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Building a Streamlined Sourcing Process at a Major Entertainment Company

Problem

Many companies struggle with building buy-in to, and ensuring compliance with, corporate sourcing strategies.  The challenge is particularly acute in organizations where procurement has historically been decentralized, and where the organizational culture is characterized by a high degree of individual business unit autonomy.

Faced with a mandate to significantly reduce operating expenses, a global media and entertainment company undertook a cross-category strategic sourcing initiative to reduce spend for goods and services – both direct and indirect.  Recognizing the implementation challenges ahead, the company engaged Vantage Partners to help define an enterprise-wide sourcing and procurement process that could deliver the targeted cost savings. Given the highly decentralized procurement practices in place, numerous hurdles existed, including:

  • Multiple business units negotiating separate deals with the same suppliers, and applying different requirements and pricing structures
  • Widely variant pricing for the same goods and services (often with the same suppliers), and pricing that was generally above competitive market rates
  • Transitions from negotiating contracts to implementation and management of suppler relationship that were slow, inefficient, and fraught with confusion and miscommunication (internally, and with suppliers)
  • Significant value leakage post contract-award (especially through poorly managed scope increases on services projects)
  • Buyers in the business units who were reluctant to share information with each other (due to fears of being criticized, concerns about losing autonomy, and perceptions of competition for limited supplier attention and resources)
  • Business units that were adamantly opposed to any loss of autonomy and to ceding any control to a corporate sourcing and procurement organization
    Suppliers that were simultaneously frustrated by the status quo, even more fearful of change, and who jealously guarded close relationships with end-users

Approach

Working with key sourcing and procurement executives, Vantage designed and executed a diagnostic process (consisting of individual interviews, focus groups, and after-action reviews of negotiations) to identify the root causes of challenges, and engage stakeholders in a consultative process of planning how to address them.  Key challenges identified included: 

  • Lack of a systematic process for sourcing and procurement that defined how different groups and individuals should be involved at each step
  • A pervasive tendency to think in binary and limiting ways about roles and responsibilities during negotiations (i.e., belief that either I “own” the negotiation, and have total autonomy, or someone else does, and I have no input or influence)
  • Lack of awareness across business units of the similarities in goods and services purchased, and of the number of common suppliers – and thus lack of awareness of the potential savings and other benefits of greater coordination
    Strongly held beliefs (part perception, part reality) that corporate sourcing and procurement staff didn’t really understand the needs of the business units (the view of the business units), and that the business units lacked negotiation skills and were unconcerned about cost management (the view of corporate sourcing and procurement)
  • A general lack of sophisticated negotiation skills (at both the corporate and business unit level)
  • No incentives or accountability for effective planning and preparation prior to engaging in negotiations with suppliers

To address these problems, Vantage worked with a cross-functional core team including individuals from corporate sourcing and from each business unit.  Vantage worked closely with them and an extended network of stakeholders to design a streamlined sourcing process.  Ultimately, the process was designed around 24 discrete sourcing scenarios (based on size of spend, technical complexity, and other key variables) and defined, for each scenario, guidelines for involving the right stakeholders, in the right ways, at each step in the sourcing process.

Critical to implementing the Streamlined Sourcing Process was building understanding  and trust among the business units, and between them and the newly expanded and empowered corporate sourcing organization.  It took approximately four months to determine the various factors (mentioned above) that would be used to define the different sourcing scenarios underlying the process, and then to define and agree upon the respective roles and responsibilities of the business units versus that of corporate sourcing, under the various scenarios.

Vantage employed a unique methodology by which stakeholders were presented with a draft of the process and given opportunities to raise concerns and criticize it.  Vantage then incorporated that feedback into a newly refined draft.  Part of the methodology also involved “stress testing” the process (along with the defined sourcing scenarios and associated roles and responsibilities) by simulating how it would actually work in various actual or hypothetical situations.  A key benefit of this approach was that by the end, dozens of stakeholders across the enterprise who had been involved in critiquing and refining the draft felt a high degree of ownership for a process they had helped to develop.  Moreover,  these key stakeholders (selected in large part because of their formal and informal influence across the organization) had a deep understanding of the new process and its logic, and thus were ideally equipped to explain and evangelize it to others in their respective business units. 

The architecture behind the Streamlined Sourcing Process was ultimately invisible to end-users, and was instantiated through a simple software system.  In order to follow the process (which was deigned to ensure appropriate consultation and coordination, with maximum efficiency), the end user simply entered three pieces of information: the name of their business unit, the category of goods or services they needed to source, and the approximate volume or scope of purchase.  Backed up by an Oracle database with years’ of prior purchasing information, the system generated a simple report showing whether or not the strategic sourcing organization had a designated category lead for that product or service, whether or not the business unit involved had dedicated procurement personnel/subject matter experts, and how many business units also purchased that product or service and in what amounts.  Based on this data, the system also generated a simple and auditable process checklist of the steps required to make the purchase, with guidelines about who to work with in what ways during the process.

Results

Since implementing the Streamlined Sourcing Process, the company has:

  • Realized over $300 hundred million dollars in cost savings (within the first three years of the new process being implemented)
  • Achieved more favorable and consistent contract terms, with an associated reduction in risk exposure
  • Significantly reduced the time and effort spent on sourcing and supplier negotiations
  • Strengthened relationships and improved collaboration across the business units
    Built a high degree of respect, and a world-class level of collaboration and partnership, between the corporate sourcing organization and the business units
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