Strategic Sourcing, Helping Curb Functional Business Blindness

Spend Matters welcomes this guest post by Jim Kiser of GEP.

The simple dictionary explanation for functional blindness is the loss of vision related to conversion hysteria. Although the part of the definition can only speak to the loss of vision in comparison to management not following one, that part is consistent. I have heard at times through the years working within corporations, leaders bring up the topic of this issue of functional blindness, what they see it as and its effect on departments and management. From my discussions with leaders, it appears to be related to how a manager or group will continue to apply the same approach or reasoning to a business process or approach. Unfortunately, they cannot recognize that the same approach, while it produces the same results, does not account for developing a new level of performance and creative/innovative thinking which can lead an organization to higher levels of business optimization.

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A strategic sourcing method when developed and implemented with the intent to drive true cost management and value improvement to an organization’s financials, helps initiate new perspectives in which departments can begin collaboratively to move beyond current sub-optimal processes and practices.

There are many areas of the strategic sourcing process that when employed can enable this move away from functional business blindness.

  • Access, analysis and organize spend data. When departments follow the same coding and data management practices they lose insight to timely, accurate, complete and detailed spend data, which offers real-time intelligence on spending patterns, compliance, performance ratings, supplier management and parts management. This begins the process of “viewing” this critical information for identifying cost savings targets and developing sourcing, budgeting, planning and product strategies.
  • Developing robust internal requirements and leveraging historical and current market intelligence.

When departments work together as teams to input the full scope of requirements from various sides of the company, the business reasoning for not only what is purposely needed from a specification becomes defined but all departments have a vested interest now in solving a collective goal that drives new ways of working and new behaviors. The use of good, clear market intelligence, both historical and current, as to how the market dynamics operate, provide management with a new perspective on how to develop a strategic category plan, identify suppliers and create a well-defined negotiation strategy based on market and spend complexity. This all leads toward new manners of business thinking and approaches.

  • Implementing contract management and supplier management practices. The great part about strategic sourcing is that it is really both an art and a science. Developing a good clear performance contract is usually a departure from the standard contract processes and language companies tend to get comfortable using time and time again. Contracts can be constructed with many price, performance and robust business rules that open up the door to greater supplier management control and principled ways of working into the future. Suppliers, when driven toward new expectations and agreed levels of performance, bring optimal cost management, innovations and multiple levels of value creation.

Functional blindness in business is something that tends to develop overtime through unchecked and unchallenged routine approaches in which management justifies as “as long as it is not broke, don’t mess with it.” Something usually comes along to help jostle this stagnate mode of operation. Fortunately strategic sourcing is an area that provides elements within its various processes that give organizations a manner in which to curb and sidestep prolonged years of sub-optimal thinking, behaviors and practices leading to functional business blindness.

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Voices (2)

  1. Pierre:

    Part of the challenge is defining a function as either 1) department that uses its people to execute a set of stovepiped / specialized processes or 2) a collection of processes (in this case a spectrum of tactical sourcing activities from unplanned events and other tail spend drivers – all the way to truly strategic sourcing) that is executed by the resources that make sense (functional stakeholders, procurement site staff, corporate center, shared services, BPO partner, etc) and enabled by the process owner (who I’d argue should be procurement for p2p and s2p). But designing these various sourcing paths (and p2p paths) to follow and then doing the change management to make it happen while doing dozens of other things is a big challenge. But, that’s where folks like you guys can help!

  2. Omar Khan:

    There is absolutely no doubt that strategic sourcing is the best approach when compared to tactical sourcing and is indeed the “right thing to do” for procurement organizations. Why, then, some companies choose to use the sub-optimal sourcing processes instead of embracing the best practice of strategic sourcing. I tend to believe that this is rather situational requisite at some companies and not entirely due to functional blindness in business.

    Consider the example of a medium size manufacturing company where buyers have the flexibility to use any one of the suppliers that offers lowest price and best delivery dates. Managing day to day manufacturing operations is quite different from managing long term strategic responsibilities. Often times, these buyers do not have the luxury of ample time, procurement technology (ERP) platform or the higher skill set necessary to shift from tactical to strategic purchasing. Their number one priority is to keep the production lines running and tactical sourcing is the best choice in such operational environments. Essentially, tactical sourcing is the appropriate approach by “doing things right” at these companies.

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