is to work with them to meet their needs while also meeting the objectives of the overall organization.

Soft skills

While in the process of selecting your team members from various global business units, don’t forget to give your potential team members’ soft skills sufficient consideration. Effective category management requires a significant amount of collaboration, so you’ll want to choose individuals you are able to work well with others or find a way to support soft skill development within your team. (Here’s an article on five important soft skills all procurement professionals should have.)

Summary

The strategic sourcing process is continuous one that runs over a space of months and years. No category manager can or should run the process alone. If you’ve read through the whole strategic sourcing guide, you’ve probably come to see who it requires individuals with multiple areas of expertise running a number of simultaneous activities. It requires a lot of patience to analyze and dive deep into your data. Better solutions and ideas develop when you set up a framework for discussing and sharing ideas and addressing concerns with the team. A strong team is a necessary asset to any successful strategic sourcing process.

Don’t forget to share this guide with your colleagues!

Written by Peep Tomingas