Procurement

Agile sourcing in procurement

Agile sourcing means turning the traditional procurement frameworks upside down allowing for cross-functional teams to make decisions faster and work on multiple activities in parallel. Agile sourcing can be described as a more collaborative alternative to running RFP in order to achieving higher quality sourcing results.

Complexity of supply chains and market environments is increasing. Staying relevant within procurement today requires next level adaptability. Speed is required to keep up with market changes and address evolving stakeholder needs. The term ‘agile’, borrowed from software development, is now being widely adopted and applied within supply chains. Being agile means to be able to think, adopt, learn, understand, move and re-assess quickly. Procurement is dynamic in its nature, but often the way of sourcing and running RFPs can be perceived as time-consuming and out-dated. In this blog post we provide an industry leader alternative to the traditional way of working.

Agility in procurement

In the procurement context, agile approach means becoming less process-driven, less governance oriented and less orthodox. Agile procurement targets to be more collaborative, fast paced and open. Agile is about technical excellence, interpreting data, being open to new ideas, and empowering individuals to take ownership. It shakes up the traditional procurement frameworks allowing teams to make educated decisions faster.

Agile methodology consists of twelve core principles that procurement could welcome:

  1. Customer satisfaction is the highest priority.
  2. Change is welcomed for competitive advantage.
  3. Deliver working solutions at the shortest timescale, frequently.
  4. Project team must work daily throughout the project to ensure transparency and commitment.
  5. Build projects around motivated individuals. Enable their success. Trust them.
  6. Rely on face-to-face communication as most effective way to share information
  7. Demonstrated customer value as the primarily measure of progress.
  8. Maintain sustainable development and steady pace.
  9. Attention to technical excellence and superior design improves agility.
  10. Less is more. Simplicity is essential.
  11. The best outcomes emerge from self-organizing teams.
  12. Continuous improvement is the key. Teams should frequently reflect how to become more effective and adjust their ways of working accordingly. (Agile Alliance, 2021.)

More on agility in spend management: Spend Management - What is it and how is it changing in 2021?

In agile sourcing, collaboration between all relevant stakeholders brings new ideas and leads to the consideration of alternative solutions. Interaction with business units and management teams is frequent and happens on interpersonal level. Early involvement of end-users and suppliers means a faster process and a better result. Workshops and discussions can reduce the long process of drafting, reviewing, updating and re-writing the scope of work before issuing an RFP. Agile procurement builds on customer obsession and demonstrated customer value. Problems are actively solved at the very source.

Traditional way of sourcing

Traditional as well as agile teams ultimately aim for the same result – a successful sourcing result. However, traditional sourcing uses legacy policies and processes which are slow, involve pre-defined routine steps, heavy governance, safeguards and extensive tracking. Traditional sourcing may be viewed as time consuming and frustrating exercise for the multiple stakeholders, while procurement is only trying to safeguard company interests, ensure that mandatory requirements are met and mitigate risks. This is the waterfall approach where the steps are linear, starting from identifying the need, creating a sourcing plan, issuing an RFP, through to negotiations and contract signing.

In a traditional sourcing and contracting process, entering an RFP can be very expensive and time consuming for both the company and the supplier. Focus often lays in comparison of multi-page proposals, product/service features and paperwork. It can involve multiple meetings, covering the same ground, and eventually leading to a poor outcome and a relationship that is less than ideal. The people who work on the RFP proposal are often not the same that actually deliver the service, leading to misunderstandings and unmet expectations. After a successful RFP, the parties might fail in finding joint understanding over the contract terms. Time to market can be lengthy, and initial proposal become outdated in the meanwhile.

 

Bringing agility into sourcing

Agile sourcing is the adoption of agile principles to make procurement processes faster and more effective. The goal of agile sourcing is to enable shorter time to market, more collaborative relationships and higher customer satisfaction compared to traditional sourcing practices.

Agile sourcing process

Agile sourcing processes are transparent and focus on delivering value rather than detailing how to take the next step. Each of the actions in a traditional sourcing process are still important, but the agile approach loosens the order and ownership of these activities to significantly speed up the overall process. Sourcing activities could be done simultaneously (or even in seemingly reverse order) in opposite to traditional step-by-step processes, depending on the resource availability at the time and greater good for the project. Certain process steps could be skipped entirely based on their irrelevance or case-by-case procurement evaluation. Agile methodology requires context sensitivity and common sense.

Scrum is an application of agile principles, that relies on teams to deliver wider entities in short cycles, sprints. Sprint is limited period of time when team works to complete a set of assignments. Working in sprints enables feedback loop, continual improvement, and fast adaptation of plans with the change. In sourcing context scrum could be a program that would consist of several RFPs or complex software agreement negotiation that is executed in sprints.

 

Agile sourcing vs linear sourcing in procurementGraph: Linear vs Agile approach to sourcing

Agile sourcing team

Agile approach makes use of various strengths within the organization to become more efficient and identify opportunities. The most effective people in sourcing are those who have a sense of urgency to push things forward as well as being flexible in their ways of working. Scrum in agile context relies on three distinct roles, that are:

  • Product Owners,
  • Scrum Masters, and
  • Scrum Teams.

Product Owner is the voice of the customer, in procurement context many times the business owner. Scrum Master tracks the overall progress of the project, removes barriers and mitigates delays. In sourcing context this could be the CPO or sourcing project manager. Scrum Teams involve experts from across the organization needed to successfully complete the project. A successful cross-functional team can include stakeholders, subject matter experts, IT, legal, and finance. They all need to be able to fully understand the marketplace and external factors relating to the topic, or category of spend involved, to proactively deliver results. Without open and proactive exchange of information this is not possible. Suppliers and customers are sources of information and are likely to be aware of possible pitfalls or disruptions. Therefore, it is critical to keep your eyes and ears open for supplier and customer feedback and insights.

Agile scoping and specification

Being agile is to be more fluid and flexible. The speed is partly achieved by improving the quality of the engagements with stakeholders and being less rigid in designing tight specifications, allowing for more scope for innovation when approaching suppliers. End-users tend to over-specify technology products and services. Therefore, in agile approach supplier discussions take place earlier and more frequently. Agile sourcing allows for changes in scope during the sourcing process. Suppliers' expertise utilized in definition of the scope and service level requirements. Agile requires a much more collaborative and outcome-based approach, involving continuous interaction between teams. This helps in ensuring business requirements are well understood by bidders at the point of the RPF release and, as a result, due dates are met and there is a shortening of the overall timeline. Suppliers are more likely to commit to the requirements they took part defining in.

Agile contracting

In agile approach, negotiations are less combative and the aim is to maintain a positive and cooperative stance right from the start. Cooperative approach improves the quality of supplier relationships and contracts. Constant interaction occurs across the sourcing lifecycle between the buying organization and the supplier who, together, incrementally develop the contract, adapting it along the way as needs or markets change. Contracts are built to last time and consider need for occasional changes, respecification and continuous improvement. Any potential issues are resolved in early stages before they become problems. Even the contract terms could be discussed with potential suppliers prior to RFP, avoiding any unwanted surprises or delays.

 

Benefits of agile sourcing

  • A shorter lead time. A more efficient sourcing process enables the organization to benefit from the new contract and possible cost efficiencies earlier.
  • Focus on business outcomes and evaluation. The aim is to achieve a contract that benefits both parties through collaborative partnerships on the long-run. Focus lays in evaluation of partner capabilities instead of product/service features only.
  • Stronger stakeholder and end-user relationships. Agile positions procurement as collaborative partner with room for discussion and finding the best solutions together.
  • Agile approach embraces innovation and promotes change. Agile approach promotes continuous improvement in terms of procurement processes and technologies as well.

 

Putting technology to work

Agile approach promotes technological excellence. Agile sourcing means a faster process from identifying sourcing need through to contracting. To achieve this, technologies such as advanced data analytics are key enablers. Responsiveness depends on the ease of accessibility of relevant, unquestionable, real-time data and the electronic means by which to share it. Full data transparency makes it easy to improve processes, such as gaining management approvals, and measuring value creation while maintaining overall visibility.

Is sourcing using an RFP process still a valid option? Yes, but with some flexibility built-in and the ability to perform some actions in parallel. RFP is best fit for requesting comparable information from suppliers. RFP should not be feature bingo. Evaluation of a sophisticated solution or service capabilities should not happen on RFP platform or in excel, but as close to actual business environment and stakeholders as possible. For technology projects, incorporating a proof of concept (POC) is one way of determining the best solution. More on how to succeed in your next POC here: A Complete Guide to RFP: how to avoid common pitfalls in Spend Analytics Proof-of-Concepts?

An agile approach to sourcing can shorten project timelines, promote collaborative relationships and provide major improvements in customer satisfaction. Having this said, companies that successfully become more agile in their procurement process see major improvements in their ability to deliver quality outcomes faster.

Header picture by: Mika Korhonen

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