Due to the nature of business today, companies are finding it necessary and beneficial to rely on suppliers for critical products and services. In fact, working with suppliers can contribute to launching new or improved product offerings and improving their preparedness to respond to various risks, such as natural disasters, plant incidents, and geopolitical/economic changes. The new report from Gartner titled “Three Ways to Increase Agility and Support Exploratory Sourcing Using Procurement Technology”, provides procurement organizations with a framework to increase their agility across source-to-contract.
Gartner’s paper begins by discussing the benefits of digital transformation of the source-to-contract (S2C) processes with solutions like Ivalua that improve standardization, efficiency and transparency. Gartner suggests that this process can be further improved by integrating a bimodal approach in the company’s S2C process to add agility when dealing with suppliers. The bimodal strategy is based on the premise that Mode 1 is used for standard, thorough processes, such as a company’s strategic sourcing process, while Mode 2 is reserved for fast and flexible exploratory processes, like gaining access to cutting edge technology to evaluate its effectiveness. In other words, one size fits all processes are not always as agile as required. The best S2C solutions offer procurement organizations with the flexibility to define multiple workflows to support Mode 1 and Mode 2 processes in Supplier Management, Sourcing, and Contract Management processes. We’ll review how each of these solutions can support both Modes 1 & 2 below.
Supplier data is often challenging for companies to collect, maintain, and manage. For companies that lack a supplier management system, the challenge becomes even more significant. Platforms such as Ivalua, include Supplier Management solutions that can enable workflows to support both Mode 1 and Mode 2 strategies to quickly and efficiently guide suppliers through an onboarding process and ensure that the supplier and buying company have visibility into their progress and status. For example, a Mode 1 supplier enrollment process would be very thorough, collecting all the detailed information necessary about the supplier to move forward with a strategic relationship. Alternatively, a Mode 2 onboarding process can be established that simplifies and accelerates the process, while still ensuring that the appropriate corporate policies and standards are met. Over time, the supplier record can easily be supplemented and updated with additional information to support a growing business relationship.
When considering the sourcing process, Gartner’s framework uses Mode 1 to handle strategically planned sourcing initiatives, projects, and category management. For example, in a manufacturing procurement setting, a category manager responsible for sourcing plastic component’s that are needed for their products must diligently vet suppliers to ensure they have the right certifications, risk level, and are qualified to produce the needed components. Following this, a sourcing process will take place which may include multiple rounds of RFx activities such as RFI, RFP or RFQ and when appropriate, an auction. In some industries, like automotive, a Mode 1 strategic sourcing process can take weeks or months to complete. Mode 2, on the other hand, is meant to be simpler and faster moving so it can be used to respond to situations where Mode 1 may not be fast enough, like responding to urgent risks or working with startup companies that provide innovative technology. Gartner further suggests that Mode 2 Sourcing can be streamlined even further by empowering stakeholders to initiate and run RFI’s and RFPs for certain types of projects to reduce the possibility of procurement becoming a roadblock. If this was deemed desirable by a company, best-in-class S2C solutions such as Ivalua can help procurement maintain oversite with configurable sourcing templates, processes, and permissions to ensure only the right people have access to these capabilities and transparency and accountability is maintained.
Gartner makes a compelling case from a strategic and operational perspective to implement both Mode 1 and Mode 2 methodologies in the contracting process. This is especially important when there is a need to gain access to cutting edge innovations and technologies that are often only available from small companies or startups. Considering this, Gartner is not suggesting that the entire legal process be revised, rather, they suggest that different contract templates be created for each strategic mode to better cater to the needs of different situations (again, not everything is one size fits all). For example, Mode 1 contract negotiation can take weeks or months to negotiate, while Mode 2 agreements may be more standardized to reduce the negotiation timeline. To accomplish this, the legal department can leverage CLM solutions that empower legal teams to create streamlined approval workflows and manage permissions and access to these processes and templates that meets corporate standards as well as the businesses need to work fast.
As companies continue to face technological, geopolitical turmoil and other risk disruptions every day, procurement can add more value to the company by improving their organizations agility. Gartner’s bimodal methodology provides a framework companies can leverage to maintain both streamlined and rigorous processes in Supplier Management, Sourcing, and Contract Management that will help companies better manage suppliers and be prepared for opportunities and risks. To read more about the Gartner’s framework, click here to download the report.