By David Clevenger
Over the past 15 years strategic sourcing emerged as a leading methodology and ultimately became a standard practice across the global corporate procurement landscape. Originally designed and promoted by top consultants at McKinsey Associates, A.T. Kearney and others, and later accelerated by e-commerce providers; the discipline fundamentally altered the way that companies purchased everything from custom components to paper clips.
The results of this activity have been far-reaching, but perhaps most notable was the impact of the practice on the vendor community. By restructuring the process through which requirements were being fulfilled, suppliers’ offerings were, to a great extent, commoditized.
Process and technology combined to limit suppliers’ abilities to “work the system.” Requirements were being better defined, suppliers better qualified, negotiations more transparent, and the resulting market dynamic put providers in a box. The intent of strategic sourcing wasn’t to ignore the value of a supplier’s total offering, it was simply to quantify it.
The success of this approach, like so many other professional practices, was propelled by the consulting industry. This was due in large part to the fact that there was a tremendous amount of money to be made in executing strategic sourcing projects. This is not meant to question the viability or the earnestness of these recommendations; on the contrary, the consultants were thought-leaders who saw a need and designed a solution. In the spirit of full disclosure, I should mention the fact that I have collected a few of those strategic sourcing consulting dollars myself.
Strategic sourcing as a solution, however, is beginning to show its age – or at least its limitations. In perhaps the ultimate irony, the process that commoditized nearly every spend category it touched has itself become a commodity. As a skill and a process, strategic sourcing and its related tool set now have a clearly defined value. No longer are these capabilities the high-priced intellectual domain of a handful of consultants; nearly every Global 2000 company practices comprehensive strategic sourcing – and has for a number of years.
The thrust of this commoditization is that the piece-price savings aspect of nearly everything a company procures has been exhausted. The low-hanging fruit has been harvested several times over, and the rest of the tree is beginning to look pretty bare. Spend management professionals can only reduce costs through sourcing to a certain extent or risk disrupting their business or bankrupting their suppliers.
As the function of strategic sourcing has been commoditized, its importance to the overall spend management process continues to ebb. The future of spend management lies in a combination of advanced supplier and contract management, combined with sophisticated supplier development and analytics to identify and quantify new generations of savings to buying organizations.
Everyone Who Wants to Change Suppliers Raise Your Hand
There was never any mystery about why an organization should employ strategic sourcing processes; companies needed a more effective way to drive savings to their bottom lines. Indirect spend management was an undiscovered science, and the time to rationalize those markets had long since passed. Strategic sourcing was a great solution to that problem, and the application of those principles successfully helped to bring services and indirect goods markets into line.
That same application has left spend management professionals with a “now what” scenario that strategic sourcing does not address. With strategic sourcing having been applied to indirect categories over three to five iterations, there is no more low-hanging fruit. Yet economic conditions have created even more pressure on companies to save money. This dilemma calls for a new way of thinking, one that in some ways is counter to the ideals of strategic sourcing.