The Blogsphere has provided some recent entertainment and a little excitement with a rant from Jason Busch of Spend Matters and a response from David Clevenger of Corporate United. It’s often fun to sit on the sidelines and watch two intelligent and clever pundits match wits and battle it out.

Jason and David are both right. They fall short in that they do not get to the crux of the issues inherent in sourcing organizations. The problem is that many sourcing organizations (I use the term lightly) are not doing anything that is strategic in nature or part of any overall corporate strategy. Most of the supposed strategic sourcing groups (even in Fortune 100 companies) are not operating as a strategic component of a grand plan nor are they executing a well thought out and cohesive strategy that is an integral part of an overall corporate strategic plan. Do some companies get it right? Of course, but those are the exception, not the rule.

As with most trends, companies jump on the band wagon with little thought or planning. “If strategic sourcing is hot then we have to have it or at least say we do it”. In most organizations, strategic sourcing groups are reconstituted purchasing groups with new strategic sourcing titles. Sourcing managers are still battling the functional domains of Engineering, Information Technology, Human Resources, Administration, Supply, Legal etc. Functional heads do not want to give up the authority and power that comes with a large budget to spend. No one wants sourcing looking over their shoulder or slowing down the buying process with “strategy”.

Strategic sourcing is a process by which the skills of the supply industry are harnessed to optimize sustainable competitive advantage for the business and its customers. The objective is to develop a secure and responsive supply base capable of meeting current and future business needs in terms of quality, flexibility, delivery, cost, technology, service and quantity. Accomplishing this objective, requires being informed of future plans and then deploying a myriad of tools and strategies in concert to address dynamic markets. Strategic Category Management and Strategic Sourcing are not interchangeable or replacements for each other. They are just two possible alternatives that can be utilized to address a specific business need at a specific time.

How many companies look at their sourcing group as giving them a “sustainable competitive advantage”? How many companies have a Chief Procurement Officer that sits on the corporate executive committee, reports directly to the CEO and is involved in all strategic planning including new product development and acquisitions? Show me a company where the sourcing organization has control over 100% of spend and is integrated into all buying decisions for all functional departments.

Quite often, sourcing is an afterthought. Engineering designs and develops a product with little to no involvement from the sourcing organization. Sometimes the new product uses components that are sole sourced or from suppliers that are not financially secure. Sourcing then has to clean up the mess. Other functional departments sign contracts with multiple suppliers that contain contingent liabilities. When the sourcing organization tries to consolidate the volume with one or two suppliers, they find out that significant penalties must be paid to exit the incumbent agreements. Acquisitions are announced and then purchasing tries to figure out how to integrate, consolidate and leverage the supply chain and spend of the acquired company.

Is there anything wrong with operating in this fashion? No, as long as a competitor that “gets it right” does not come along. Companies go out of business every day.

Who has gotten it right? Boring old Walmart. They strategically integrated low cost provider into every functional area of the company – from IT which measures product turnover and profitability to corporate travel where everyone shares a room (including the CEO) for business travel. Now that they are attempting to move some of their fashion items upscale to compete with Target, sourcing is negotiating slight design changes with suppliers so Walmart stores have unique product to sell. All functional areas at Walmart are a part of a well executed strategic plan – sourcing, supply chain, IT, HR, travel etc. etc. Walmart has put a lot of companies out of business.

How can companies get it right – be it Category Management, Strategic Sourcing or just plain old purchasing? Here are a few thoughts.

Develop Sourcing Leadership – Sourcing organizations need a leadership equivalent to the CFO, CIO that has executive committee representation and reports directly to the CEO.

Integrate Sourcing Strategy to Organization Strategic Plan – Sourcing needs to know the plan before the fact so they can develop strategies which will provide a competitive advantage. It is difficult to plan when you are always reacting and playing catch up. Sometimes process improvements and other changes can yield greater savings than unit cost reduction.

Watch Markets – when markets were volatile this past year and oil was soaring, how many companies had a strategy to respond rather than react? Not many. Strategies have to change as markets change.

Develop A Supply Chain Map – see How Much are You Betting and What are the Chances of Losing.

Increase the Education of Sourcing Professionals – The same strategy can not be deployed for the same category over and over again. Markets are dynamic and the strategy needs to change as markets evolve. Sometimes you are managing the category, other times you are sourcing and sometimes you are putting out fires. When you are sourcing, there are many strategies in addition to having 3 or more suppliers answer an RFP.

Provide Spend Analysis and Sourcing Tools – Detailed visibility into spend and specifications are critical to results. How can you effectively source when you don’t know what you are buying? Many organizations are still in the infancy stages when it comes to tools – Spend Analysis, E-procurement, Contract Management etc.

Last but not least, sourcing is an applied science. Don’t rely on process or tools too much. They exist to provide structure and efficiency. The results are achieved by skilled professionals. Two people with the same process and tools will not get the same result. Be aware of the tools and strategies available and develop your skills at using the right ones at the right time. Just as an e-tool does not take the place of a dialogue with a supplier, Strategic Category Management does not take the place of Strategic Sourcing.

I only scratch the surface here. Books can and have been written on this subject. Hopefully the Busch rant and Clevenger response have initiated a dialogue that will be good for all sourcing professionals whether they are consultants, technology providers or employees. What thoughts do you have on the subject? How do we raise awareness and move the profession to the next level?

For those that have given up - try
Share To:

Steve Belli

Post A Comment:

1 comments so far,Add yours

  1. I prefer to think of it as they are both wrong, but I am a "glass half full" kind of guy.