Recently Steve Belli, the CEO of Source One, gave a presentation to a roomful of financial executives about the benefits of strategic sourcing. He began by asking, “How many of you have strategic sourcing initatives in place at your company, or even know what strategic sourcing is?” Amongst the 200 participants, only one hand went up. This outlines the challenge before Source One and other strategic sourcing and supply chain management consultants: a very steep learning curve that has to be climbed before discussions can even begin on how strategic sourcing initiatives can help any given company.
Fortunately, Kyocera has come to the rescue. They are currently running a series of ads for their line of copiers, featuring renowned University of Maryland Professor of Economics Peter Morici. Obviously, Kyocera is trying to sell copiers, but strip out the specific references to products, and these ads actually serve as good public service announcements (PSAs) to introduce the concept of strategic sourcing to businesses.
In one ad, Professor Morici is “shocked, no, outraged” about bad spend category management (in this case, of course, printing). He then goes on to tell us that no one is tracking or managing service costs or supply costs, and that Kyocera can manage a company’s whole fleet of printers to keep costs down.
Translated into generic terms, this is a core principle of strategic sourcing. Doing a proper spend analysis of a given category to know where all the money is being spent, then negotiating service level requirements with vendors, then monitoring vendor contracts for compliance, are all at the core of strategic sourcing best practices.
In another ad, Professor Morici addresses total cost of ownership (TCO). In the Kyocera example, he illustrates how companies often opt for the initial low-cost solution, but then end up paying two or three times as much as necessary for service and supplies. He makes the (rather lame) joke that that is “bad fiscal policy.”That is true, once again in generic terms. A spend category like printers should not be judged on entry cost alone, because there is an ongoing cost for service and supplies. Also, printers are not a commodity, especially considered in their role in a company as a part of document management services. Therefore, as the professor points out, initial or lowest cost should not necessarily be the deciding factor in making such purchases. There is a TCO factor that must be considered. This is true of many other spend categories besides printers.
Kyocera’s two ads featuring Professor Morici just barely begin to scratch the surface of what companies and budget managers need to know about strategic sourcing. Again, of course, they are trying to sell their printers and copiers, but they recognized the need to first engage in end-user education and get their target audience to begin to scale the learning curve of strategic sourcing. Kudos to them for creating these tongue-in-cheek ads to begin that process, which ultimately amount to public service announcements to begin to educate business leaders on the basics of strategic sourcing. As Professor Morici emphatically declares at the conclusion of each ad, “It’s really not that complicated.”