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FacilitiesNet subscriptions include free email newsletters from our facility-industry brands. As part of my ongoing work with the IEC I was fortunate enough to participate on a call with an organization that is ahead of the curve in IT Asset Management. The principle behind the IEC is to find out what the best companies do, in order to share methodology with peers – not quotations from best practice books or vendor hyperbole, but real results. Their setup had ITIL overtones, a catalogue of 8 primary services accessible via an intranet with service level, pricing and options.
But the success was not due to this being an ITIL implementation, but because they had managed to translate IT talk into recognizable services and units that VP-level managers could understand and manage.
These are the IT Services my department is using, these are my costs, this is my consumption over time and this is how I may influence future costs.
There was no talk of federated-this or ITIL-compliant-that – but purely providing real value. I got the feeling that there was likely to be a lot of excel crunching behind the scenes as data was correlated and reconciled between systems, and it took a lot of work to reach that level of maturity – but it really worked. I imagine outsourcing choices, selling new innovation concepts and change decisions become very clear cut.
Martin is owner and founder of The ITAM Review, an online resource and community for worldwide ITAM professionals.
Martin is an independent ITAM consultant for organizations seeking independent guidance on ITAM strategy or ITAM tool selection.
Table 1 provides an overview of product portfolio matrix that can be used in a large manufacturing setup. While most companies have streamlined management of materials directly used in manufacturing, many have not fully addressed MRO management. Large manufacturing companies depend on complex and costly machinery to manufacture products. And while they have made great progress in improving efficiency and reducing cost in areas ranging from scheduling manufacturing equipment to inventory management, some still make the mistake in concentrating only on the sourcing aspect.
Strategic sourcing is different from the traditional transaction structure in that it is basically value creation through knowledge creation, knowledge acquisition and knowledge transfer (see Figure 1) and believes that 90 percent of cost saving can be achieved through various methods of commodity aggregation, supplier aggregation and value engineering. In strategic sourcing, which sourcing lever should be used for which item is situation dependent.
Leverage Volume (Consolidation)—There are many commodities, which are similar in nature and can be procured throughout the organization. Third -party solution providers—An organization can outsource some of its sourcing activities (which are not core in nature) to third-party sourcing experts called integrators. Optimization of Specification—This is one of the most important sourcing levers with enormous saving potential. Long Term Contract—Upon assurance of business for a loner period, the supplier can offer many value added services and discounts. Conversion—In the entire manufacturing cycle if one process is not cost-effective to the manufacturer (or it has any capacity constraint) then that particular process can be outsourced to a conversion agent. Free Deliver at Site—Many suppliers offers free delivery of material at the site from their manufacturing units provided they are given a certain consignment size.
Buy ‘Solution’—With the increased competitiveness of the market, more and more supplier are offering “Total Solution” and supply manager are also willing to buy solution instead of the product. Backhaul—With increasing logistics cost, backhaul is a win-win leverage for the supplier as well as the manufacturer.
Leverage Technology—Companies can build competitive advantage over its competitors by adopting best-of-breed solutions to fill selected gaps, integrating them with legacy systems and with suppliers, customers to enable end-to-end processes and to provide good visibility of the pipeline.


One key to success for strategic sourcing activities in any organization is its effectiveness in addressing continuous improvement activities.
The obvious answer is that it depends on what you want to achieve, which someone else should never define for you.
The product line has 30 lever designs in 15 finishes and includes exit devices, mortise and cylindrical locks, and access control locks. Critically, somehow they had figured out how to align IT asset costs with their service catalogue, no mean feat. In the present scenario when everyone is looking for cost-effective strategies, one of the key enablers is the effective sourcing strategy for MRO items which directly impact its bottom line.
In fact, only a handful of manufacturing companies are managing the sourcing of MRO parts effectively.
For the most cost-effective sourcing of MRO items, the focus should be on the entire supply chain and not just in one process. They don’t realize that a major chunk of MRO item cost gets lost in the ‘faulty inventorization,’ ‘payment terms with the supplier’ and ‘negligence in addressing the continuous improvement activities in the value chain.’Improper MRO management leads to either stock-out situation, accumulation of excessive inventory or leads to a situation where the organization fails to leverage the sourcing tools for cost reduction. These levers cannot be standardized according to the commodity but rather should be decided judiciously (Figure 2 shows some of those levers). Consolidation of the entire buy offers a big volume to the suppliers and in turn a good volume discount can be expected.
The integrator acts on behalf of that organization and make sure of the optimality of the solution.
Every improvement in sigma level comes with a price tag, so the strategic sourcing personnel must see whether the specification that has been supplied is the required one or even a lower specification will serve the purpose. The supplier gets time for doing value-engineering activity for reducing its cost and the same can be shared with the organization. The hidden costs are not related to price but are related with yield, transportation, specification, production capacity and inventory-carrying costs. With technology bridging borders and enabling global commerce, the choice of suppliers today is truly worldwide. For those items it is better to buy when the prices are at trough rather than at the peak of the cycle.
IT-enabled supply management tools and new technologies like RFID, global tracking system, e-procurement and bar coding delivers the business value as well as complete visibility of the value chain through process optimization, cost reduction, inventory reduction, resource optimization, time compression and better planning and scheduling.
And most companies don't have the range of expertise, information, and tools to effectively source all strategic and tactical buying categories. MRO procurement for these companies involves sourcing and buying not only production consumables—such as lubricants, thinner, jute and fasteners—but also specialty items such as limit-switches, instrumentation spares, cables, and motors. Answers will vary from ‘type of organization’ to ‘buy value’ and ‘the end use of the product.’ Table 1 provides an overview of product portfolio matrix that can be used in a large manufacturing setup. Through this, it is possible to reduce overheads in the form of labor, time and related procurement expenses.
Specification data, collected during the internal and external analysis, is optimized using this lever. A manufacturing organization prefers long-term contract for its core items like refractories, gas supply, lubricants, rolls and packaging. This lever can be utilized if the strategic sourcing personnel is fully aware of the end-to-end process where the material is going to be used, and then only he can buy the solution instead of the product. Chief Procurement Officers (CPOs) are taking advantage and seeking out viable suppliers in low-cost jurisdictions that can offer comparable quality and better price points.
In case of import orders, Hi-sea sales option can be considered to nullify the impact of CST.
For some commodities, supplier give season end discount; a good sourcing personnel should always look for such opportunities. The organization must decide the KPIs for each stage of its supply management process and everyone involved in it should be encouraged to get involved in bringing excellence in those KPIs.


But once you are clear about what you want to accomplish, how do you sort through a variety of possible metrics and decide which are best?
The challenge is standardization and sharing the best practice of one division with the others.
Various issues related to optimizing the cost with respect to specification is questioned here, if required various trails shall be conducted to arrive at best possible specifications. The selection of supplier, identification of key performance indices and management of contract are the key activity in long-term contracting. The strategic sourcing personnel quantify important elements—such as warehousing expenses, field failures, freight, cost of poor forecasting and power consumption—and develops a complete understanding of TCO. Organizations should facilitate in training its employees in Six Sigma tools so that they can take up continuous improvement projects. Then, given the list of metrics you believe are useful or necessary, how do you define them in more detail to ensure that the right data are gathered at the appropriate frequency and that the resulting information gets to the right people so that they can make proper decisions? Based on this, a decision is taken so that price reduction in one area will not simply crop up price elsewhere. It is one of the important levers for de-risking the supply manager from the fluctuating market price. Given a particular problem, the tools and techniques the Six Sigma problem-solving process provides are obviously effective given the success attributed to it by its proponents.
This book provides a clarifying perspective for those who know that metrics need to be developed but are unsure as to the steps to follow in developing and deploying them.
The emphasis is on offering entire volume to one (or few) capable supplier and get volume benefits.Direct Sourcing from OEMs—The more the number of stakeholders in the value chain between manufacturer and supply manager, the more is the mark-up on the price. It is a type of auction in which the role of the supply manager and supplier are reversed, with the primary objective to drive purchase prices downward.
Through commodity future, market mediates between supply manager and the supplier of commodities. Starting with roots in statistical process control and with tools that come out of its precursor, Six Sigma adds a focus on bottom line impact that makes it worth the attention of top management—a necessary condition for effective improvement efforts.Strategic sourcing should have a holistic approach into the entire value chain of supply management of MRO items, and then only actual benefits can be reaped. It focuses on making sure that the metrics selected will guide people and processes in the direction the organization wants to go, and allow continual evaluation of success. Keeping this in mind, the strategic sourcing personnel takes a conscious decision to buy the material directly from the manufactures.
In an ordinary auction (also known as a forward auction), supply managers compete to obtain a good or service. It becomes very important for metals like copper, aluminum, tin and zinc—whose prices do not only depend on demand-supply factors but also on mining, refining and corporate activities such as mergers and acquisitions and labor issues. Every highly effective organization is unique in some strategic way, and the metrics used should reflect these differences. In a reverse auction, suppliers compete to obtain business; and a supply manager contracts with a market maker to help make the necessary preparations to conduct the reverse auction.
Studying high performers can be useful from a learning standpoint, but simply adopting what someone else is doing is likely to take you off your track and put you on theirs. Fundamentally, reverse auctions are zero-sum games—the supply manager' s savings is the supplier' s loss of revenue. It is a double edged sword in that it is a potent tool if applied with prior planning; but on the other hand, reverse auctions shall not be done sourcing of differentiated parts and components where suppliers have specialized capabilities and few suppliers can meet quality and reliability standards.



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