Modern supply chains are becoming global and complex, so procurement faces many challenges and risks. It must also manage a vast amount of data and make the right sourcing decisions again and again. But this also means that the moment has come for procurement to deliver genuine value to business. This is where value-based sourcing comes into the picture.
Value-based sourcing is a full and comprehensive approach to sourcing. It goes beyond upfront cost. Instead, it looks across a range of factors to long-term cost and opportunity.
Recent studies have found that many companies are still not where they should be. What’s more, procurement software vendors have often limited themselves to focusing on purchase price and savings. This ignores how complex sourcing has become. And it might even contribute to more costs in the long term.
Risk management is a brilliant example of what value-based sourcing can do. Global supply chains promise opportunity. But they also expose procurement to risks like supply chain disruption and ethics violations. Regulations in areas like the environment and modern slavery also introduce risk in the form of compliance.
To identify and assess risks, you have a lot of information to consider. You must consider the nature of the risks and their causes. You also have to factor in the role of suppliers (tier 1 to n), governments, and institutions. Risk is also influenced by internal factors like your company locations and internal stakeholders.
What can software vendors do?
It can be a major problem for buyers if all this information is not easy to access. Many companies store information in many different systems. Sometimes, they store it in paper form.
But procurement software vendors can do a lot to relieve this burden. Good software provides buyers with the big picture. Unfortunately, best-of-breed solutions are often not able to do this. Instead of creating silos, technology should help buyers perform all their processes in one system. This means it also has to connect to other systems, such as ERPs, so you can have all your information in one place whenever you need it.
Technology becomes very powerful when you can bring everything together. In this screenshot of the new POOL4TOOL user interface, you can see a TCO and TVO calculation. It calculates in financial risk and corporate social responsibility and supply chain risk. The data for this is from expert scorecard services. In effect, this is value-based sourcing in an interface.
Example of an offer comparison including corporate social responsibility and supply chain risk factors. You can use category-specific weightings to calculate TCO/TVO.
Most procurement software vendors start and stop with cost. But the best software platforms cover all the information you need for value-based aourcing. It is the job of software to enable buyers to do more, faster, and better. Risk management is just one of many examples.
Read more in the new POOL4TOOL white paper Value-based Sourcing in Complex Direct Supply Chains.