Thinking of Strategic Sourcing? Think Hard.

Posted: 06/04/2019 - 00:46

When companies start to consider adding strategic sourcing to their regular business processes, they often overlook a number of critical considerations. Chief among these are the benefits of a third-party support and – even more crucially – the process of aligning procurement with this new methodology. 

Inexperienced procurement departments and other stakeholder groups often view strategic sourcing as an accessory attachment to procurement’s arsenal. In reality, it is something much more. Introducing a strategic sourcing process represents nothing less than a cultural change within the organization.

Strategic sourcing is not a tool. Tools are meant to be leveraged for specific tasks and then put aside. Treating strategic sourcing this way will result in an uphill battle characterized by unimpressive results and, ultimately, complete disappointment. Successful implementation means engaging the entire organization from the board of directors to the intern pool. Procurement must work to change the organization’s thought processes and provide for a culture in which sourcing’s full complexity is understood. 

In a world where margins are not as they used to be, a well-established sourcing methodology becomes far more than an exercise in producing savings. Employed effectively, it’s about rationalizing every aspect of capital expenditures (CAPEX) and operating expenditures (OPEX) and looking deep at the different layers that compose projects such as dimensioning, urgency, efficiencies, externalities, pricing, logistics and other pressures that could impact the purchase of products and services. Sourcing strategically is not just about acquiring resources for a better price, but also acquiring them in a more responsible and intelligent way to make the business as efficient as possible. Procurement cannot focus on decisions that will benefit itself. Instead the function must carefully consider its every move to ensure it serves the good of the company as a whole

Here’s a simple example. Imagine a company is looking to literally move from Point A to Point B. Would a simple sedan or a flashy sports car better serve their purposes? The sports car is always an attractive option. After a nice discount, the company can easily afford it and they’ll certainly look great behind the wheel. The shallow assessment, however, fails to consider a number of factors. While appealing, the sports car seats only two passengers, consumes a ton of gas, and would saddle the organization with high operating expenses. The sedan, on the other hand, seats a group, gets great gas mileage and won’t need much in the way of maintenance. It’s not an exciting choice (and it might not be an easy choice), but it’s the most strategic one. 

Getting stakeholders to think in terms of total cost of ownership and financial responsibility is hard, but it’s even harder is to get them to act on it. A total cultural change must take place. Procurement might consider introducing incentives that will encourage other business units to collaborate with the function and embrace the principles of strategic sourcing in their day-to-day operations. Procurement, too, must transform and evolve to accommodate and encourage these changes. The department should rethink its processes for attracting the appropriate talent, holding them accountable and setting up shared goals with stakeholders. Nothing makes people readjust and adapt faster than messing with their bonuses; incentivized business objectives between procurement and stakeholders will certainly produce some results.

Another important aspect for successful strategic sourcing implementation is correctly categorizing spend across the business. This alignment has to remain consistent from the point the business unit develops the budget to the point where it becomes an active asset. At every stage, it’s imperative that the company speaks the same language. This alignment process also applies to the implementation of new systems and tools. Instead of permitting IT to plan them in a silo, the company must encourage all business units to take part in determining how they’ll align with the strategic sourcing process, stakeholder capabilities and procurement’s processes.

Of course, all of these actions are easier said than done. Let’s face it, changing culture is hard. It is not, however, impossible for the well-appointed organization. The correct incentives and attitude must be in place for successful implementation – embracing Strategic Sourcing means making an investment. It will take time, but it’s an investment that will pay off – especially in this competitive environment. These days, you don’t have to do this alone. There are more experts than ever prepared to support this transformation. Don’t be afraid to ask for help, especially if you sense some internal resistance coming your way. Working with professionals will simplify the effort and promote transparency about all incoming changes. This will have an effect across the company and ultimately yield better acceptance and results. Every long journey starts with a single step.


About The Author

Jose Schneider's picture

Jose Schneider is a Senior Analyst at Source One, a Corcentric company, specializing in IT and Telecommunications. A transplant to the Philadelphia area from Chile, Schneider is passionate about international business. Leveraging his seven years of experience in procurement and strong interpersonal skills, Schneider is a go-to resource for helping companies source right-fit technologies and services while establishing strategic vendor partnership.