Over last decade, sourcing offices became a major piece within globalized footprint of western retailers. Asian countries and China in particular have been privileged destinations for those entities due to cost attractiveness of the area.
After a first era of development and opportunity catch up particularly positive and characterized by consistent purchasing gains, most of these Sourcing Offices are now searching for their second breath.
Being caught between suppliers raising progressively their prices to follow cost pace (labor, utilities, quality costs…) and internal counterparts expecting more value (purchasing gains, flexibility, services…) they need to redefine and strengthen their model.
Back to the origins, the Sourcing Offices have been developed by retailers for two main reasons:
#1 Gather demands coming from various entities within a same group
Retail groups are by nature associations of small entities (stores / country grouping / store brands) that in isolation are facing difficulties to reach economies of scale in purchasing task. Once pooled through a Sourcing Office, they can get a higher power of negotiation.
#2 Set up localized resources
Dealing on a daily basis with distant and unknown sourcing markets is a real challenge from supplier identification and qualification to order processing and shipment arrangement. A localized Sourcing Office helps tackle the cultural differences and handle process with knowledge of local constraints.
Consequence of this position, Sourcing Offices have always been at the crossroad of two worlds presenting different expectations, timelines and constraints. They need to match the need of volume / visibility / stability of suppliers with the need of pricing / flexibility / reactivity of internal counterparts. And current trend shows that each of these needs even tends to be reinforced.
In parallel, Sourcing Offices progressively became a center of services and they integrate functions not directly related to sourcing operations such as Supply Chain, Design or Packaging. Buyer’s product selection is going toward less item picking (what supplier already has in his catalog) and more product development allowing to better customize products in function of the destination markets. It makes Sourcing Office job a more complex job within a more complex environment.
Three kinds of actions are necessary to rework processes
#1 Streamline the processes
A quick process mapping exercise shows that support functions can carry until one third of Non Value Added Operation and one other third of “Waste” operations. Sourcing offices are not an exception and existing waitings, overlaps, reworks are damaging the performance. It artificially grows workload of teams that tend to sacrifice the Value Added tasks as Supplier and Product sourcing.
On this axis everything starts with Value Added definition by teams, what do the clients expect? What are they ready to pay for? Once this defined, the streamlining exercise will aim to map and progressively improve / eliminate all tasks not contributing to create value added for clients. It’s the occasion to redefine for each process the operating standards and expected outputs.
#2 Structure advanced toolsets
As demand for high value added service raised, Sourcing Offices frequently demonstrate a cruel lack of methodologies for key structuring activities. Job Description as defined today in Sourcing Offices are limited to daily commercial execution (supplier integration, product development and qualification, order processing…). Strategic actions like Purchasing Strategy definition or Negotiation preparation are not correctly documented.
It requires, while working on operating standards, to create standard approaches and templates for strategic processes.
As an exemple on Purchasing Strategy axis, it means provide an analysis structure / template that will be used by each category to set up a mid term vision and an action plan aiming to reach this vision. On Negotiation preparation, best practices show that having a standard blusheet per supplier centralizing key figures (turnover, rebates, item price evolution vs cost index evolution...) helps buyers to be better prepared for negotiation rounds.
#3 Link processes & tools to organization
Last point in the inventory, the tools are most of the time not adapted to the needs of teams and are not giving the right vision for people to monitor their activity. Information Sytems are not covering the entire value chain, standard KPIs and dashboards are missing, and sometimes several Information Systems co exist without being connected to share information.
No mystery on that point, solution is coming from Information System itself, several solutions are already proposing a End to End Management of information and physical flow. On top of a transversal cover, capacity of the system to deliver tailored and visual dashboards is also part of ideal solution.
Organization is a key component of sourcing office performance, it requires to put the right level of skill and experience in front of each task and each interlocutor.
A lack of maturity in organization will end in a general disorder where Commercial team (merchandiser, product manager, department manager…) tend to monopolize conversations with each side of the business for each topic assessed (Quality, Supply Chain…). It’s also frequent to see overlaps between commercial team members.
There are three kinds of actions to carry in order to work on this axis
#1 Refine the Commercial team Roles & Responsibilities
Commercial team (merchandiser, product managers...) is central for a sourcing office, it’s the team in charge of settling and rolling out the sourcing strategy (suppliers / products) by matching internal client expectations with market offer.
Within the commercial hierarchy itself, it’s important to separate strategic tasks and operational tasks to ensure that higher level of hierarchy will dedicate time to strategic topics and stop overlapping other levels on operational topics.
#2 Position operational functions as key actors of performance
Operational teams (Quality and Supply Chain firstly) are essential to carry on the business and deliver value added services to internal clients.
Position them as key interlocutors on each of their topic will secure the output per topic (product qualified, delivery on time…) and avoid overlaps with commercial team.
#3 Structure transversal relationships
To guarantee the good execution of processes and secure the delivery of expected performance, communication within organization is vital. To give a framework and force teams with various objectives to work together toward a common goal, matrix management can be relevant.
One referent is nominated per function in order to monitor on daily/weekly basis with referents of other teams the achievement of key milestones (product selected, product qualified, order validated, production launched…).
Working on organization through these 3 axis will push the need for standardized R&R. This is where RACI definition exercise (Responsible, Accountable, Contributor, Informed) becomes important, it will clarify Roles and Responsibilities newly define through waste hunting workshops.
In terms of management, we can't let rooms for interpretation. Management routines, animation principles are often viewed as well-known topics but there execution suffers from a lack of definition and of discipline from Managers. They need to be part of new standard definition, with pre defined owners, frequency and expected outputs.
Process streamlining and organizational alignment is not only reserved for inner Supply Chains. The development of counterparts’ maturity is a natural and essential step along retailer’s Supply Chain reinforcement. Tier one suppliers are one of first focus to have in this approach.
Maintain an accurate knowledge on supplier’s strengths and capacities, align his processes with internal requirements, face the right interlocutors for each function (Commercial / Quality / Supply chain), here are the basics to put under control upstream channel.
Obviously it also involves having regular check points around pre-defined dashboards and KPIs in order to get a live vision of execution advancement.
To secure sustainable purchasing gains and sustainable quality level with the biggest and most strategic suppliers it also becomes common to launch supplier development programs. It involves for Sourcing offices the nomination of dedicated resources specialized in Operational Excellence that spend time on supplier‘s site and help him to improve its overall productivity through Lean workshops.
Today, there is no standard sourcing organization, each retailer has developed his own approach with various level of centralization leading to various degrees of penetration of Sourcing Offices within everyday business (penetration represents the ratio of business handled by Sourcing Office among total purchasing amount for a group).
Fully aligned organizations position Sourcing Offices at the heart of their strategic plan, working on product development and costing, being responsible of quality delivered, acting as an unavoidable service center to deal with upstream actors. They are not necessarily covering the entire portfolio but on a set of pre-defined strategic categories (best sellers, non-food categories, commodities…) they have the prerogative.
In Europe Ikea, Decathlon or Zara are well known examples of fully aligned organization. Business Model is reflected in the entire value chain that is oriented toward cost optimization and ability to focus on value expected by clients. We talk about bridging operation cost constraints and client experience through design approach for Ikea, developing a strong internal alignment around development and merchandising of own brands for Decathlon, working on time to market reduction with each function to propose faster collections for Zara.
Aside of these word class organizations, other retailers are mixing approaches allowing entities (or grouping of entities) to deal directly with suppliers while developing their own resources in a structured Sourcing Office.
The more aligned you are at group level, the less bias you open for daily execution of sourcing tasks by the internal customers. It leads to a systematic volume pooling and the more volume you give to your Sourcing Office, the more value they will be able to bring back to you. It’s Key Success Factor to strengthen Sourcing Offices and give them the best condition to develop their potential.
In few bullets points we saw the preconized focuses for Sourcing Offices in 2017, if industrial purchasing is still fare considering the BtoC market constraints, it’s still a good ideal to chase, several best practices are easily reachable. The existing gaps in management mindset, in organization maturity and in tools & processes alignment can be closed and need to be closed in order to keep positioning Sourcing Offices as performance contributors.