Friday Guest Rant: The Demise of Strategic Sourcing

This morning I’d like to welcome Barb Ardell from Paladin Associates to Spend Matters. Barb is a VP at Paladin, with extensive experience in all aspects of sourcing and suppy management. I’ve had the pleasure of knowing Barb for a number of years and I’m sure she would like the label if I described her as perhaps the most experienced, no-nonsense e-sourcing practitioner-turned-consultant in the market. Which, of course, she is. Please join me in welcoming Barb to Spend Matters.

In a recent Supply & Demand Chain Executive article entitled “Sourcing Prediction: Why the Future of Spend Management Won’t Include Its Most Familiar Component”, David Clevenger, VP at Corporate United, predicts the demise of strategic sourcing. He believes that strategic sourcing has run its course because the “piece-price savings aspect of nearly everything a company procures has been exhausted” and “low-hanging fruit has been harvested several times over”. This statement reminds me of the US Patent Office Commissioner’s declaration in 1899 that “Everything that can be invented has been invented.” Clevenger goes on to argue that the future of spend management lies in “advanced supplier and contract management, combined with sophisticated supplier development and analytics to identify and quantify new generations of savings to buying organizations.” He advises spend managers to pursue “real, productive and lasting relationships with suppliers.”

I am completely in favor of supplier relationship and contract management. However, I have several issues with Mr. Clevenger’s prediction. First, he assumes there is an absolute floor to prices. That is obviously not true as we have seen with electronics prices over the last several decades. His position assumes market forces have no impact on pricing and that there are no process or other efficiencies that result in supplier savings. With all due respect, I also think Mr. Clevenger missed the concept of “strategic” in strategic sourcing. The type of supplier partnership he describes is appropriate in certain circumstances where few options exist and there is mutual dependency between the buyer and supplier. However, there are many more situations where competition will deliver the best value (price, quality, service, etc.) to the buyer. On a personal level, do you think a “partnership” with your wireless provider or local car dealer will deliver the best results? I think not!

As sourcing professionals, we need to examine each situation and determine what is the right strategy, then do the appropriate research to assess and source best value. Where supplier partnerships are appropriate, we should pursue them with excellence. However, there remain many circumstances where a competitive approach makes sense. I predict that strategic sourcing, including competitive bidding, will be around for a long time to come. With deference to Mark Twain, the reports of its death are greatly exaggerated!

Spend Matters would like to thank Barb Ardell from Paladin Associates for sharing her thoughts.

Readers may submit guest rants for consideration to: jbusch (at) spendmatters (dot) com

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