Tell the CEO: Strategic Sourcing and Procurement’s Role in Business Success

For those of us in the U.S., last week was more filled with TV-worthy political intrigue than, well, certainly any week during the Bush or Obama administrations. It started out with the news that, according to a leaked government intelligence report, at least one U.S. election software supplier had been hacked, and it ended with the much-anticipated Senate testimony from former FBI head James Comey on what Washington Post writer Sally Quinn said “should [be declared] a national holiday.”

There are a bunch of other conclusions you can draw here, but is there a more dramatic example of the damage that can be caused by a supplier’s compromised cybersecurity?

According to a new report from Harvard Business Review Analytic Services, the role procurement and sourcing play in defending organizational cybersecurity is but one sign that the function has ceased to be simply a back-office operation. And yet, a previous HBR Analytic Services survey of 376 senior executives found that companies are not much inclined to devote advanced technological resources to non-customer-facing functions, including procurement and sourcing.

   Source: Harvard Business Review Analytic Services

Why Do We Need Strategic Sourcing?

Beyond cybersecurity, the report delves into a number of other major benefits that strategic sourcing can bring. As Owens Corning Global Direct Sourcing Operations Leader Gregg Focht told the authors of the report, “A small-dollar award can become a multimillion-dollar lawsuit if the right contractual language isn’t in place.” Legal and sourcing departments need to collaborate on scrutinizing high-risk contracts before they are signed.

While supply disruptions used to be the primary risk that procurement was charged with mitigating, information security is becoming increasingly important. As supply chains become ever more globalized, businesses likewise find their data in more hands, increasing exposure to cyber risks.

Procurement can deal with this by having “comprehensive supplier onboarding and onboarding processes, along with close monitoring and management of key suppliers throughout the life of the engagement,” the report’s authors suggest. “[These] are now key contributions that sourcing organizations are making to ensure that information handling remains compliant and secure.”

High-performing procurement and sourcing functions go beyond cost savings by establishing close relationships with both internal stakeholders and suppliers and encouraging positive competition among the latter. After all, the authors write, “suppliers participating in an RFP process that they perceive as fair, transparent and standardized are more likely to submit their best bids because they’re confident that they’ll be judged fairly.”

And the cost savings will come. Accenture has found that high-performing procurement and sourcing organizations save $82 for every $8 in sourcing costs, equating to more than 10x return on investment.

Going Strategic 

Here are a few of the recommendations from the HBR Analytic Services report:

  • Get the necessary technological solutions. While many companies have automated the procure-to-pay (P2P) process, digital technology can also help extract more value by improving areas such as supplier collaboration and supply chain visibility.
  • Get both internal stakeholders and external suppliers on your side. Strategic sourcing teams can make themselves indispensable by acting as a bridge between internal and external stakeholders.
  • Find new ways of measuring successes. There is more than one way to save a company money. As one vice president of sourcing told the report authors, “We’ve gone from simply ‘A saving is a saving’ to ‘How do we categorize this saving?’ What should be categorized as cost avoidance? What qualifies as negotiated savings? What qualifies as hard money that we can free from the budget and redirect to other projects?”

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