Aberdeen Group: Advanced Sourcing & Negotiation Benchmark Report.

The Advanced Sourcing & Negotiation
Benchmark Report
The Art & Science of the Deal




January 2007


- Underwritten in part by -



The Advanced Sourcing & Negotiation Benchmark Report
Executive Summary
In retrospect, the initial e-sourcing waves that began a decade ago resembled a corporate "crash diet," leaving an immediate and noticeable impact on the enterprise, but also a daunting challenge to develop a new and different program that could sustain these bene-fits and keep the "weight" off. As the use of basic sourcing strategies has reached satura-tion levels with certain categories, enterprises must utilize advanced sourcing strategies across a wider range of categories to deliver the same results.
Key Business Value Findings Enterprises that employ advanced sourcing strategies are positively impacting product development cycles and building stronger supplier relationships by making better, more-informed decisions. They are also driving innovation and to be certain, they are saving more money than their competitors. On average, the enterprises participating in this benchmark report: . Identify savings of 11.9% per sourcing event . Realize savings of 9.4% per sourcing event (savings that are actually imple-mented and "realized") . Utilize a formal strategic sourcing process on 43% of their total spend . Utilize e-sourcing across 20% of their total spend . Employ advanced sourcing strategies on 15 to 40% of their sourcing initiatives Considering the benefits seen by the average e-sourcing program, it is surprising that a full 36% of this benchmark's respondents (and 20% of all large enterprises) fail to utilize any level of e-sourcing.
Implications & Analysis Best in Class enterprises use formal strategic sourcing and e-sourcing processes to drive greater e-sourcing throughput, achieve higher than average savings, and provide greater value to the enterprise. They are 32% more likely to employ advanced sourcing strategies and proclaim a 54% edge in their proficiency. Their superior performance is perhaps best exemplified by having realized savings results that are 39% better than their competitors.
"We implemented e-sourcing in 2004 and began an aggressive program focused on five indirect categories. We achieved our goals in the first three years. This year (2007), however, our "target cost reduction" is lower than what we delivered in 2005 because the opportunities for savings are just not there. We will miss our target unless we quickly expand our focus and aggressively target another series of cate-gories for e-sourcing." - Director, Strategic Sourcing; Global Engine Manufacturer
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Table 1: The E-Sourcing Advantage (Best in Class vs. Others)
Performance Area Best in Class All Others Formal sourcing processes established 100% 65% % of spend that is strategically sourced 60.7% 39.6% E-Sourcing application in current use 97% 57% % of spend that is e-sourced 32.4% 16.2% Average identified savings (per event) 13.7% 11.2% Average realized savings (per event) 11.8% 8.5% % of e-sourcing events using price as sole award criteria 39.0% 41.5%
Advanced sourcing proficiency (self rating 51% 33% on scale to 100%)
Source: AberdeenGroup, January 2007
Recommendations for Action The gradual erosion of savings rates from e-sourcing events that we have seen over the past few years will continue. The following strategies will help enterprises maximize their returns: . Develop, augment, or outsource process, category, supply market, and technol-ogy expertise. Establish centers of excellence for sustainable proficiency. . Employ advanced sourcing strategies across a wider set of categories. Look at complex categories, including services, logistics, T&E, and direct/strategic mate-rials. . Focus on realized savings and correlate them to enterprise-level financial metrics (e.g., EPS). Aberdeen Group has tracked the usage of and results from e-sourcing since its inception. This benchmark builds upon those earlier research efforts by examining the... [download for more]