In recent years, sourcing leaders have been firsthand witnesses to the dramatic impact that globalization and open trade have had on their organizations. These forces have combined to simultaneously expand their supply chains and tighten the economic linkage to their trading partners. Companies in all regions and of all sizes are increasingly global and the need to support business relationships with global trading partners has become a priority of the first order. And, while globalization, innovation, and the resulting increase in competition have helped to streamline and improve business performance, they have also served to increase business volatility and supply management complexity.
Against the backdrop of rapidly evolving supply chains (and customer bases), how organizations communicate, collaborate, and transact with their trading partners and the enabling platforms that they utilize will take on increasing importance to business operations. When it comes to managing supplier relationships, sourcing professionals are on the front lines and how well they perform their duties can have a huge and lasting impact on the overall success of the business.
Consider that the pace of change in certain supply markets and the dramatic shortening of the average product’s lifecycle. The supplier or product that was exciting and innovative five years ago could very well be an after-thought in today’s market. And, while this trend is readily apparent in certain markets and industries, it would be naive to think that most major categories have not been impacted by the speed of business. As this trend accelerates across the average enterprise’s spend categories, the percentage turnover or churn of the average supply base over three and five-year periods will and should increase.
Sourcing in 2018: Being Competitive Means Being Collaborative
In this market, competent and efficient sourcing, in the traditional sense, remains very important, but leaves significant opportunity for improvement and upside value. Collaborative sourcing, which blends traditional sourcing approaches with more robust category strategies, more penetrating views of supply markets, and deeper collaborative ties with suppliers is how the next generation of sourcing professionals will keep the business charging forward today while preparing to meet tomorrow’s top challenges.
The need for sourcing teams to employ a collaborative sourcing approach and begin to unlock the next level of value from their efforts is based upon several core assumptions:
- Procurement departments and their sourcing teams have defined or limited budgets and resources
- Expanding the scope of high-value sourcing activities across a wider range of spend, categories, and business units is desired
- No enterprise has cornered the market on innovation within its industry or supply chain
Internal Collaboration, Category Management, and Compliance
For some sourcing and procurement professionals, business operations outside the procurement department can appear daunting. Yet, when they actually participate in the staff meetings and planning sessions of different business units or become active participants in the budgeting process, they begin to better understand the objectives and priorities of the business and how the business rewards its staff. Sourcing professionals with that level of access are able to develop a much better understanding of the business’ needs and execute plans that support them.
At a minimum, increased access and superior interaction provides greater lead times to react to business needs, which should ultimately aid team performance. Integration with the business also increases the likelihood of formal and proactive engagement with business teams and an opportunity to place more spend under management and more spend into a formal sourcing process. Working side-by-side with the business professionals on key operational projects has the added benefit of improving the credibility and general standing of the procurement department.
Supplier Collaboration and Innovation
If procurement leaders believe that innovation can occur beyond the walls of their enterprise, suppliers should be viewed as a source of knowledge and expertise that can be leveraged to competitive advantage and mutual gain. Changing the construct of the traditional buyer-supplier relationship and working to build more collaborative relationships with key suppliers takes a commitment of time and resources from both sides and a deliberate effort to re-frame or overhaul old views. One of the challenges in developing stronger ties with current suppliers is that the aftermath of a lengthy and protracted contract negotiation can be a difficult time to begin building a relationship that must be built on communication and trust if it is to flourish. Nonetheless, enterprises that have begun to pursue this collaborative approach are already reporting that they are finding more supplier improvement and innovation opportunities and that their suppliers are more likely to invest in the relationship. These indications signal larger opportunities ahead as more enterprises begin to adopt collaborative sourcing strategies.
In the field of international relations, the parable of the stag hunt is used to describe and explain the dynamics, opportunities, and risks of collaboration versus competition. If countries (or in this case, buyers, line-of-business users, and suppliers) collaborate to hunt big game, like deer, the reward can be mighty: if they are successful, every member of the hunting party will take home their fair share. But if party members break off to pursue small game, like rabbits, then the rewards will be smaller and each party will be a competitor.
In the realm of sourcing, going it alone may seem like the natural and rational thing to do, but the risks often outweigh the rewards. Meanwhile, sourcing organizations that have adopted a more collaborative approach are, among other things, helping to develop both new products and lower cost products, identify new markets to enter, and find M&A targets in the supply base. There’s something for every one to gain in the hunt.
Post Script: Ardent Partners recently published a new sourcing-themed report, Beyond Price: Finding the Right Suppliers Using Sophisticated Sourcing Strategies, sponsored by EC Sourcing Group. If you would like to access the report, it is available for download here (registration required).