Supply Excellence
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Can You Outsource Sourcing Success?

May 26th, 2006 · by Tim Minahan · 3 Comments · outsourcing, sourcing

The first stop on the West Coast swing of the Supply Management 2.0 Forum landed me in San Jose. I got the chance to reunite with former procurement software exec Dave Stephens (more on that later) and trade sourcing best practices with a number of companies, including Sun Microsystems. Widely known for is supply management expertise, Sun won the coveted Purchasing Magazine’s Medal of Excellence as well as Aberdeen Group’s Best Practices in e-Sourcing Award.

Sun’s e-sourcing program crescendoed last year, leveraging online sourcing to negotiate $102 million in direct materials savings. Once heavily reliant upon its solution provider for bid event management, the direct materials organization, which is led by Sun’s Worldwide Operations group, is transitioning to self-sufficiency and expects to manage nearly all its online negotiations and reverse auction events (what Sun calls “Dynamic Bidding Events (DBEs)”) on its own by year end.

With results like that, what do you do for an encore? A sit down with Tamara Serrato, Strategic Services Manager at Sun, reveals that the global technology provider is now applying dynamic bidding to indirect spending — from temp labor to field service support to, believe it or not, IT outsourcing and procurement outsourcing services. Sun has set a goal to channel a whopping $3 billion in indirect spend through dynamic bidding by the end of 2006. To get there, the company will mix tried and true best practices with a novel outsourcing approach.

First, the best practices:

  • Sun established a center-led Global Sourcing Services group to identify sourcing and spend leverage opportunities across business units and to ensure integrity and best-value awards in all sourcing events.
  • Sun mandated that all sourcing projects with dollar value above $250,000 be put through dynamic bidding events. Says Tamara: “Our philosophy is, if you can put someting on a spreadsheet and specify it, you can dynamically bid it. We initially received push back from some [stakeholders], but resistance is shrinking as they see the results we generate.”
  • Sun incorporates price and non-price factors into its dynamic bidding events to ensure best total value awards.
  • Sun maintains integrity and fairness in all dynamic bidding events by ensuring that suppliers received detailed specifications and fully understand the award criteria. Sun also provides losing suppliers with feedback on why they lost.
  • Sun speeds award implementation by incorporating key contract terms into each dynamic bidding event.
  • Sun’s Global Sourcing Services group ensures compliance with negotiated agreements by working with finance to track and audit total savings of each sourcing project and to communicate this savings to individual business units.

Despite these efforts, Tamara says the Global Sourcing Services group lacked the resources and time to fully execute all dynamic bidding opportunities. To jumpstart its program, Sun has outsourced support for some of its dynamic bidding events to an India-based procurement service provider. (Ironically, Sun used e-sourcing to select its offshore service provider.)

The approach has added 20 additional resources to provide support for dynamic bidding events — all of whom Sun has trained in its standard dynamic bidding methods. Early returns indicate that the unorthodox approach is a smashing success. Evidence: Sun sourced $1.7 billion of indirect goods and services via dynamic bidding in 2005. Tamara estimates that Sun will channel $4 billion in spending through dynamic bidding during the first three calendar quarters this year — beating its original goals. While not for everyone, Sun’s results suggest that outsourcing may be a new method to accelerate e-sourcing results.

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3 responses so far ↓

  • 1 » …And What I Learned From Top Performing Supply Organizations- Supply Excellence // Jun 6, 2006 at 8:54 am

    [...] Don’t recreate the wheel – leverage know-how of your solution provider to speed to yourself to self-sufficiency. Other Forum participants, such as Sun Microsystems, recommend using the expertise of your provider to learn the methods for effective sourcing and tools usage. This helps you avoid the mistakes made by early adopters and helps drive tool adoption and program alignment.   [...]

  • 2 Supply Excellence » Is it Time to Outsource Procurement? // Jan 31, 2007 at 12:22 pm

    [...] For example, as noted in a previous Supply Excellence post, Sun Microsystems, which is widely viewed as a leader in supply management and the use of online sourcing methods, runs billions of dollars of online sourcing projects each year. Sun’s Worldwide Operations Group internally manages online negotiations and reverse auctions– what Sun calls “Dynamic Bidding Events” (DBEs) — for all its direct material and assembly purchases. Looking to drive similar volumes and benefits on its indirect side last year, Sun has augmented its internal Global Sourcing Services group capabilities for indirect goods and services with support from an Indian-based procurement service provider. The approach has added 20 additional resources to provide support for dynamic bidding events — all of whom Sun has trained in its standard dynamic bidding methods. Early returns indicate that the unorthodox approach is a success. Evidence: Sun sourced $1.7 billion of indirect goods and services via dynamic bidding in the first year of the program. [...]

  • 3 Supply Excellence » Reverse Auctions: The Secret to Sun’s Success // Sep 14, 2007 at 9:13 am

    [...] I have profiled some of Sun’s unique e-sourcing practices here. However, in the latest issue of Purchasing magazine, my old cohort Executive Editor Jim Carbone, penned a new expose on Sun’s latest reverse auction approaches with electronic manufacturing service (EMS) providers. [...]

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