Sourcing Information Asymmetry — New Model/Approach for Direct Materials Sourcing

This Thursday, I'm participating in a Supply Chain Brain/CombineNet webinar that will examine how companies can factor a variety of new variables and data sets into sourcing approaches and models in volatile economic and commodity markets. As I thought through my presentation, I took a step back and considered that if anywhere from 20-80% of the costs of typical parts/components remain outside of a supplier's direct control, it becomes important to not only focus negotiated savings on the value-added component a supplier provides, but the broader opportunity that extends into the supply chain. At the same time, given the price pressure we've seen of late on commodities, It also becomes critical to target areas we previously may have not been able to pursue effectively, given negotiation constraints and challenges. In other words, we must improve at changing the basis of negotiation by expanding our collaboration and discovery outward.

The historical context is quite fascinating if you stop to think about it for a moment. We're in the midst of a transition from a model that focused on transparency and competition to one centered on collaboration and information asymmetry (hold this thought for a minute and I'll explain). Until recently, transparency was the big (and often only) thing that procurement organizations cared about in affecting desired outcomes from negotiations. After all, transparency was what led to the rise of reverse auction models that pitted supplier vs. supplier. Ironically, many of these sourcing models, despite information symmetry between buyers and suppliers (and suppliers vs. supplier), were anything but collaborative in nature.

On the webinar, we'll suggest that sourcing and procurement organizations must begin to think more like modern militaries. To wit, rather than directly taking on opponents in traditional battles, we must focus on accessing information and controlling the "intelligence battlefield," which includes potentially knowing more than suppliers as a core strategy. Our term for this is sourcing information asymmetry (or SIA for short). How does SIA manifest in sourcing models and technology use? It requires making information discovery the top priority and collecting as many supply chain data points as possible. It also requires we explore different alternatives for a particular tender/sourcing event while questioning the notion of a "hard and fast" RFP that we might send to suppliers. At the same time, under this model, final negotiations with suppliers always become an outcome based on access to information rather than a starting point.

In short, sourcing information asymmetry changes the name of the direct materials sourcing game. And if you're not playing on this new Spend Management battlefield today, you're likely to get flanked by the competition. Join me for the webinar if you can. But if you can't, this is a subject we'll continue to explore in more detail in Spend Matters in the coming months.

Jason Busch

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