The dangers of ‘strategic sourcing’
Steam was coming out of the Head of Strategy’s ears.
“@$%*@ strategic sourcing!” he said vehemently. He had a problem that he wanted addressed urgently. He knew exactly whom he wanted to work with and had agreed both his availability and fee. But strategic sourcing refused to allow him to hire the guy.
“Your requirements have to go out to three organizations to get competitive quotes,” they said.
“But I don’t want to send sensitive strategy material to three firms, two of which I know today I will not use regardless of their quotes!”
An impasse was reached.
The question this raises is, “How did strategic sourcing get this power to prevent executives from doing what they want to do?”
Let’s remember that ‘strategic sourcing’ is only a fancy name for ‘purchasing’. Back in the 1990s it was (rightly) recognized that there was a massive amount of money to be saved by applying professional techniques to purchasing. Purchasing had tended to be an administrative function rather than one focused on value adding to the organization.
So along came ‘Strategic Sourcing’ to reduce the number of suppliers, improve the contractual terms and negotiate better prices. Great.
However, along the way an important dimension was forgotten—strategic sourcing is only a support function. Its role is to support other parts of the organization get the best outcomes; not to prevent them from getting the outcomes they desire.
True, strategic sourcing needs to be a degree of authority to prevent organizational units from just ‘doing their own thing’, but this should not give it the authority to overrule business decisions.
They should be able to recommend and even escalate issues where necessary to get the best value for the organization, but they should not be able to arbitrarily overrule or frustrate.
The need for practicality
Their strategic sourcing rules need to be business-practical. In one organization where we found a particular purchasing rule was not only irrelevant but also actually costing real money and causing operational delays, the strategic sourcing unit resisted any changes to the rules. “They’re there for a reason,” they argued. Yes, to cause delay and increase costs and angst.
Another favorite area for strategic sourcing is ‘panels of suppliers’. If your preferred vendor is not on the panel then you cannot use them. They may be the world’s best at half the panel’s price but, “No, they’re not on the panel.” Having panels is a good default but should not restrict the options.
Then there is the actual pricing. Many an operational area will know of parts that strategic sourcing has negotiated the price to be, say, $10 yet it can be bought down the road for $5. But, no, you cannot go down the road and save the organization money, you need go through the strategic sourcing negotiated contract process. To do otherwise is called ‘rogue purchasing’—a sin punishable by death or worse.
Support or superior?
Isn’t it time to rein in the power of strategic sourcing? Still use their skills but reassert the business’ authority to get things done rather than spend its time complying with not always relevant strategic sourcing policies.
What do you think?