1. Using Procurement
  2. How You Plan a Sourcing Program

How You Plan a Sourcing Program

A Sourcing Program provides a way for your organizations to set sfpecific measurable savings and spend goals, group various sourcing initiatives together under a single program to achieve the set goals, track progress, and record results across negotiations.

It provides visibility to performance metrics at a higher program level as well as granular negotiation level. Thus you can obtain a holistic view of the organization's achievements.

Procurement organizations can undertake various sourcing initiatives in an effort to achieve maximum savings and value. To do this, you need a way to identify and track achievements in a tangible and quantifiable form. You need the ability to set goals for savings, record results and measure performance from various sourcing initiatives.

Sourcing Programs allow you to:

  • Create a program and set savings and spend related goals for an organization.

  • Define multiple objectives for the program to achieve the program goals.

  • Associate negotiations to each objective, and define targets.

  • Track program progress and its overall health and record results

  • Measure performance by comparing negotiation achievements to set goals.

  • Obtain performance analysis by defining KPIs and metrics using OTBI

Example

The Chief Procurement Officer of Acme Widgets decides to implement a new initiative to control expenditures by achieving higher savings on IT spend initiatives for the North America business in 2017 of at least 15%. To achieve this, she decides to:

  • Target higher savings by negotiating lower prices on IT purchases in Q1 of about 20%

  • Keep increase in travel related costs in IT departments during high travel seasons within 5% with hard savings of up to 10%

  • Renegotiate agreements within 10 days of expiration to ensure purchases at lower negotiated prices.

She models a new sourcing program to track these goals. To accomplish this goal, she creates a sourcing program that focuses on key tasks - setting baseline goals, planing negotiations, and monitoring results to determine if they met their set targets for savings and spend.

Program Team Members

As the program owner, you can create a program team and add members to facilitate collaboration. A program team member can be granted full or view access to the program.

Program Baseline

When you create a program, you define a baseline and savings goal for the program. You define these in terms of a baseline current spend, a baseline target spend, and a baseline savings goal. You can set a percentage for the savings goal and amounts for current spend and target spend.

  • Baseline Current Spend: Typically, the baseline is obtained from historical spend data, budgets, or estimates based on current trends. You need to obtain this value from appropriate sources enter it manually into your program.

  • Baseline Target Spend, Baseline Savings Goal: The target or a savings goal generally derives from an executive directive, or a corporate objective. You also need to obtain and enter these values manually into your program. When you enter a target spend or a savings goal, the other value is calculated by the application.

  • Your program header fields can also include start and end dates, identify a browsing category and use descriptive flexfields (if enabled) to capture any additional information.

  • You can run your program with a single Procurement BU by selecting the BU value, or you can run the program across multiple Procurement BUs by selecting the All option for Procurement BU.

Program Objectives

You can add multiple objectives to the program. These are shorter term goals, or granular level targets that will together contribute toward achievement of the program goal.

You can distribute the program baseline spend and savings targets across objectives. In this case, each objective has its own baseline target against which you can track progress and eventually roll up to reflect at the program level by the application.

There are three types of objectives, differentiated by objective type. The objective type is based on the generic purpose for the objective. Objective types can focus on

  • Price reduction

  • Cost avoidance

  • Productivity improvement

So in the preceding example:

  • Objective One - (Target higher savings by negotiating lower prices on IT purchases in Q1 of about 20%) and Objective Two - (Target higher savings by negotiating lower prices on IT purchases in Q2 of about 20%) are price reduction objectives.

  • Objective Three - (Keep increase in travel related costs in IT departments during high travel seasons within 5% with hard savings of up to 10%) is a cost avoidance objective.

  • Objective 4 (Renegotiate agreements within ten days of expiration to ensure purchases at lower negotiated prices.) is a type productivity improvement objective.

You can associate each objective with one or more negotiations. Savings and spend amounts from the negotiations roll up first to the objective level and then eventually to the program level. An objective that indirectly contributes to the program goal, but doesn't have any measurable financial impact and doesn't contribute toward the program level savings and spend amounts can be excluded from the roll-up calculations

How You Associate Negotiations

Once you and any other category managers set program baselines and objectives, you can associate negotiations with your objectives. These negotiations are the means by which the objective goals (savings increase, cost reduction) are accomplished. As negotiations are created and associated to objectives, negotiation current and target amounts roll up to the objective level and then to the program level. This helps you ensure that the target spend and savings goal for the objectives are properly planned across these negotiations.

You can associate your objective with a negotiation that doesn't yet exist, but which you plan to create later. You have the option to include its contribution the objective by adding a placeholder for the negotiation. Later during the program lifecycle, when the negotiation is created, you can replace the placeholder planned negotiation row with the actual negotiation.

You can also use this planned type of entry to track contributions to an objective goal from sources other than negotiations.

How You Monitor Results and Measure Performance

As negotiations are completed, the awarded amounts are rolled up to objective and program levels. The program calculates negotiated award amounts, negotiated savings amounts and percentages, and any deviations of the result from the planned savings goal are calculated for objectives and the program in real time.

You and any other category managers can track the results of the negotiations over a period of time and take any actions for course correction if necessary. You and any other category managers can then foresee any potential shortfall or surplus, and make adjustments to the negotiation plan or to the baseline, and justify their actions. You can use the metrics available to help determine how close your negotiation planning activities are tracking to achieve the baseline goals.

Program and Objective Status

At any point in time, you can mark the overall health and progress of the program and progress of its objectives by setting a program status and an objective status. You can set it to indicate if the objective (or program) is on track, at risk, or on hold. Once an objective (and eventually the program) is completed, you can set a status to indicate if the goals were met or not met. And once the program is completed, you can specify its overall results and record the conclusion.