Many companies have a Strategic Sourcing Department, however, many Business Units (BU’s) still try their best to circumvent the process by procuring products and services as they have done in the past. What is the reason for this and how do we change this mindset?
“Strategic Sourcing is not a new concept in the industry. Due to financial pressures from an ever changing marketplace, the target of increased profit margins and the demand to reduce costs, many organisations choose to focus on large cost areas. Hence, the creation of a department that can solely focus across the BU’s on procurement related activities. Strategic Sourcing’s primary function is thus to achieve better deals and more savings”, Arno le Roux, Senior Sourcing Specialist at Volition Consulting Services, told SmartProcurement.
What are the reasons for the resistance from BU’s to accept the help of strategic sourcing and rather wanting to procure goods / services themselves?
- Fear of Change – BU’s are notorious for keeping their kingdoms separate from other units. They are managed on specific measurements and therefore are reluctant to do things differently. They have done things a certain way for numerous years. And, as it has worked before, why change? The BU does not necessarily understand the benefits that strategic sourcing brings and fears the change will highlight inefficiencies or bad practise – reflecting badly on their own jobs and purpose.
- Control – A BU seldom wants to relinquish control of the things that are in their domain. They are measured on specific aspects, which influence their performance remuneration, bonuses, etc. By having another department intervening with their suppliers, they feel that they will be losing control of the key aspects. This will, once again, impact on the ability of BU’s to do their jobs and may potentially put their efforts in a negative light.
- Relationships with Suppliers – Some BU’s have had a fantastic relationship with their core suppliers over a number of years. These suppliers have had a good run with the organisation and things are running smoothly. The supplier, as well as the BU, sees no reason to make any changes. The BU will try to protect the supplier based on this relationship, which includes their smoothly run operation.
- Hiding Dishonest Practices – Sometimes resistance occurs purely for the reason that BU’s are aware that they have not had the best deal with the supplier, but has indirectly or directly gained from the relationship. Or, the person that has negotiated the deal, has come to learn that they got a bad deal which is costing them money and is afraid that this will reflect badly on them.
- The Perception of ‘Glory Boys’ – Strategic Sourcing normally has a task of putting together the best deals for the organisation. This normally brings significant savings which makes them the ‘glory boys’. This success sometimes makes the other BU’s uncomfortable as they see this as a reflection on their own personal ability.
- Savings vs. Process – Due to the fact that strategic sourcing functions are focussed and measured on savings achieved, they sometimes have no regard for the process elements. They only focus on signing the contract that brings the most value. Some processes are clearly ineffective and should be addressed, but that is not the focus area for strategic sourcing.
Once a Strategic Sourcing Department has been created, their function is to assist the business to get the best potential deal in place. So how does strategic sourcing convince the BU’s that they can add value by assisting in the business requirements when it comes to procurement and sourcing?
- Executive Buy-In – Most importantly, strategic sourcing needs the unequivocal support of the executive team in the organisation. If executive management supports strategic sourcing openly and are willing to lay down the law to those BU that are resisting, then the battle is half won.
- Quick Wins & Publicising It! – Ideally, strategic sourcing should target the quick win opportunities. Once they have achieved success with these, they must make sure that it gets communicated to the rest of the business. These bragging rights, if used correctly, can swing perception in strategic sourcing’s favour and will bring more interested parties that are willing to participate.
- Buying vs. Procuring – One aspect that should be clearly communicated is that strategic sourcing will establish the contract with the supplier, and that the BU might continue to do their operational buying off this contract. Therefore, strategic sourcing does not necessarily have to interfere with the BU’s daily operational activities, although it may still make sense for the actual ‘procure-to-pay’ process to reside outside of the actual business unit.
- Freeing Resources to Focus on their Roles – Strategic Sourcing professionals are specialists with regards to the sourcing process. They are skilled in analysis and negotiation. With that focus on the process of sourcing, it frees up the BU staff to perform their own specialised tasks.
- Corporate Governance – A lot of sensitive issues needs to be addressed in a procurement process. These issues are normally addressed through a corporate governance structure that needs to be adhered to, in order to protect the organisation against legal action or heated debates as to the process involved. This is sometimes seen as a lot of ‘red tape’ from the BU, as they do not always understand the impact. Strategic Sourcing complies with these corporate governance aspects through a set methodology that they follow.
- Consolidation of Volume – In many businesses, the various BU’s have no visibility of what the others are buying. They might be buying the same commodity, off different agreements at different prices. Strategic Sourcing has a view of the commodity across the business and can therefore negotiate on behalf of the whole business, providing a better deal.
In closing, strategic sourcing plays a valuable role in providing the whole business with the specialist skills and methodologies necessary to perform the procurement and sourcing activities efficiently. If embraced by all stakeholders of the organisation, the benefits of strategic sourcing could be increased.
Article submitted by Arno le Roux, Senior Sourcing Specialist at Volition Consulting Services.