Strategic Sourcing has been around for a couple of decades, helping organizations in their purchasing and procurement smarts. Yet over and over there are those who complained that this is not at all necessary even with the presence of success stories to back up that this approach help in improving an organization’s bottomline.
Using success stories, there are reasons to believe that sound strategy applied in sourcing can bring much-needed boost in productivity, efficiency and sustainable growth for any company. Building capabilities in purchasing and procurement practice will also be discussed to shed important light on issues that hound the practice of organizational strategic sourcing.
First, Let’s Define Strategic Sourcing
With so many definitions floating around in the market today about strategic sourcing, it is but helpful that we look into one definition that echoes the context of the present era and responds to what is basically a process in procurement.
So without falling into the trap of giving business jargons or its theoretical underpinnings that only confound and confuse readers, we’ll first look what the popular definition of the word means: “a process involving the identification, evaluation, negotiation and implementation of optimal mix of resources of goods and services geared toward supporting an enterprise’s objectives.”
But we have seen and observed so many changes in recent memory that a contemporary definition would reflect the context of contemporary business situations and environment. Here follows two suggested corollaries.
First, that sourcing programmes and strategic sourcing, which are converging to mean the same thing together, should be able to embed all enterprise sourcing, even if this means including the management of large, multi-functional strategic and tactical projects.
Second, that the enabler of strategic sourcing in this era should incorporate the adoption of eSourcing and other supply management technologies (if possible) like spend analysis, contract management and supplier performance management. The purpose is not altering but enhancing an organic sourcing strategy.
Sample Strategic Sourcing Success Stories
It’s classic strategic sourcing success story that IT services provider get lauded for helping public sector customers cut operational costs. It is a common scenario that customers would want their next procurement process to include buying the cheapest solution that matches their expectations.
Sometimes, the client proposal is not the cheapest in the market but they get chosen because of the value proposition that differentiated the client from competitors. Proposals offered may be regulatory-compliant and low-cost bids, but they are often not selected because they often lack a key differentiator – incremental value. Following and observing convincing strategic sourcing guidelines influence a customer’s expected decision.
Another success story that is popularly passed on is about this manufacturer of a simple, low-cost food ingredient. Strategic sourcing was the key why even how hard a key account customer wanted the manufacturer to drive the purchase prices down, the latter didn’t offer a discount as requested even when the customer could purchase the product from rivals who offer the product at a cheaper amount.
And the manufacturer retains the account yet grew it significantly. The use of strategic sourcing saves the day for this manufacturer, enabling it to argue that reducing the price of its product would be tantamount to losing the value in other areas that could have undermine the business strategy for growth of its customer.
Unbelievable success, isn’t it? These success stories in strategic sourcing may be fictitious or they may be real. But the bottomline is that that when real value is at stake, no matter how attractive or tempting some drastic measures may be offered, a measurable model or approach must be considered.
How to Build Superior Capabilities for Strategic Sourcing
What Jack Welch has once argued about purchasing strategy rings some important lessons for business owners to learn. What the legendary General Electric boss perceived back then about the purchasing function as a necessary evil in business, must be correct.
Most causes of operational failures may be accounted to a company’s underinvestment in its purchasing team’s capabilities, leaving sourcing out of decision-making processes and giving focus instead on manufacturing and sales, which are the viewed as the only obvious drivers of revenues.
Identification of Specific Capabilities
To turn strategic sourcing a high-functioning strategic asset, a company must have a clear idea which specific capabilities can ensure the most value.
To identify which capabilities have the greatest potential, conduct a bottom-up assessment of the company’s technical and leadership capabilities. Benchmarks must be used to measure success.
Adoption of Real Work Principles
Corporate trainings are said to be ineffective when undertaken by organization as part of their capabilities-building efforts.
What researchers found to be effective is tying up adult-learning principles with real work and specific activities that an individual must complete because new skills are developed incrementally this way, and the impact to their day-to-day responsibilities is greater.
Scale Up First, Institutionalize Next
The next strategic sourcing step in capabilities-building involves scaling the new way of doing business across the organization. This is especially helpful if the company has a long-term vision to be sustainable in the long-term.
Following this capability-building effort, next is creating a culture whereby strategic sourcing professionals are proud of the value they add to the company. They must also be confident of the leadership role they possess in finding and delivering new sources of value.
Final Thoughts
Finally, there must never be an iota of doubt when considering capabilities building efforts to achieve growth targets. There are convincing support that companies who invested in developing their purchasing capabilities have doubly improved the margins over those which have not.
As capabilities can be means to achieve optimal results, the first step of identifying your organization’s capabilities must be followed by building the same around real work situations using adult-learning principles before institutionalizing them. Done right, organizations can create business improvements.
All these, strategic sourcing success stories and capabilities-building approaches, have something wonderful to offer and learn from. The success stories are connected by the change of attitudes and views that organizations have over purchasing products and services that are driven more by value than price.
