Friday Rant: Strategic Sourcing Rules — Clevenger is Wrong
Categories: Spend Management |
I’m not sure who originally said it, but I once heard someone remark that a half-baked idea is okay as long as it's in the oven. Unfortunately, my friend and former FreeMarkets colleague David Clevenger has hatched such a concept that still needs another hour or so in the Thermador -- and even then might be best suited to fertilize the lawn rather than join us at the Spend Management dinner table of worthwhile ideas. The idea that I speak of is David’s argument, put forth in a recent Supply and Demand Chain Executive article, that the future of procurement will not include strategic sourcing. The central foundation of David’s argument against strategic sourcing is “that the piece-price savings aspect of nearly everything a company procures has been exhausted. The low-hanging fruit has been harvested several times over, and the rest of the tree is beginning to look pretty bare.”
But is it? The premise of properly executed strategic sourcing was never just about unit price. Sure, some providers -- and companies -- bastardized the original approach that we tried to follow at FreeMarkets focusing on total cost (or at least as many of the total cost factors as we could account for) but strategic sourcing was never about fundamentally driving to just a low unit price -- at least when it was (and is) done right. Moreover, in today’s market, I think many in the Spend Matters audience would agree that that the fruit tree for which David speaks is in fact in full bloom again. The current economic climate has fertilized the fields to such an extent that the fruit has never looked better in many cases -- and you can pick it without a ladder. And you know what? The fruit will still come back again next year and the year after as suppliers -- and suppliers’ suppliers -- become more productive or new sources of supply come online.
In lieu of strategic sourcing, what does David recommend we pursue? I’ll include his entire argument -- including the lead-up -- because I think it is important to understand so we can unearth its specific flaws. To wit, David starts his argument in favor of a new model with a sports metaphor, suggesting that “Most of us are quick to decry the football player who leaves our favorite team as a free agent. But how much loyalty can we truly expect them to show to a team that will cut them if they tear their ACL? We know that the teams that are able to sustain a consistent roster are the most successful, but so few seem willing to do it. Players want guaranteed contracts, owners want performance, and in the end the system never really changes all that much.”
In my view, the fundamental flaw with comparing sports players to suppliers is that the premiums we ascribe to stars are so far removed from the premiums we would ever pay to preferred suppliers. Sure, we might favor a supplier and be willing to pay a 5% premium over the market, but not a 1000% premium that a champion NFL player might command relative to the base industry salary.
But I digress. David next suggests in framing his point that “Instead of owners dealing directly with players, they have hired an army of experts. Not experts on negotiating contracts, but experts in doing what the players themselves do. They have committed to helping to develop players physically and mentally, to giving them the tools and planning they need to be successful to meet the goals of the franchise. Companies should be doing the same thing with their supply bases, and they can. It’s called strategic category management.” David then goes on to frame the strategic category management role as one that works closely with both internal stakeholders and suppliers in a more collaborative manner than the strategic sourcing professional of old.
But is that what we really need? 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? In my view, strategic sourcing is still one of the best items on the dinner table. But it does not stand alone, even if it's still the best main course -- the Prime Rib if you will. Rather, companies are beginning to see it for what they should -- a critical but single component of an overall Spend / Supply Management strategy focused on programs that create savings and value over both the short- and long-haul. And if anyone else tells you otherwise, I’d suggest you share with them the incremental savings results you’ve gotten from previously sourced categories using your five or seven step sourcing process in the past few months (and if you have not re-sourced your categories in this time frame, trust me, you're missing out).
Later today, Paladin’s Barb Ardell will share her thoughts on David’s piece as well. She'll be followed by Aravo’s Tim Albinson ranting on a different subject this afternoon. Got something on your mind? Got something to say? Submit a rant for next Friday: jbusch (at) spendmatters (dot) com