Friday Guest Rant: Not so Fast My Friends (David Clevenger Responds)

- April 17, 2009 12:04 PM
Categories: Spend Management |

This afternoon I’d like to welcome David Clevenger from Corporate United to Spend Matters. David asked me if I would be willing to feature a rebuttal in a Rant, and I said absolutely – especially after the beating we gave his column this morning. Who is right? Decide for yourself. In his response below, David gets in a few solid blows and some low hits below the belt — just like the original attacks on his piece. I would expect nothing less from my old colleague. – Jason “The Dinosaur” Busch

I believe that GoodFellas is a better mob movie than any in The Godfather trilogy. I think that Randy Moss is a better pure receiver than Jerry Rice. I think that American Idol is unwatchable. In short, I am probably wrong about any number of things.

This is not one of them.

For one thing, it is clearly stated in my article that the piece is a prediction. Like all predictions, it refers to something that will (or should) happen in the future. With that said, I am more convinced than ever that this prognostication in hand is worth two from the Busch.

I must admit to having been pleased to see that my modest proposal received such a virulent response from the likes of Jason Busch and Barb Ardell, and even more so to see that they are wrong in their critiques…or at least predictable in their commentaries.

It is in no way surprising that the consulting community perceives any comment on sourcing as an unrealistic state of affairs. This activity is, after all, the life blood of myriad consulting organizations, and critically important to my own. Allow me to put your minds at ease, there will be plenty for you to work on in the coming months; prevailing market conditions will see to that, but more about that in a bit.

With all due respect to Jason and his prestigious position in the industry, his opinion seems at best mired in his consulting background and at worst bears an eerie resemblance to a dinosaur flapping in the tar pits.

To begin my defense, the analogy to professional sports has nothing to do with paying a premium for greater performance. Rather, it is a comparison of a familiar situation in which two sides that need to work together in order to succeed often find them opposed because of the adversarial nature of their relationship. The players don’t feel any loyalty to the franchises; the owners feel no loyalty to the players. The results are often contentious contract disputes, and occasionally significant work stoppages or lockouts. The spirit of partnership doesn’t exist here because neither side is willing to move from the status quo. This has also long been the case between buyers and suppliers, two sides who frequently claim they want partnerships, but have done little to actually make them work.

Jason, not surprisingly, makes one really excellent point. We are in the midst of an almost unprecedented economy, and one in which well-executed strategic sourcing processes retain tremendous value. No one, least of all me, is denying this important fact.

I still see a tremendous number of organizations running to their suppliers and insisting that they get another 5, 10, or 20% of their current rates, citing hardships in their business. They do this with little or no information about what the real value of their current agreement is, or what effect those reductions will have on their suppliers who, by the way, are also experiencing significant downturns in their businesses. I would propose that if these organizations had been engaged in the “true partnerships” I describe in my article, that they would be in a much better position to face their [current] challenges than they are today.

Interestingly, the end of Jason’s post seems to be more aligned with my recommendation than even he might recognize. “Or do we need more effective sourcing teams who realize that there is never a one size fits all solution — and that getting the savings is as much about managing the contract and supplier relationship lifecycle as it is negotiating the optimal deal for the circumstances?” The answer is clearly yes. Jason is calling this better strategic sourcing, a process which ends with “award.” I am calling it strategic category management (SCM), a process which clearly addresses the value of managing the contract and supplier relationship lifecycle. In his unique way, Jason appears to be pointing out that Clevenger {gasp} just may be right.

Let’s examine some of what else has been said;

“The intent of strategic sourcing wasn’t to ignore the value of a supplier’s total offering, it was simply to quantify it.”

For those of you reading and reacting to these posts in the absence of having read my article, allow me to point out that the quote above is from my article, and that I am more than aware of the role strategic sourcing has played, and continues to play in including total cost of ownership as criterion. This does not change the fact, however, that piece-price rationalization has been a significant and overwhelmingly positive result of the strategic sourcing revolution.

Ten years ago it was practically commonplace for organizations to pay upwards of 50-60% mark-ups on clerical and light industrial temporary labor. Today, those rates are a distant (and unpleasant) memory, due almost exclusively to the diligence of strategic sourcing professionals to create transparency into the make-up of those rates and negotiate them effectively. This doesn’t represent a misunderstanding of price and cost, simply a recognition that price is the single largest component of cost.

Thomas Kase, for one, appears to have missed this point entirely. His conclusion that traditional strategic sourcing is the best manner in which to account for changing market conditions still fails to address a fundamental issue; what does one do between sourcing initiatives to ensure an understanding of those market dynamics? SCM faces this issue head on by treating spend management as an ongoing process, rather than as an episodic activity.

As for the comments from Mr. Kase on Ms. Ardell comparing my comments to recommendations to “close down the patent office,” I must admit to being totally confused. How exactly does proposing a new solution represent a failure to recognize the new and ever-changing state of our space? If anything, it seems clear that clinging to the same old approaches bears a much greater resemblance to these comments.

Speaking of Ms. Ardell; “…he assumes there is an absolute floor to prices.” Interesting interpretation of the material. Wrong, but interesting. Nowhere do I state or imply an absolute floor, but rather that mature markets require a different level of examination in order to judge the best total cost than a traditional sourcing approach will provide; and this includes downward markets like technology. In fact, the whole basis of SCM is to recognize the process efficiencies that result in supplier savings in such a manner that the buyer is realizing the benefits of those advances in the most efficient manner possible. Additionally, it accounts for the fact that in an SCM environment, the buyer might actually know those efficiencies have been achieved.

As for “Well Said,” well, they are clearly not well read. Nowhere in my piece does it recommend that companies hire experts in all categories. In fact, it is quite the contrary. Most organizations have subject matter experts within their four walls in the form of functional employees (HR, Marketing, IT, and Facilities professionals) who are fully capable of providing the support a strategic category manager will need to do their jobs effectively. What makes SCM logical is the skills possessed by those team members

are scalable across categories because they are not dependent upon a deep knowledge of the category.

I agree with Ms. Ardell and the other respondents that strategic sourcing will be around for a long time, but probably not for the same reasons that they believe. In part, it will be a function of people’s natural resistance to change, a sentiment clearly evidenced by the response to this piece. The other is that strategic sourcing still plays an important role in categories that have not matured, and require the transparency and diligence that only a quality strategic sourcing process can provide.

The future, however, remains unaccounted for by “business as usual.”

Spend Matters would like to thank David Clevenger from Corporate United for sharing his thoughts.

Readers may submit guest rants for consideration to: jbusch (at) spendmatters (dot) com

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