For Sourcing to be Strategic, You Have to do More Than Just Negotiate

Spend Matters welcomes this guest article from Ole Nielsen, CEO of Scanmarket North America.

The word “strategic” gets thrown around a lot lately. The other day, I actually overheard one of my wife’s friends say she “wanted to be more strategic” when talking about saving time on her trip to the local grocery store. While being efficient about the path through the aisles of your local supermarket is admirable, it’s tactical, not strategic.

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Sadly, the overuse of the word “strategic” occurs all too often in our industry, as well. Running a “3 bids and a buy” effort might be the right approach, but it’s far from “strategic sourcing,” even if you call it such.

This matters, not because we’re terminology purists, but because true “strategic sourcing” is a comprehensive effort designed to generate more and broader value than a straight-up negotiation.

Negotiated savings are great, when done well. The quick turn and simplified process can generate significant ROI, even on small blocks of spend. But, above all, you want to use the right approach for the right type of spend and some projects require a broad, comprehensive program that may or may not include an e-auction as part of the program.

Much has been written on the discipline of strategic sourcing in the last 15 years, and we won’t try to distill it all here. Instead, we’ll give you a simple litmus test to use to distinguish between negotiations and true strategic sourcing.

To achieve the broadest value available from true strategic sourcing, make sure you’ve committed to covering an expanded scope with regard to 3 aspects: goals, process and tools.

  • Goals – in addition to savings, strategic sourcing must incorporate improvements in market intelligence, supplier collaboration, risk management, compliance and governance, demand management and onboarding/change management
  • Process – whether your strategic sourcing process include 5, 6, 7 or even more steps, don’t skip any of them in an effort to save time or effort. The best RFP in the world won’t meet your needs if you haven’t performed a diligent market analysis or the right stakeholder engagement
  • Tools – as powerful as your eRFX/e-auction solution might be, strategic sourcing requires more. Be sure that you are leveraging the capabilities of your entire platform including online contract management, advanced decision support and scoring, automated supplier communication and supported spend analysis, among others

Admittedly, this represents a significant commitment in time and effort. So choose your strategic sourcing efforts wisely. And when you decide that something’s worth the effort, make sure you follow through on everything it entails.

Hopefully, this will help you allocate your scarce resources where they really belong. It’s just as important to know when NOT to implement strategic sourcing as when it should be done.

To paraphrase a line from Pixar’s “The Incredibles,” “If everything is strategic, then nothing is.”

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