Executive Briefings

Strategic Sourcing Is About a Lot More than Just Sourcing

A critical need is lacking in many organizations' competitive toolkit today: the need for better decision-making and strategy execution in the supply management function. During the 1980s, 1990s and even today, many companies have focused their attention on strategic sourcing--which, in many cases, involves simply reducing one's supply base, squeezing cost reductions out of suppliers through intense negotiations, signing a contract and leaving an internal customer to manage an already strained relationship with the selected supplier(s).
Although cost reduction is certainly one of the major objectives of strategic sourcing efforts, a majority of senior executives are now looking to sourcing teams to focus first on customer value, and delivering cost savings as a secondary focus. This is based on the fact that there are often opportunities to leverage spending from diverse business units (especially after a merger). This is a one-time hit.
Second, the savings from leveraging may not continue, and, in fact, may discourage a supplier from offering additional improvements in quality, technology or cost savings in the future. One executive noted, "The greatest savings take place after the ink has dried--but it requires a collaborative approach to savings, and a whole different set of processes."
Third, the strategic sourcing process often takes place in a vacuum, without a thorough assessment of internal customer requirements, changes in the business environment, and events or changes in the supply market.
Source: Inside Supply Management, http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=18451

A critical need is lacking in many organizations' competitive toolkit today: the need for better decision-making and strategy execution in the supply management function. During the 1980s, 1990s and even today, many companies have focused their attention on strategic sourcing--which, in many cases, involves simply reducing one's supply base, squeezing cost reductions out of suppliers through intense negotiations, signing a contract and leaving an internal customer to manage an already strained relationship with the selected supplier(s).
Although cost reduction is certainly one of the major objectives of strategic sourcing efforts, a majority of senior executives are now looking to sourcing teams to focus first on customer value, and delivering cost savings as a secondary focus. This is based on the fact that there are often opportunities to leverage spending from diverse business units (especially after a merger). This is a one-time hit.
Second, the savings from leveraging may not continue, and, in fact, may discourage a supplier from offering additional improvements in quality, technology or cost savings in the future. One executive noted, "The greatest savings take place after the ink has dried--but it requires a collaborative approach to savings, and a whole different set of processes."
Third, the strategic sourcing process often takes place in a vacuum, without a thorough assessment of internal customer requirements, changes in the business environment, and events or changes in the supply market.
Source: Inside Supply Management, http://www.ism.ws/pubs/ISMMag/ismarticle.cfm?ItemNumber=18451