Do C-level Executives in Your Organization Realize the Value of Strategic Sourcing?
In my experience many C-level executives don’t realize the value the strategic sourcing team brings. Unfortunately, the fault may be in how the team communicates their successes.
At the most basic level we all want to feel appreciated for our efforts.
Understanding how to communicate your achievements will go a long way to raising your status.
Last week I had a conversation with the new CEO of an international consumer products company. His conclusion was that the procurement group was making purchases based on internal customer requests. They were creating purchase orders and then working to negotiate lower pricing based on the bids submitted. He had no idea if the purchase decisions being made were lowering costs or improving quality for example.
His goal was to change the direction of the organization to a strategic approach in action and reporting.
When I asked him what led to his conclusions he said that all of the reporting centered on what was purchased. There wasn’t any analysis that demonstrated that the group achieved measurable savings or more timely fulfillment in comparison with budget or past results.
This was surprising to me and so I asked more questions to find out what he was looking for that he wasn’t getting.
Here is some of the information he was looking for on key material purchases:
- Comparison to budget and the prior 3 years per unit of measure
- Aggregate financial impact in total in comparison to budget and the prior 3 years
- Trends in purchases price on a per unit of measure basis for the past 3 years
- Delivery record versus target date for each supplier
- Forecasted purchase price for the next 12 months
- Known or potential supply interruption factors and how or if they could be mitigated
This resonated with me based on my past experience in financial decision making roles. The information the CEO was looking for provides a snapshot how the sourcing group is doing. If these materials are a substantial part of production cost, it is even more valuable.
At the present time he didn’t know any of this information.
CEOs like to know what the financial results are going to be rather than waiting for the accounting group to publish them. Plus, the information on potential supply interruptions and how they can be handled makes for fewer sleepless nights.
I have a very clear memory of a question from the Executive VP very early in my career. He asked me how much a 1% change in the price of key raw material would have on next year’s bottom line. I knew the expected purchases and was able to quantify it for him.
This taught me a very important lesson. I made sure that all future financial reports contained what if analysis so he could see this type of information at a glance. This was an important step in helping the company plan for good and bad issues rather than reacting and scrambling.
Better reporting and analysis clearly established the value of the sourcing efforts in an easy to understand and verifiable way.
It will do the same for your group.
Action Step: If you would like to know how to communicate the value of your sourcing group more effectively, call or email me with your questions.
EC Sourcing Group is one of the companies I represent because their tools have been created by dedicated and experienced sourcing professionals. They know the day-to-day challenges your team faces and have built their tools to solve them. If you want to know how, I invite you to request a demo or 30 minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at 973-936-9672.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business simply give me a call or send me an email with your contact information and the best time to reach you.
You Won’t Drift to Success©
Think about it.
Until Next Time, I Wish You Great Success in Your Business and in Your Life