Spend Matters Compass Research: 2011 Volume One

As practitioners and analysts in the procurement market, it's amazing to think about how much tools and platforms within the sector have evolved in little over a decade. Speaking in historical evolutionary tools terms, it's as if we combined the Stone, Bronze, and Iron Ages into a single human lifespan. Consider that in less than six years from the advent of online reverse auctions conducted via private connectivity networks that self-service e-sourcing tools incorporating negotiation tools and market feedback mechanisms plus broader RFI, RFX and award-analysis capabilities entered the market in the same period of time. This paper explores the evolution of sourcing platforms from the basic reverse auction/RFX/e-sourcing capabilities of yesteryear to the more advanced sourcing and commodity management platforms available today. In the analysis, we recommend different solution types and packages based on overall company sophistication, maturity, and spend portfolio mix (e.g., complex vs. raw material, direct, indirect, services, etc.). It also provides shortlists of vendors that offer different types of solutions.

Julius Caesar's role in transforming the Roman Republic into the Roman Empire was not simply a matter of timing. Caesar's use of advanced technology and superior tactics in his invasion of Gaul (most of modern-day France and Germany), as well as his brazen ability to quickly learn from mistakes (e.g., his failed first invasion of modern-day England), helped to assure his place in Roman and military history. Caesar's experience, applied to modern day sourcing and commodity management, has many lessons. This analysis takes a detailed look at the additional capabilities that mature companies are deploying in today's sourcing and commodity management arena, taking lessons from the Roman legend. It examines, among other areas, the case for sourcing optimization outside of logistics (including both services and manufacturing) and commodity risk management platforms for tracking and managing hedging strategies, exposure, etc. It also considers savings implementation/ tracking capabilities, total cost management and modeling tools and the integration of design/collaboration solutions into the sourcing and supplier management process for demand aggregation. The tools discussed in this paper far transcend flaming arrows, but we trust that you'll find them just as effective -- perhaps more so.

By Jason Busch and Lisa Reisman (with additional commentary from Brad Clark, FIS Senior Derivatives Broker)

Pursuing a procurement and supply chain-led commodity management strategy might at first seem like a relatively basic endeavor. But trust us, it's not. Organizations must have the right combination of skills, technology, and market information to manage and act on information and contracts. Still, commodity management efforts should bring even more than this, starting with a plan to develop basic visibility -- ideally, multi-tier visibility -- into commodity risk exposure.

This Compass research paper explores the capabilities (including knowledge, process, skills, and technology) that organizations need to better manage volatility across their spend portfolios primarily on the base materials/ingredients level including raw material spend "owned" by suppliers. It provides an essential background on commodity pricing and risk assumption models (e.g., customers, buying organization, suppliers, third-party), forward contracts, futures, swaps, options, and ETFs.

This Spend Matters / MetalMiner analysis also considers related spend analysis, demand aggregation strategies, direct materials sourcing strategies and supplier contracting models to minimize risk -- all from a procurement and supply chain perspective.