In a recent Industry Week article, it was suggested that it is time to move away from Strategic Sourcing and to return to working with suppliers to create and maintain mutually beneficial relationships

Strategic Sourcing is loosely defined as the practice of establishing annual cost reduction percentage targets and pretty much doing whatever it takes to make the number, with all other aspects of the procurement transaction taking a back seat. It is easy to believe that the pendulum has swung too far and needs to swing back a bit. While the argument is very valid, the caveat needs to be, that things can get too comfortable and cozy with supplier relationships, and that is detrimental also.

Strategic Sourcing needs to be much more than that. Annual cost reduction goals are a very productive tool, contributing to the corporate bottom line, which is why we are all here, right? Supplier relationships should also contribute to the bottom line, but it may be in a less direct, but possibly more valuable way than direct price concessions.

It can be difficult to quantify, but there is value in improved quality, flawless delivery performance, shorter supply chains, lower transportation costs, reduced lead times and inventories, the ability to help engineer and improve new products, and a myriad of other costs of acquisition.

The focus needs to be on total cost of acquisition, including price, quality, delivery and service. Strategic Sourcing needs to be about using all the tools available to achieve all of the above, in both the short and long term. To a repairman with only a hammer, everything looks like a nail. Certainly, there is a place for reverse auctions on the internet, driving for the lowest global price on a commodity item, and that is but one tool. Supplier relationships are also an indispensable tool in highly technical products that are only available from a limited number of suppliers. Are we buying ear plugs for the shop floor, or a laser guidance system for a CAT scanner? The tool needs to fit the job, and Strategic Sourcing should be the process that determines the appropriate tools and applies them effectively. The trick is to properly identify the material being purchased, its contribution to the final product specifications, the supply base available, it's relative value, the cost of poor quality, etc. Then the appropriate tools can be applied to achieve the lowest total cost of acquisition through Strategic Sourcing.

What type of tools do you use to make your Strategic Sourcing World Class?

Editor's Note: CR4 would like to thank Gordon Roberts of GEA Consulting for contributing this blog entry in conjunction with Ed Eisermann and Doug Hunsley of GEA Consulting.