Thursday, 10 July 2014

Strategic Sourcing: The Good, the Bad and the Ugly!

Authored by Abdel Halim Ahmed

Many organizations are adopting strategic sourcing into their supply management functions. For senior management, the word "strategic" is an appealing adjective that resembles the use of a magic stick to generate results but that's not always the case.

The Good

What's good in Strategic Sourcing? Well, the use of important information can turn your performance around. What's my “spend”? Who do I buy this product from? And when is the best time to buy it? Those questions are important to formulate the "strategic" flavor of your sourcing activities. It is only then an organization can group it’s spend into categories, prioritize the different categories and identify reliable suppliers.

The Bad

Strategy this and strategy that - do we really need to? Well, Strategic Sourcing works best for big, complex sourcing activities that include products/services with a mature base of competitive vendors, but over-engineering simple sourcing exercises will definitely turn bad to worse. It's not a "one size fits all". Meaning, over complicating simple operational or tactical procurement could backfire at your performance. P2P cycles can be prolonged due to the newly introduced, unnecessary “strategic” practices to something SIMPLE!

The Ugly

So you have decided to source "strategically" - fine. And you have set a handful of metrics to measure the performance. One of those metrics is the savings made in a reverse auction exercise and happens to be a reverse auction for a highly sophisticated product with a limited number of vendors. Savings made - 1.5%! You might have chosen the right metric but you have definitely chosen the wrong reverse auction. Why? Reverse auctions mainly work best for off-the-shelf commodities of an attractive dollar value and a large suppliers’ base. However, if you use a reverse auction on a highly customized, with limited (if not one) suppliers you end damaging your relationship with your, supposed, partners!

Bottom line; just because we are adopting strategic tools we do not automatically become strategic thinkers! We need to believe in and quantify our strategic approach in order to realize results.