In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers. Then, in Part II, we noted that of all the responses, only one blogger got it right. Joe Payne, the quiet cub among the roaring lions, was the only one to note that at most companies, the concept of strategic sourcing hasn’t even been born yet. In our last post (Part III) we reviewed each of the responses and pointed out what the contestants got right (as well as a few mistaken assumptions) in our efforts to help you get a better grasp of what Strategic Sourcing really is. And in this post we’re going to discuss Dalip’s posts that instigated the debate.

After our last post, I’m sure you’re wondering if Dalip got anything right as I just spent a page and a half pointing out how pretty much every other blogger had valid points in each of their counter arguments. The reality is that quite a lot of what Dalip said in the four pages that constituted Strategic Sourcing is Dead and The Sourcing Emperor Has No Clothes was right, especially if you look beyond the words to the points he was making. (Yes, his posts probably could have been a little clearer, but they were deliberately written in a way that was designed to make you think. As was clearly stated near the end of both posts, the point was not that you agreed or disagreed, but that you joined in the debate.)

So what did Dalip get right?

Strategic Sourcing has not delivered the results it promised years ago, and it isn’t delivering the right results today.

This is because, as partially pointed out by Bob, at most organizations, strategic sourcing is:

• tactical procurement with bells and whistles,
• dumbed down to the point where the process is not strategic, and
• a bunch of supply management processes shoddily slapped together without any coherent strategy in hopes that the whole will be more than the sum of the parts.

Until organizations employ true, modern, strategic sourcing, they will never see the right results.

Flaws in a process sometimes lead to the destruction of overall, or system wide, value.

You can do a bang up job defining your sourcing strategy, defining the process, selecting an initial supply base, conducting a sourcing event, making an award, and drafting a contract only to see it all go to hell when the supplier delivers an inferior product that starts failing en-masse when it hits your user base or a product that poisons your customers. One flaw in quality control brings down the whole supply chain, which pulls the business down with it.

If we are to maximize results, at some point we must address the process itself.

As noted by William and Jason in particular, you can’t just take someone else’s strategic sourcing process and run with it, because the process has to be customized to your organization and your organizational strategy. Furthermore, as Dalip implies, if everyone else is implementing a particular process, it’s a commodity, and therefore not strategic. The process must be implemented correctly, and it must grow and evolve over time as the needs and strategic foci of the organization change.

Many organizations do need next practices.

“Best practices” don’t stay best practices forever. They must be evolved or replaced with new best practices on a regular basis, or they go stale. At one point, paper RFQ packages was a best practice. That’s a stone-age practice today. Then electronic Excel bid packages sent through e-mail. That’s bronze age technology. Today, it’s on-line, real-time, web-based bidding and negotiation platforms. (In other words, some of us have finally reached the iron age!)

While cost cannot be ignored, we firmly believe that a process rooted in cost can never be a strategic process (unless the organizational strategy is to compete solely on cost).

You can’t focus on cost if you are competing on value. ‘Nuff said.

Unless we start expanding our pool of stakeholders to start considering our stakeholders’ stakeholders’ stakeholders needs, and start with those needs, we will never uncover these value contributors.

Unless we’re meeting the needs of all organizational stakeholders and the end customers, we have not yet reached true maturity in our strategic sourcing process and we aren’t making the right trade-offs.

The conceptual frameworks of Total Value Management (TVM) and Demand Driven Value Networks (DDVN) go the furthest in extending current thinking.

I’ve been telling you for years that you need to move from TCO to TVM.To borrow a phrase, hallelujah.

Plus, if you read very carefully, you’ll realize that Dalip doesn’t truly believe Strategic Sourcing is Dead, just that the current, shoddy, implementation that is common at way too many companies that have not yet learned what true strategic sourcing is (and made the leaps necessary for a proper implementation thereof) needs to die. Dalip was just using shock value to bring attention to a subject that we’ve become too complacent with. As astutely observed by William, Dalip was masquerading his thoughts behind buzzwords, round table discussions and slogans to grab your attention. The lack of proper strategic sourcing processes across organizations of all sizes is a big problem, and one we need to collectively address. After all, if there are still Billion dollar plus publicly traded internationals that allow administrative assistants, IT gurus, and marketing people with no formal procurement training to manage million dollar spends, as pointed out by Joe, collectively, we have a problem!

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In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers. Then, in Part II, we noted that of all the responses, only one blogger got it right. Joe Payne, the quiet cub among the roaring lions was the only one who didn’t miss the point. He was the only one to note that at most companies, the concept of strategic sourcing hasn’t even been born yet.

As Geoffrey Moore Moore would say, strategic sourcing has yet to cross the chasm. As a result, it can’t be dead as it has yet to be born at the majority of companies. However, as noted in Part II, that isn’t to say that the other bloggers didn’t make a number of good points that should be highlighted (just that they didn’t hit upon the most important point). In this post, we’ll address those points (along with the points they got wrong) so that you can gain a better understanding of what strategic sourcing truly is.

1st Runner Up: William Dorn

When William said that the sourcing process was only fundamentally flawed if you follow the original A.T. Kearney 7 Step Sourcing Process without adapting it to your own needs, he effectively squashed Dalip’s claim that the Strategic Sourcing Process is fundamentally flawed. There’s nothing wrong with the process itself, the problem is with the application. That’s why the process has so often failed to deliver the intended results and why we’ve even seen unintended consequences that destroyed value throughout the chain. We don’t need a replacement for the process itself, we need a new way to explain the process, and a new methodology for incorporating it into Supply Management departments at companies large and small alike as it is clear that most companies trying to do strategic sourcing just don’t get it. And while the few leaders who have been doing it right for over a decade might need “next practices” to take their game to the next level, most organizations aren’t even ready for “best practices”.

2nd Runner Up: Robert A Rudzki

Bob quickly realized that the whole debate was moot and sidestepped the question as he knows that most organizations who claim to do strategic sourcing aren’t doing it at all, instead “dumbing down” the process to a nonstrategic, tactical ghost of what it is supposed to be or adding a few bells and whistles to their current process and calling it “strategic”.

Jason Busch

When Jason said that the five, seven, or nine step strategic sourcing process never goes away [at companies that do proper strategic sourcing], 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 he demonstrated that he understood, like William, that a true strategic sourcing process is not only molded to the organization, but evolves over time. However, when he unconditionally implies that a focus on total cost can be a “growth driver” for businesses, he only gets it half right. William was much closer when he implied that cost is an acceptable strategy by pointing out that some companies, like Acer and Asus in consumer electronics, compete on cost alone. A focus on cost is a growth driver only when it aligns with a cost-centric business strategy. If the business is about offering an undifferentiated product at a lower price, cost reductions will drive growth. But if the business strategy is about offering differentiated products with a high social value (like Apple), a focus on cost can be very detrimental if quality or perceived value is compromised (and it affects the organization’s ability to extract a premium for its products).

David Henshall was right when he said that strategic sourcing is a necessary early step in the development of procurement maturity, but wrong when he seemed to imply that a mature organization progresses beyond strategic sourcing. You never progress beyond the need for strategic sourcing, however, your interpretation and understanding of what strategic sourcing is continually evolves to the point where the initial implementation of the process hardly looks strategic at all when you look back.

Tim Cummins was right-on when he noted that, in general, most Supply Management organizations are not significantly relationship oriented, and that they need to become more relationship oriented, but wrong when he implied that forming a Trading Relationship Enablement Group (TREG) is the answer. The answer, as David seems to imply, depends on the category. For some categories, close, strategic relationships will be integral for success. For others, arms length relationships with a very competitive supply base (consisting of multiple suppliers) will be the answer. “Strategic” means that one size doesn’t fit all with respect to organizations or categories.

Josh Dials was right when he said the key to success was a true front-to-back sourcing strategy and dead-on when he said that the process also needs to include (true) spend analysis and decision optimization, but wrong when he implied that an end-to-end sourcing suite alone solves the problem. What about risk identification and mitigation? Up-front relationship building? NPD influence? While the proper sourcing platform is a necessary^* enabler, it’s not sufficient in and of itself for true strategic sourcing success.

So what did Dalip get right?

We’ll discuss that in Part IV.

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^* Despite ill-formed beliefs to the contrary, Microsoft Access and Microsoft Excel is not enough.

In Part I, we noted how Dalip Raheja of The Mpower Group decided to stir the global hornet’s nest last month by declaring that Strategic Sourcing is Dead and that The Sourcing Emperor Has No Clothes. This was quickly picked up across the supply management blog-sphere and resulted in powerful reactions from a number of prominent bloggers, including most of the heavyweights.

So who is right? Did Jason Busch (of Spend Matters) get it right when he insisted that “Strategic Sourcing Ain’t Dead, Regardless of What the Naysayers Suggest?” How about Robert A. Rudzki (of Greybeard Advisors and author of Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise) who focussed on “Returning the “Strategic” to Strategic Sourcing” (on Spend Matters)? Or Tim Cummins’ (who leads the IACCM) who lamented The Death Of Procurement: Nightmare or Nirvana?Then there was Steve Hall (of the Procurement Leaders Blog) who lamented on the “Rumours of the Death of Strategic Sourcing”, Dave Henshall (of Purchasing Practice) who addressed Procurement 2.0 – and Other Labels, Josh Dials (of Iasta) who said it’s time to ‘Put “Strategic” Back into your Strategic Sourcing’ (on eSourcing Forum), Joe Payne (of Source One Management Services) who shouted that “Strategic Sourcing Lives On!” (on the Strategic Sourceror),  and William Dorn (of Source One Management Services) who ranted that “Strategic Sourcing is Alive and Kicking”.

Only one person got it right. It wasn’t the Spend Matters prophet, Jason, the Greybeard Advisor, Bob, or the global contracting king, Tim. It wasn’t practice leaders Dave Henshall, William Dorn, or Dalip Raheja. It wasn’t Iasta’s newest blogger, Josh Dials, and it wasn’t the Procurement Leader advocate Steve Hall either. That’s right, it was:

Joe Payne. Source One’s Director of Strategic Sourcing, the cub among the lions, who rarely speaks up (and posts maybe twice a month) was the only who got it right. While everyone was arguing alive-vs-dead, cost-vs-value, fixed-vs-variable, etc. Joe was the only one who hit the nail on the head with his hammer by pointing out the one key fact that makes the whole debate moot:

At most companies, the concept of strategic sourcing hasn’t even been born yet. As Geoffrey Moore would say, strategic sourcing has yet to cross the chasm. This is true not only in the mid-market, which has just started to tune into sourcing and e-Sourcing, but, as Joe points out, at a large number of Billion-dollar multi-nationals as well. Even today, in 2010, strategic sourcing is still only being used at the leaders and innovators, which is never more than 20% of the market, and often not more than 10%. (This is clarified by the fact that the vast majority of companies still don’t use true spend analysis or decision optimization, the only technologies that allow you to strategically select the categories with the largest opportunities and analyze not only the total cost, but the total value of a proposed award, and the only two technologies proven to deliver double-digit returns, on average, every time they are used, with 11% for true spend analysis and 12% for decision optimization.)

This isn’t to say that the other contestants, and the heavyweights in particular, didn’t make some good points, as most of them did, but that many of them missed the key point. (Furthermore, just about everyone got something wrong too.) An idea can’t die before it’s born, and while you can argue that the continual evolution that is required as the organization gains maturity implies a continual death of ideas (until the original idea is barely recognizable), it also implies a continual rebirth of ideas.

So how did the other contestants fare?

I’ll let you know in Part III.

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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.

Starting with Tim Cummins’ (of the IACCM) post on The Death Of Procurement: Nightmare or Nirvana?, we have seen input from

• Robert A. Rudzki (of Greybeard Advisors) who tackled “Returning the “Strategic” to Strategic Sourcing” on SpendMatters
• 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” (on the e-Sourcing Forum)
• 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!” on the Strategic Sourceror and
• William Dorn (of Source One Management Services) who ranted that “Strategic Sourcing is Alive and Kicking” on the Strategic Sourceror.

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.

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