A Different Kind of Leverage: Observing the Role of Corporate Sourcing and Procurement

Spend Matters welcomes a guest post from Danny Ertel, Partner at Vantage Partners.

Together with John Fafian, VP of Firmwide Sourcing at Morgan Stanley, I recently co-facilitated a workshop on the remediation of outsourcing relationships at the Sourcing Interests Group's Global Leadership Summit in Seattle. We had a standing-room-only crowd and a lively discussion about alternate diagnoses and solutions for the problems described in a short, all-too-real, hypothetical case we reviewed. One of the things I like about this conference, in addition to the opportunity to see old friends and meet new ones, is that the presentations and discussions are of the highest quality and that they make me think. Sometimes I hear about something entirely new that some organization has done; other times, it may be just a simple comment or observation by a speaker that helps me think of an old topic in a different way.

I had one of those latter experiences while listening to Tami Reller, CFO & CMO of Microsoft Windows and Windows Live, first describe some of what they are doing at Microsoft, and then participating in a "fireside chat" with Tim McBride, Microsoft's Chief Procurement Officer. Tami's point was that a sourcing organization can be an amazing resource to the company as a whole when they cross-pollinate business units with knowledge about particularly good suppliers. But to do so, sourcing organizations need to add some capabilities to their repertoire and some responsibilities to their mandate.

Most sourcing and procurement teams recognize that as a central corporate function, their mission is to leverage the might of the organization, as a whole, in support of any one of its internal customers. Unfortunately, they tend to do this primarily by using the company's purchasing power (and the carrot of greater volume or the stick of withholding volume) to gain better pricing from their suppliers. What they fail to do is leverage all of the knowledge the organization has acquired, often at great cost, about the suppliers' effectiveness and ability to deliver on promises, and the reality (or lack thereof) of their claims about ROI.

Some sourcing and procurement teams are better than others at compiling, across the company, information about different suppliers' products and services, their pricing, and perhaps even the contract terms to which they will or will not ultimately agree. The knowledge that most sourcing teams fail to bring to their internal customers -- to the detriment of all concerned -- is about what happens after the deal is signed and the parties have to work together to implement the agreement.

This is where the change is required. In order for sourcing and procurement to be able to leverage the lessons learned from working with a provider to implement the deal, they have to understand what happened after the deal was done. They have to play some kind of role in the governance of the supplier relationship, even if they don't own the function, and they have to treat supplier management as more than monitoring contract compliance. They have to understand whether and how the provider is delivering value to the business. They have to recognize what their internal customer does or doesn't do to enable the supplier's effectiveness so they can counsel the next internal customer about solutions that may or may not fit with the company's culture, or change management that may be required to adopt it. They cannot just close the deal and move on.

This kind of knowledge is not so simple to acquire, and it requires some time and effort to gather the information, make sense of it, and manage it so that it is useful going forward. But the payoff on such investments of time and effort can be amazing. Not only can sourcing and procurement better advise business units on the selection of providers based on the company's own experience, but when they source and negotiate additional work, they can do so with a deeper understanding of the levers of value and of what it takes to realize that value.

- Danny Ertel, Partner at Vantage Partners

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