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SIG University Certified Sourcing Professional (CSP) program graduate Thomas Cooper describes how with the increasing pressures on supply chains and sourcing organizations lately, efficiency and effectiveness cannot be understated in an organization.
A common question in management applicable to the multifaceted world of strategic sourcing and procurement is, How do you manage the complex?
Based on a 28-year professional career, I believe the answer is to keep it simple. You might ask, what does keep it simple look like – it means applying a systems approach. A systems approach is focused on understanding the relationships and interactions between the elements within a system. In strategic sourcing, systems thinking can be used to analyze and maximize how an organization procures services and goods from suppliers.
One of the fundamental principles of systems thinking is recognizing that a system is more than the sum of its parts and, more importantly, is the product of the interaction of its components. For instance, if you take apart a car, you lose the ability to drive. This is particularly relevant in strategic sourcing, where the organization ‘s performance depends on the collective efforts of many stakeholders, including internal business partners and teams such as finance, legal, third-party risk management, and suppliers. With a system thought approach, organizations better understand the unique and intricate interactions between these stakeholders and identify opportunities for improving the efficiency and effectiveness of their sourcing operations.
A vital benefit of this perspective is the consideration of the broader implications of decisions and actions within sourcing and procurement. This will help identify the long-term consequences of procurement decisions and make quality-informed decisions regarding supplier choice. This is exemplified when our organization reaches diverse supplier goals. Systems thinking also uses systems diagrams to represent the relationships and interactions within it visually. A context diagram can be used to map out the various components of a system.
For instance, a supply chain can be mapped to help categorize risks and identify inefficiencies such as parts shortages or bottlenecks. A diagram could reveal a lack of coordination between a supplier. Using a systems approach, an organization can analyze the root causes of the problem and develop strategies to address this issue.
Another aspect of systems thinking that applies to strategic sourcing and procurement is building requirements from the top down. This heuristic is based on years of systems engineering experience, and I have personally found it extremely valuable as you identify KPIs early. KPIs reveal what is truly important to our internal customer ‘s satisfaction and quality.
It also raises general requirements and what is considered a good requirement. When working with internal business partners and suppliers, we constantly define and communicate requirements. Requirements stipulate what performance we expect from a system. A good requirement will be SMART – Specific, Measurable, Achievable, Realistic, and Timely. Sometimes we can define a requirement with an objective and threshold – for instance, our objective is 5-star reviews, but a minimum point of 4-star reviews is acceptable.
The last attribute of a systems approach is to validate your requirements. Ensure you are testing the system and that it meets your customer ‘s expectations. Test early and often. In testing, we can identify areas for possible tradeoffs since resources are limited, and multiple stakeholders may have different preferences. Tradeoffs can help tailor system attributes to meet requirements best, think strategically, and provide quality.
To help take a systems approach to my new job as a sourcing and procurement professional, I developed the following Context diagram to show my interfaces. Typically, interfaces are where the most significant risks are in any system. As I continue to learn, I ‘ll focus on these relationships, associated risks, and the broader implications of my procurement decisions to help identify opportunities for improving our sourcing operations and make more informed choices about which suppliers to work with.
This will ultimately lead to better performance and more sustainable organizational success.
The Certified Sourcing Professional (CSP) Program is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.