Is It Time for a Rebirth of Strategic Sourcing?—Part 1
September 30, 2010
The blogosphere has been alive recently with a debate about the alleged death of strategic sourcing.
Rather than extend that particular debate any further, let’s examine five “categories” in the use or non-use of strategic sourcing. I’ll offer suggestions for companies in each category.
Category I: “Strategic sourcing – what’s that?” Every time I write the following words I shake my head: “25 years after the birth of strategic sourcing as a business process, a majority of companies are not aware of strategic sourcing.” If you are in this category, you are leaving a lot of value on the table. Also, you are trying to do the job of supply management without a full set of techniques at your disposal – a sure prescription for personal and professional frustration. There are some productive actions that you can take to get yourself up-to-speed quickly on what real strategic sourcing is all about; highly recommended: read Chapter 13 of the best-selling supply management book Straight to the Bottom Line® (Rudzki, Smock, Katzorke, Stewart).
Category II: “Bells and whistles, but not strategic sourcing.” In audience polls at conferences, we have confirmed that a surprising number of companies think they are using strategic sourcing, but when you dive below the surface, it is clear that they are not doing much more than adding a few bells and whistles to conventional purchasing. The confusion can arise from several different directions: a common error is believing that “doing reverse auctions is the same thing as strategic sourcing.” While reverse auctions, and other tools like eRFXs, can play an important role in enabling certain elements of strategic sourcing, they do not constitute strategic sourcing by themselves.
If you are in this category, you are leaving value on the table. Some actions you can take are: arrange for a candid assessment of your procurement processes compared to best practices. The resulting gap analysis will provide input to two important deliverables: an opportunity assessment (the financial impact possible by addressing the gaps), and a detailed roadmap for transforming your practices into a world-class performer. You can also arrange for a focused assessment on just your “sourcing” process, but this is not as productive. Why? To succeed, strategic sourcing must be part of a broader set of transformation and change management initiatives (as described in the comments for Category IV that will appear in part 2 of this blog series).
Category III: “Dumbed down” sourcing, or “Quick win” purchasing. Some companies who previously used one robust version of strategic sourcing or another have recently “dumbed down” their process into a tactical ghost of what it used to be. This situation in some cases is due to the pressure to accomplish quick wins in a tough business environment, a subject I have written extensively about in the past. (Other companies seem to have a chronic preference for “quick win purchasing” regardless of the business environment.) If you are in this category, you are leaving a lot of value on the table. An action you can take is: examine why you’ve dumbed down the process you had been using – and try to address the root cause. If the motivator was pressure from top management to achieve quick wins, then develop a hybrid plan comprised of quick win projects and strategic sourcing projects.
In my experience, it can be very productive to build a hybrid, explicit plan comprised of quick wins and strategic sourcing projects. The quick wins – if chosen properly – can generate the short-term “fix” or “relief” that everyone is looking for. They can also help fund the strategic initiatives that offer the greatest long-term, sustainable value to your organization.
No senior executive will knowingly discontinue projects that have clear, strategic value. So make it easy for your executive management to support you. The key is to lay out a plan with specific projects – and $ projections – for Quick Wins and Strategic Initiatives. Make it look like a business case. Most CEOs and CFOs respond well to business cases and ROIs.
In part 2 of this blog, we’ll review Category IV and V recommendations.
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