Ask anyone in procurement “What is the goal of strategic sourcing?” and their reply is likely to include the phrase “to save money.” And that is commonly the #1 goal of strategic sourcing. But it’s problematic when procurement departments treat it as the only goal.
For sourcing to be truly strategic, it must accomplish more than just saving money. It must bring value to the organization in many other ways. Here are four goals commonly missing from strategic sourcing initiatives:
Goal #2: To reduce risk. The international news constantly reminds us that natural disasters, political upheavals, and other events make doing business exclusively in certain parts of the world a risky approach. Strategic sourcing should enable you to sustain continuity of supply in the face of unexpected disruption to the operations of one or more suppliers.
Goal #3: To improve supplier performance. Reducing the unit price you pay on purchase orders is nice, but it is meaningless if your organization has to deal with frequent late deliveries, an unacceptable number of quality defects, and poor supplier service. Strategic sourcing is only truly successful when you achieve both cost reduction and an improvement in supplier performance.
Goal #4: To bring in innovations from the supply base. In today’s competitive business environment, organizations need a constant flow of innovative ideas in order to keep their competitors from stealing their market share. Suppliers can be a great source of innovative ideas and a good strategic sourcing process will ensure that the flow of such ideas is facilitated.
Goal #5: To support the organization’s social responsibility goals. Today’s organizations support diversity, environmental responsibility, and other philanthropic goals. Decisions made as part of strategic sourcing should consciously help move the organization towards those goals and not away from them.
So, as you can see, saving money is not THE goal of strategic sourcing. It is one of several important goals.