Strategic Sourcing and e-Procurement – Which One, or Both?
Ernest G. Gabbard, C.P.M., CPCM
Allegheny Technologies Incorporated
Pittsburgh, PA 15222 412-252-3131
egabbard@alleghenytechnologies.com

Summary. It is doubtful that any subject in the history of procurement or supply chain
management has created more excitement and enthusiasm than “e-procurement”. It promises
to revolutionize the way we do business, and produce significant savings. The subject ofstrategic sourcing creates almost as much excitement, and possibly even more return-oninvestment (ROI). It is therefore incumbent upon all procurement/supply chain professionals tobecome conversant on both of these subjects, and to understand the relevance of each to theprocurement process.
Having spent considerable time researching the subjects for my employer, and having
interviewed innumerable professionals who were successful or not-so-successful with strategic
sourcing and/or electronic procurement programs, I was struck with the realization thatsuccessful programs are often more attributable to the fundamental “procurement” aspects,
than to the “electronic” aspects. Therefore, this paper is intended to summarize thesubstantive items which are critical to development and implementation of successful strategic
sourcing and/or electronic procurement/supply chain management (ePSM) programs.
This author’s research and experience has revealed that there is a tremendous amount ofwork which must be accomplished relative to the non-electronic aspects of procurement/supply
chain management, before any real progress can be made in the electronic aspects. In fact, it
should be emphasized that ePSM is NOT just about automating the existing procurement
process.
The attached “best practices chronology” illustrates this principle. As may be observed, most of
the initial efforts to establish the ePSM process must be accomplished BEFORE the firstelectronic order is transmitted to a supplier. Failure to follow such a chronology has resulted insignificant problems for many organizations.
Process re-engineering has been the KEY to successful implementation at most companies
which have pursued strategic sourcing and ePSM. Successful companies indicate that most of
the savings from an ePSM project could NOT be realized without re-engineering theprocurement processes. A common theme was that utilization of existing procurement
processes with electronic tools will only result in faster, but more expensive processes!
While there is considerable diversity in the approaches utilized and issues experienced bycompanies implementing ePSM, there are some common denominators among virtually all ofthem. These were repeatedly cited as the “keys to success”, and are summarized below. As
may be noted, many of these “keys” are also directly related to the strategic sourcing aspectsof procurement.

1. The biggest obstacles to ePSM are NOT technical. Most companies found thatprocurement process changes were much more significant than anticipated. The amount ofeffort that is required to make necessary cultural changes was universally under estimated.
2. ePSM will not work without first establishing strategic supply chain management, withaggregated volume contracting throughout the purchaser company. i.e.: if a company has
not established the strategic sourcing foundation with strategic suppliers, there will be
serious limitations on the implementation and success of electronic processes.
3. Part number standardization/rationalization will require resolution to realize the full effect ofstrategic sourcing and ePSM. Several methodologies are being utilized, but UNSPSC
appears to be the system utilized or anticipated by most.
4. Procurement and contracting fundamentals must be addressed in establishing andmanaging contracts with suppliers. Preferred supplier programs are the foundation ofePSM. Development of national or global contracts with key suppliers must be done
BEFORE attempting to facilitate the transactions with electronic tools. Electronic tools do
not replace these contracts or the underlying relationships; however, they do provide theability to drive procurement volume through these suppliers.
5. Purchasing skill sets are considerably different in the ePSM environment. Most traditional
procurement professionals are NOT prepared for this environment. Contract management
skills are the key to successful implementation and optimization of both strategic sourcing
and ePSM. These skills are not commonly found in existing procurement organizations.
Therefore, personnel will require training or replacement. This is a foundation that many
companies painfully found to be lacking in their implementation programs.
6. Early involvement of preferred suppliers in the development and implementation ofelectronic tools will accelerate the success of ePSM programs. Don’t leave them out of theePSM planning process.
7. The implementation of strategic sourcing and/or ePSM cannot be relegated to a secondaryfunction, low priority, or part-time job for key personnel. Those who fail to dedicate thenecessary resources to the implementation process, will experience serious pain, andsignificant delays in their implementation process.
8. Executive sponsorship of the teams implementing the strategic sourcing and/or ePSM
projects is of paramount importance. Without adequate prioritization of assets and visibilityof these projects, the cultural and process changes needed to accommodate either or bothof these will be lacking.
9. Don’t underestimate the significance of electronic supplier catalog creation andmaintenance. Most suppliers are NOT really prepared for this challenge, and will requireassistance with this process. It must be the supplier’s responsibility, with oversight bypurchaser personnel.
As may be concluded, e-procurement is NOT just about automating the procurement process,and strategic sourcing is NOT simply about consolidating your purchases. In fact, the majority

of effort and ultimate success will be in preparing for implementation of either or both. If thefoundational issues are addressed, and the cultural/process changes are accomplished prior tocommencing the implementation process, the success of your ePSM project will besignificantly improved, or substantially assured.

eProcurement Best Practice Chronology

Business
Process
Redesign(BPR)

Strategic
Sourcing
Process! Map existingprocesses! Optimize
commonalities! Eliminate
uniqueness andredundancies! Analyze current
spend patterns! Assess supply
chain! Select strategic
suppliers! Develop sourcing
strategy! Conduct
corporate-wide
strategic sourcing! Establish

It’s not simply
automation!

EG:\eProcurement\Best Practice Chronology.doc

Incorporate
Strategic
Contracts intoBusinessProcess! Implement
strategic
contracts atcompany level! Establish
monitoringprocedures! Report results tocorporate
management

Data
Normalization! Suppliers DUNS numbers! Commodities –UNSPSC! Item numbers - ?

InitiateeProcurement
Decisions(select tools)! Reverse auctions! Consortium
procurement! e-procurement
softwarepurchasee.g.:Ariba orC1
! Application
Service Provider(ASP)! Supplierprovided internet
access,e.g.:
Staples &Grainger! Verticalexchangee.g.:
Metalspectrum! Some, or all of
the above

IntegrateeProcurement
Solutions into
Processes