You want your contracts to deliver value to your business, right? Who wouldn’t? But do you know how many contract and commercial professionals fail to realize that collaboration with suppliers is essential? The first priority is to plan specific strategic sourcing strategies to figure out what we will do ourselves and what we want from suppliers.
Sourcing (or procurement) as it relates specifically to supply chain management means searching for the most appropriate suppliers at the lowest cost to your organization so it can compete most effectively in the worldwide marketplace.
To get started, you will need to ensure:
- Your sourcing decisions and search for suppliers involve a joint process between business operations and sourcing (procurement); and
- Your joint approach ensures consistency in the contract, specifying how products or services will be deployed and how the relationships will be managed.
Change might be needed because sourcing decisions and supplier relationships are often based on past realities while business strategy evolves with rapidly changing technology and markets. That’s how things get skewed: supplier contracts do not provide the best possible value if your constantly-changing business objectives no longer align with your past operating methods and supplier relationships.
But if you take the future business drivers and current market developments into account you can re-evaluate how you can best manage your collaboration with suppliers.
You have two choices
First, decide what your organization needs from suppliers. This enables them to focus on their business strategies and make the best decisions to create the most effective overall operating model. These make/buy/collaborate decisions will become the foundation for all support processes and solutions.
Second, how might you structure and manage the supplier and ecosystem collaboration, that is, a collaboration that brings all parties together in like-minded objectives? That question is driven by both business drivers and company/supplier relationship characteristics.
By taking a forward look into business activities and new market developments, you can align your sourcing choices to business and technology strategies and then leverage new business and service models. This, in turn, enables your organization to design the most effective sourcing and operating model for making the best use of suppliers and for maximizing mutual value from the individual relationships.
Think of the SOS framework as a railroad track, joining strategic sourcing at a practical level to business, technology and operating models. Understanding the detailed business needs and opportunities drive the make/buy/collaborate decisions per business activity. These decisions can then be consolidated into an overall strategic sourcing and collaboration model that shows how activities are performed and what the roles, responsibilities & risks are for each party.
The essence of the SOS framework is to execute the decision process together with business and functional stakeholders and involve suppliers where appropriate to ensure that all viewpoints and buy-in are included for consistent implementation and execution. The framework fits all types of business activities ranging from high technology-driven IT and digital activities and solutions to other functional support and primary business operations.
The SOS framework supplies models, criteria and processes
The framework consists of a decision and an implementation phase complemented by an execution phase in which the value from suppliers is generated.
Figure 1: SOS framework overview
The first decision phase details all activities and solutions required for business activity, cluster them into logical blocks, then applies business and market-oriented criteria to select the make/buy/collaborate choices that lead to the most effective operating model. Those choices are then further detailed to understand collaboration requirements and a check is performed to ensure availabilities and transition feasibility. Thus, this phase yields strategic make/buy choices and collaboration requirements.
Figure 2: Select Sourcing & Operating model
The second phase maps the required collaboration to the Spectrum© supplier relationship model to establish a preferred relationship type. This preferred relationship type is checked for feasibility given the characteristics of the available suppliers and the company itself. This ultimately leads to a supplier landscape or ecosystem with different types of suppliers and relationships managed a coherent way.
Subsequently, the chosen relationships are fully set-up and implemented with tailored governance, organization, information, processes and resourcing. All these are underpinned by fit-for-purpose contracts. After this phase, the supplier relationships are ready to operate and deliver business value.
Figure 3. Select and Implement Supplier Relationship model (Spectrum)
Changing the mindset: deliberate, transparent, consistent
Working with the SOS framework facilitates but also requires a different mindset from all stakeholders involved. Strategic sourcing decisions are no longer taken by individual instinct or power but through deliberate and collective analysis and evaluation. The criteria, evaluation, trade-offs and choices must be explicit, rational and transparent to all involved. This will enhance buy-in, change and communication both internally and externally.
Taking and implementing deliberate and transparent decisions also facilitates a consistent and compliant application and deployment from that point on.
Governance and management sponsorship will help maintain adherence to this principle. By making the criteria, evaluation, trade-offs and choices explicit for a certain domain, the framework helps to understand the differences in sourcing decisions and supplier relationships across various domains.
Commercial and Contract management professionals act both as facilitators and as knowledgeable actors in the decision-making process and can be champion of the mindset change.
Case Study - KPN
Trigger -- opportunity to enhance value from suppliers
Also, in the fast-changing high-tech world of telecom, all kinds of new technology and service developments needed to be incorporated in the sourcing and collaboration strategies. Developments like virtualization, Cloud, SaaS, Open Source, Agile and DevOps were impacting on the most effective sourcing and operating model. These developments required KPN to re-visit past sourcing decisions, current operating models and re-evaluate existing supplier relationships and its supplier ecosystem.
Approach -- applying the SOS Framework
KPN’s Chief Technology Officer (CTO) had undertaken a portfolio of strategic technological themes to explore future technology for KPN based on its existing business strategy. The SOS framework was used to overlay a sourcing lens on each of these themes in combined business and technology architect workshops. The outcome of these were both an enhanced view of the future operating model as well as a much better definition of sourcing and collaboration requirements. These insights helped validate the strategies and were used to engage with suppliers.
Impact -- significant improvements realized and set-up for more
- Significant business improvement opportunities were identified in various technology themes and business programs.
- Sourcing and collaboration decisions helped better define requirements and the desired role of the suppliers which in turn supported effective and commercial engagement with suppliers.
- A rational approach to new ways of working like DevOps and Open Source helped apply these where most appropriate
- Multifunctional teams became aware of the importance of consistency in supplier management.
Learnings -- improving the SOS Framework deployment
Several key insights emerged from this business case which was used to further improve the SOS framework and its deployment
- A key outcome of this case is the value of a collective, explicit and transparent approach. Bringing out the rationale behind all views really helped form a consensus and enhanced understanding of the dynamics.
A secondlearning is that a timely review of the sourcing aspects greatly increases the potential to improve operating models, better define responsibilities and allocate risks between actors. It helps to think about “who does what and why”, early in the process. A timely review of the sourcing aspects also enhances the RFx processes that could follow, because these are based on a more comprehensive and richer set of criteria to evaluate the offers received.
- Thirdly, it became clear that the decision process can be iterative. Feasibility and availability checks of the preferred model as well as new market developments may impact on initial choices. The iterative process integrates sourcing decisions across governance phases: strategic, tactical and operational. The process encouraged discussion and connection across domains (business, functional, technology) well beyond sourcing issues and contributed to the clarity and consistency of corporate strategy and execution
- Lastly, the outcome is very much “horses for courses”. There is no dominant answer to sourcing and collaboration models. Relationships can vary from hostile to intimate and responsibilities from joint to turn-key.
Applying a structured approach to strategic sourcing and collaboration, like the SOS Framework, enables higher awareness of business and technology strategies, more effective operating models and enhanced mutual value from supplier relationships. A collective and transparent approach aligns internal and external stakeholders on set-up and consistent execution.
ABOUT THE AUTHORS
Joost van Boeschoten (Dr.) is an independent consultant specializing in sourcing and supplier collaboration. He supports both customers and suppliers in IT-intensive industries, such as Telecom, Banking, Insurance, IT Services, setting up effective intercompany collaboration. Joost is a registered mediator (MFN, SGOA). He developed and first applied the Relationship Spectrum© in 2003 for a major international bank based in The Netherlands. His company,
Cris Buningh (BSc/MBA) is a thought-leader and independent consultant in commercial excellence. His motto is: Powering Commercial Impact.
He has extensive experience in both sales and procurement of products and services. In Shell, he led the CoE for Supplier Management, managed a 5 B$ Global category for Professional Services and re-engineered the Contingent Workforce management process. Cris helps corporates design and realize new sourcing and engagement models fit for a digital world.
His company, B-CEPS, provides several frameworks to support this.