Agile sourcing in procurement | 4 ways to increase agility

Agile sourcing is turning the traditional procurement frameworks upside down, allowing cross-functional teams to make decisions faster and work on multiple activities in parallel.

Agile sourcing is a collaborative alternative to the traditional sourcing process, which can achieve higher quality sourcing results.

The complexity of supply chains and market environments is increasing. Staying relevant within procurement today requires next-level adaptability. Speed is necessary to keep up with market changes and address evolving stakeholder needs.

Agile is widely adopted and applied within supply chains, borrowed from software development. Being agile means being able to think, adapt, learn, understand, move and re-assess quickly.

Procurement is dynamic in nature, but often the way of sourcing and running RFPs can be perceived as time-consuming and outdated. This blog post provides an industry-leading alternative to the traditional way of working.

The agile methodology

The agile methodology consists of twelve core principles that procurement could welcome (see: Agile Alliance, 2021)

1. Customer satisfaction is the highest priority.
2. Change is welcomed for competitive advantage.
3. Deliver working solutions at the shortest timescale, frequently.
4. The project team must work daily to ensure transparency and commitment.
5. Build projects around motivated individuals. Enable their success. Trust them.
6. Rely on face-to-face communication as the most effective way to share information
7. Demonstrated customer value as the primary measure of progress.
8. Maintain sustainable development and a steady pace.
9. Attention to technical excellence and superior design improves agility.
10. Less is more. Simplicity is essential.
11. The best outcomes emerge from self-organizing teams.
12. Continuous improvement is the key. Teams should frequently reflect on how to become more effective and adjust their ways of working accordingly. 

The agile methodology in procurement 

In the procurement context, the agile approach means becoming less process-driven, less governance oriented, and less orthodox.

Agile procurement targets to be more collaborative, fast-paced, and open. Agile is about technical excellence, interpreting data, being open to new ideas, and empowering individuals to take ownership.

It shakes up the traditional procurement frameworks allowing teams to make educated decisions faster.

What is agile sourcing?

In agile sourcing, the collaboration between all relevant stakeholders brings new ideas and leads to considering alternative solutions.

Interaction with business units and management teams is frequent and happens on an interpersonal level. Early involvement of end-users and suppliers means a faster process and a better result.

Workshops and discussions can reduce the long process of drafting, reviewing, updating, and re-writing the scope of work before issuing an RFP. Agile procurement builds on customer obsession and demonstrates customer value. Problems are actively solved at the very source.

Benefits of agile sourcing

• A shorter lead time. A more efficient sourcing process enables the organization to benefit from the new contract and possible cost efficiencies earlier.
• Focus on business outcomes and evaluation. The aim is to achieve a contract that benefits both parties through collaborative partnerships in the long run. The focus lies in evaluating partner capabilities instead of product/service features only.
• Stronger stakeholder and end-user relationships. Agile positions procurement as a collaborative partner with room for discussion and finding the best solutions.
• Agile approach embraces innovation and promotes change. The agile approach also supports continuous improvement in procurement processes and technologies.

4 ways to bring Agile into sourcing

Traditional and agile teams ultimately aim for the same result – a successful sourcing result. However, traditional sourcing uses slow legacy policies and processes involving pre-defined routine steps, heavy governance, safeguards, and extensive tracking.

Traditional sourcing may be time-consuming and frustrating for multiple stakeholders, while procurement only tries to safeguard company interests, ensure that mandatory requirement are met, and mitigate risks. The process steps are linear, starting from identifying the need, creating a sourcing plan, issuing an RFP, and signing negotiations and contracts.

Agile sourcing adopts agile principles to make procurement processes faster and more effective. Agile sourcing aims to enable a shorter time to market, more collaborative relationships, and higher customer satisfaction compared to traditional sourcing practices. Here 

1. Agile sourcing process

Agile sourcing processes are transparent and focus on delivering value rather than detailing how to take the next step. Each of the actions in a traditional sourcing process is still important. The agile approach loosens the order and ownership of these activities to significantly speed up the overall process.

Sourcing activities could be done simultaneously (or even in reverse order) in opposite to traditional step-by-step processes, depending on the resource availability at the time and the greater good of the project.

Specific process steps could be skipped entirely based on their irrelevance or case-by-case procurement evaluation. The agile methodology requires context sensitivity and common sense.

Scrum is an application of agile principles that relies on teams delivering broader entities in short sprint cycles. Sprint is a limited period when a team works to complete a set of assignments.

Working in sprints enables a feedback loop, continual improvement, and fast adaptation of plans with the change. In a sourcing context, scrum could be a program consisting of several RFPs or complex software agreement negotiations executed in sprints.

Image: Linear vs. Agile approach to sourcing

2. Agile sourcing team

The agile approach uses various strengths within the organization to become more efficient and identify opportunities.

The most effective people in sourcing are those who have a sense of urgency to push things forward and are flexible in their ways of working. Scrum in the agile context relies on three distinct roles, that are:

• Product Owners,
• Scrum Masters, and
• Scrum Teams.

The Product Owner is the voice of the customer. In the procurement context, many times, the business owner. The Scrum Master tracks the project's progress, removes barriers, and mitigates delays.

This could be the CPO or sourcing project manager in the sourcing context. Scrum Teams involve experts from across the organization needed to complete the project successfully.

A successful cross-functional team can include stakeholders, subject matter experts, IT, legal, and finance. To proactively deliver results, they all need to fully understand the marketplace and external factors relating to the topic or category of spend involved.

Without an open and proactive exchange of information, this is not possible. Suppliers and customers are sources of information and are likely to be aware of potential pitfalls or disruptions.

Therefore, keeping your eyes and ears open for supplier and customer feedback and insights is critical.

3. Agile scoping and specification

Being agile is to be more fluid and flexible. The speed is partly achieved by improving the quality of the engagements with stakeholders and being less rigid in designing tight specifications, allowing for more scope for innovation when approaching suppliers.

End-users tend to over-specify technology products and services. Therefore, supplier discussions occur earlier and more frequently in the agile approach. Agile sourcing allows for changes in scope during the sourcing process. Suppliers' expertise is utilized in defining the scope and service level requirements.

Agile requires a much more collaborative and outcome-based approach involving continuous team interaction. This helps in ensuring business requirements are well understood by bidders at the point of the RFP release, and, as a result, due dates are met, and there is a shortening of the overall timeline.

Suppliers are more likely to commit to the requirements they took part in.

4. Agile contracting

In the agile approach, negotiations are less combative, aiming to maintain a positive and cooperative stance right from the start. The cooperative approach improves the quality of supplier relationships and contracts.

Constant interaction occurs across the sourcing lifecycle between the buying organization and the supplier, who incrementally develop the contract, adapting it along the way as needs or markets change.

Contracts are built to last time and consider the need for occasional changes, respecification, and continuous improvement. Any potential issues are resolved in the early stages before they become problems.

Even the contract terms could be discussed with potential suppliers before RFP, avoiding any unwanted surprises or delays.

Putting technology to work

The agile approach promotes technological excellence. Agile sourcing means a faster process from identifying sourcing needs through to contracting. To achieve this, technologies such as advanced data analytics are key enablers.

Responsiveness depends on the ease of accessibility of relevant, unquestionable, real-time data and the electronic means by which to share it. Full data transparency makes it easy to improve processes, such as gaining management approvals and measuring value creation while maintaining overall visibility.

Is sourcing using an RFP process still a valid option?

Yes, but with some flexibility built-in and the ability to perform some actions in parallel.

RFP is the best fit for requesting comparable information from suppliers. RFP should not be feature bingo.

Evaluation of a sophisticated solution or service capabilities should not happen on the RFP platform or Excel but as close to the actual business environment and stakeholders as possible.

Incorporating a proof of concept (POC) is one way of determining the best solution for technology projects.

An agile approach to sourcing can shorten project timelines, promote collaborative relationships and significantly improve customer satisfaction. Having this said, companies that successfully become more agile in their procurement process see significant improvements in their ability to deliver quality outcomes faster.

Header picture by: Mika Korhonen