Last month, Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. Since then, the post has been picked up by over half a dozen blogs (including the German Supply Management Blog) and the sparks have been flying.
- Robert A. Rudzki (of Greybeard Advisors) who tackled Returning the “Strategic” to Strategic Sourcing
- Steve Hall (of the Procurement Leaders Blog) who addressed the Rumours of the Death of Strategic Sourcing
- Dave Henshall (of Purchasing Practice) who addressed Procurement 2.0 – and Other Labels
- Steve Hall (of the Procurement Leaders Blog) who also gave us A CPO’s Story of Strategic Sourcing
- Josh Dials (of Iasta) who said it’s time to Put “Strategic” Back into your Strategic Sourcing
- Jason Busch (of Spend Matters) who insisted that Strategic Sourcing Ain’t Dead, Regardless of What the Naysayers Suggest
- Joe Payne (of Source One Management Services) who echoed his cry and shouted that Strategic Sourcing Lives On! and
- William Dorn (of Source One Management Services) who ranted that Strategic Sourcing is Alive and Kicking.
It’s been quite a spirited debate. But the real question is, who’s right? Well, before we answer that, we have to know, essentially, what each contributor is saying. So, in this post, I will attempt to summarize their arguments and main points.
Dalip Raheja’s viewpoint is that the Strategic Sourcing Process is fundamentally flawed as it hasn’t been delivering the promised results and, in some cases, there are unintended consequences that destroy overall, system-wide, value. Why? Because, while we have moved from unit cost to landed cost to total cost of ownership, the process is still cost focussed. And while cost is important, Dalip believes that a process rooted in cost can never be a strategic process, as long-term growth can not be achieved from a foundation of cost-cutting. In order to be strategic, you need to focus on value that can drive long-term competitive advantage. Finally, the strategic sourcing process cannot be a strategic and competitive differentiator if everyone else is doing it.
Tim Cummins believes that Dalip is fundamentally right and that the real problem is that Procurement and Supply Management Groups have generally failed to escape the role of supplier-bashing as one of the biggest weaknesses of most Procurement organizations is the ability to “form relationships”. Procurement, and the business in general, needs to change the way it selects, forms, and manages its trading relationships with suppliers, customers, and distribution channels. It needs to identify and select the right customers and suppliers — and it will only be able to do that if it eliminates transaction-oriented Procurement and sell-side contract management organizations and replaces these groups with a Trading Relationship Enablement Group (TREG) that will coordinate the perspectives and needs of the many stakeholders to ensure that buy-side and sell-side requirements are coordinated and that any trading relationships that are established meet these requirements.
Robert A. Rudzki states that “strategic” is the most overused (and misused) term in business today and that a sourcing process is not strategic if it simply adds a few bells and whistles to the conventional model or if it is dumbed down to a non-strategic, tactical ghost of what it is supposed to be so it can be “applied across the organization” — and that too many organizations these days are doing the latter in an attempt to get “quick wins”.
Steve Hall believes that the rumors of the death of strategic sourcing are probably exaggerated, but notes that most organizations are a long way from what they should be. Steve also states that in order to truly be successful, most Procurement organizations will need a competitive supply base that meets the needs of the company but that this will not be achieved unless the Procurement organization interacts with the rest of the business and forms strategic relationships with the key stakeholders. Finally, he notes that the Procurement function must be an enabler for the business.
David Henshall claims that adopting strategic sourcing is a necessary early step in the development of procurement maturity in an organization, and because of this, it is certainly not dead. Furthermore, an organization at this level of maturity must focus on continual development as it needs to progress to the category management level of maturity which links sourcing strategy to business strategy. Thus, strategic sourcing is not the holy grail.
Josh Dials writes that the key to success is a true front-to-back sourcing strategy that goes beyond the supplier selection, auction, and ranking of the auction results, which constitute the middle parts of the sourcing process, to include spend analysis at the front end — which tells you what to source, and decision optimization on the back end — which tells you who you should be sourcing from to achieve the best value. As a result, most organizations aren’t executing a true “strategic” sourcing process to begin with.
Jason Busch chimes in with a viewpoint that no one has said anything new and that the reality is that the earlier stages of sourcing maturity are going out of vogue even though strategic sourcing is thriving as the actual role is evolving to encompass more than it used to. The five, seven, or nine step strategic sourcing process never goes away, rather, newer elements, such as risk and performance management, will begin to include themselves not just as separate areas, but as integral components of strategic sourcing. Furthermore, a focus on cost can be a growth driver for business as it can drive bottom line results that increase share prices and enable other activities.
Joe Payne shouted that Dalip is way off base and that, in reality, at most companies, the concept of strategic sourcing hasn’t even been born yet. Billion dollar plus publicly traded internationals still allow administrative assistants, IT gurus, and marketing people with no formal procurement training to manage spends of a million dollars or more. As a result, strategic sourcing is always going to be a tool in the bag.
William Dorn also vehemently disagrees with Dalip and states that what is actually dead is the ability to sell supply chain improvement projects, both as internal initiatives or hired-consulting firm initiatives. He also believes that a process rooted in cost can be strategic, pointing out examples in consumer electronics, and Acer and Asus in particular, as examples. Finally, he contends that the sourcing process is only fundamentally flawed if you follow the original A.T. Kearney 7 Step Sourcing Process without adapting it to your needs.
So who is right?
I’ll let you know in Part II.