Friday, April 24, 2009

It's where you place the lever that counts!!

I recently commented on a discussion thread in the prestigious LimkedIn Strategic Sourcing and Procurement Group (not as exclusive as Augusta, but definitely friendlier and more affordable). The participants were discussing an article entitled "The Demise of Strategic Sourcing", and focused on topics such as whether we have already leveraged the lowest possible prices, and defining the role of Procurement (or Strategic Sourcing) and "strategic category management".

With one thing I surely agree: Leverage is overplayed...if a hammer is the only tool that you have in your toolbox, then everything begins to look like a nail. But the issue for me is really not in the use of leverage (i.e. "the lever"). There is a time and a place for everything, including the lever, and the ultimate goal is to commoditize what you can and strip it down to its most generic form where possible. However, many buyers/category managers/procurement specialists are not positioned properly within their organizations to effectively influence sourcing strategy and position the value lever at it's most powerful point - at its apex - the beginning of the process.

Unless Procurement/Strategic Sourcing leadership can position the function to be an influencer and involved at the beginning of a product development or service offering cycle (and train people to use a variety of sourcing and business tools), the contributions will always be tactical (and non-sustainable) at best, and never influence the top line as well as the bottom line. Being able to do both is the true measure of "strategic sourcing".

One thing I do know - there is nothing more constant than change! Categories of spend, and how you define them, need to constantly change and evolve with business changes. In IT Procurement, there is rarely a purely hardware, software, telecommunication or service procurement that does not involve at least 3 categories as part of a holistic business solution. Yet few sourcing organizations are organized to attack sourcing issues in this manner. That makes them tactical.

The same goes for understanding whether the best contracting strategy is local, regional or global. Everybody always assumes that Global consolidation is more "strategic" when in fact, in most cases, it is not. How many times have we seen buyers (etc.) negotiate global contracts, and then wonder why nobody in the organization wants to use them because they can buy from a lower priced local source? Too often. That's because the difficulty of coming to global solutions and applying global leverage (there's that word again) and consolidation often requires accepting "lowest common denominator" compromises to get the deal done. They drown in their own complexity.

What is strategic is having the tools to know this, knowing your internal stakeholders and their business issues, and designing sourcing solutions that drive the business to competitive advantage in the marketplace (and sometimes, but not always, it's about achieving the lowest cost). And when you decide that leverage is the right strategy for the situation, you need to place the fulcrum of the lever as close to the beginning of the process as you can. Only then will it become the powerful tool that you need to drive competitive advantage, and only then will you be perceived as "strategic".

1 comment:

  1. "There's never been a better time to 'free up' cash for an organization or institution ... why wait on a government stimulus when you can create your own today .... by doing 3rd party sourcing of goods and services better."

    Howard, you have a great site and nice start for your blog. One thing I know for sure .... there is still plenty of savings (whether price or total cost) to be taken out 3rd party spend ... even by those companies that have really good procurement organizations. Here's to wishing you all the best! Gregg Brandyberry, Wildfire Commerce, Inc.