Sourcing and Strategy Part 1

One of the most ubiquitous terms that exists in the business world is the term 'Sourcing". Perform a search for the term "Strategic Sourcing" and you will come across a whole multiverse (multiple universes) of related terms, procurement, six sigma, lean, procurement, vendor relationship, risk management, procurement, buyer,  purchasing and my favorite all time, smart buying!Now which HR department dreamed that one up!

It must be that this profession requires a certain degree of schizophrenia! Never has one profession seemed to require a person to wear so many different hats within the same function. But I digress. In this blog, the focus is on strategic sourcing and what it really is as opposed to what a set of HR practitioners have over time decided to call this function and how it sits within the strategic management function of an organization. And therein lies the genesis of the confusion, Traditionally Supply Chain, the organization, as opposed to the function, has been viewed as a cost center and almost always sat within the Finance organization. It's function historically was a fairly straight forward. The engineers in the product team came up with some new gizmo product line but hey someone needs to buy the ball bearings from Tennessee and the 6 inch customized bolts from Illinois so they shot those specs over to the Supply Chain group and let them have at it. And so the sourcing was really a buying or purchasing function with the added stress level of getting discounts for bulk purchases! And if the bolts and bearings would get delivered in 90 days. Well there was Christmas come early!

The just in time model pioneered by among others, Toyota, was really the genesis of the change in the sourcing model and the advent of what may be referred to as strategic sourcing. All of a sudden there was a focus on time, cost, AND quality! TOGETHER! (the horror!) Reduction in inventory and in customer wait times for delivery coupled with an increased focus on quality improvement meant that all of a sudden, Joe the buyer's role took on added significance, a strategic significance, literally a quantum leap from what had hitherto been a purely process function. I will call this stage in the evolution of strategic sourcing, the homo habilis stage.

A majority of companies however failed to grasp the correlation. They focused all the management improvement process in the products and marketing departments but failed to see the correlation between supply chain and strategic goals.  Companies like GE that quickly grasped the competitive advantage that could be gleaned from a sourcing model more aligned with company objectives and that quickly aligned their Supply Chain as such were and have been able to maintain distance over rival competitors for eons. And while most organizations now pay lip service to the notion by having multiple 'strategic sourcing" roles all the way to VP level, it is really very few that have embraced this notion to the industry disruption levels it can be. Granted too that a lot of folks who consider themselves 'sourcing experts" are nothing more than glorified buyers. And the way to easily spot the difference is to ask what the company's five year strategic positioning is. A strategic sourcing manager must be aligned with the organization's development arc to realize any meaningful value. The role is not backward looking or even present looking. It is forward looking!

The CEO