Read About Procurement Competitive Advantage In Our Commerciality Paper

We’ve published the penultimate paper in the Five Principles of Sourcing series, produced with support from our friends at complex sourcing technology firm, Trade Extensions. Having covered Coherence, Openness, Rigour and Alignment already in previous papers, this time round we are talking about our final principle, Commerciality.

Our idea was to mimic the philosophies that underpin many of the biggest and best firms in the world. Mars has its own Five Principles; John & Johnson has its credo. We thought it was interesting to consider how procurement professionals might look at the whole area of sourcing, which is so fundamental to procurement success, and define some principles that might inform good practice.

Under “commerciality” we look at a number of issues; including commercial (and competitive) advantage, as well as commercial models and future “network sourcing” opportunities. I know we’re biased, but we think the content is both practical and useful, whilst also making you think a bit!

Here is an excerpt but you can download it now, free on registration, from the Trade Extensions website, along with the three previous papers in the series which cover the other principles.

 

The Five Principles of Sourcing - Commerciality

1. Understand commercial (and competitive) advantage
This comes back to the fundamental purpose of all sourcing and procurement activity. For the private sector at least, it must be to use the external market and suppliers in the optimal manner to generate competitive advantage for the business.

Every business has a different specific competitive advantage, although there are common themes. Michael Porter, arguably the founding father of the concept, identified key drivers including cost leadership and differentiation. Others have talked about factors such as customer intimacy and innovation as being sources of sustainable advantage -- and some organisations may have more than one factor that drives success.

But the point is that every organisation needs to have something that enables it to survive and thrive alongside its competitors, and it must understand that factor (or those factors). Relating this back to sourcing, every category or item being sourced should contribute in some way (however minor or indirectly) towards that competitive positioning. Note that competitive advantage is certainly not simply about costs, as Apple and others have proved. Indeed, Porter has more recently suggested that the only long-term route to sustainable competitive advantage is through innovation.

Our commercial work in sourcing and throughout the end-to-end supplier management process must therefore be focused on how we can gain that advantage. It is interesting to note that the Mars Corporation, the inspiration in many ways for this whole “five principles” series, was incredibly focused on competitive advantage.  The goal in procurement was simply to drive that through buying everything needed by the firm better than the competitors (Hershey, Nestlé and so on) …

(Read more on this topic and others in the paper -  download it now).

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