Strategic Sourcing: A Science or an Art!

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A few years ago, one of my professional mentors said to me – Strategic Sourcing is not about trying harder; it is about working with your partners to create leverage and present multiple options which you successively scale down until you reach equilibrium. This has truck with me, ever since; and truly it doesn’t even matter how creatively (artistically) or scientifically we sourcing professionals create these options for our stakeholders working with the vendor universe in question.

  • Requirements, Requirements & Requirements!

It always starts with the business requirements, just like any real estate has to have 3 important characteristics – Location, Location & Location – in our case, every requisition has to have – Requirements, Requirements & Requirements!  I get surprised in most cases, how little in-depth the business partners tend to think about what they really want, how much, by when, what if they don’t get it, how would it impact the existing eco-system, are there any associated implementation costs involved, any system they are transitioning from, criticality of services, so on and so forth.

It is an art to be able to ask these penetrative questions for sourcing professionals; and it’s the responsibility of every organization to provide the ability to their sourcing department to question (for their own benefit)!

As internal trusted advisers, it’s absolutely imperative that sourcing professionals achieve absolute understanding of the business requirements and should be able to define them in as simple a way as to make a kid understand; know what is driving the urgency, who would be the end users, what and how the data is being exchanged and what the data-flow would look like, what is the confidentiality of data in question, are there safeguards in place for data protection/destruction, etc.

  • “Need” Vs “Good-to-have”!

It’s paramount that the centralized procurement department weeds out “Good-to-have” requests cloaked as absolute “Need(s)”. We should never forget that every dollar that is not spent is a dollar added to your organization’s bottom line. Let me not even remind you, what all an organization has to go through to earn that dollar from a new customer out in the competitive market.

  • Right-size or Right-spec!

Ever wondered, why we as consumers tend to purchase the latest and the hottest in the market? Do we ever question, why we need those specific specifications or what specs would be good enough for us? Just because a smartphone has speakers on both ends, does it make it any more useful than one which doesn’t? Do all the employees in an organization require fully loaded by light weight latest Macs?

Similarly, do we always require 365X24X7 top tier support for all our systems? Should the support coverage not depend on the criticality of the system?  So many times, we do not even ask these questions and do not even explore if the support providers have any lower tiers to offer.

  • Can it wait? Right-time!

Understanding the hard timing of the validated requirements is absolutely critical. It’s important to remember, that whoever has the ability to time a deal, has the power to influence the negotiations. Ever faced a situation, where a monopolistic license OEM is refusing to budge on a new purchase; try pushing the deal to close near their quarter-end or year-end and you will be surprised how helpful and responsive they suddenly become.

  • How will it end? All good deals, come to an end…eventually!

The ability to think/action strategically means to be able to think far ahead in the future of potential conflicts and risks and be able to mitigate them by seeding in something in the present agreement to be able to avoid issues later. Quality of any deal/agreement, can be simply judged by how clean it’s potential termination would be; and being able to deny any money making possibility by lawyers on either side of the table.

Though it is easier said than done; these few items help the cause – clearly spelt out termination/out clauses, prior legal review of the termination clauses (auto-renewal, etc.), pre-negotiated early termination fee in case of very long term deals, clause for distribution of physical and intellectual property assets between parties, transition assistance (and it’s ability to extend on paid basis), updated address for notices, mode of serving the notice and how many days in advance, etc.

  • It takes at least two to agree! That’s an “Agreement”…

So many times, in our zeal to negotiate we forget the very primary requirement for any “Agreement” i.e. all parties in question need to “Agree”. It sounds so banal, yet is so profound.

We may have our set of asks, and set of requirements from our viewpoint; it’s important to understand which of these are critical/non-negotiable and which one’s can be bartered to push the deal forward towards closure. More, often than not the “Agreement” happens to lie somewhere in between us and them. The earlier, we find that point the quicker both parties win.

  • Leave something on the table! Remember, beyond a point…quality WILL suffer.

A few years into the sourcing world, I discovered a new power and that was the ability to shred any service/product in it’s absolute bare components pricing wise and then to use that knowledge to try negotiate down to that level.

Experience has proven that above is not an absolute winning strategy; in most cases the above will almost surely come back to bite in terms of lower quality of service; if which is unfortunately found by our end-customer is sure to affect our brand negatively. Hence, Benjamin Franklin’s famous quote – “The bitterness of poor quality remains long after the sweetness of low price is forgotten.”

It’s difficult to get a sense of how much negotiation is enough; but it’s important too. Pressing unrealistic demands of pricing and delivery deadlines on to the vendors might work sometimes but definitely is a recipe for disaster over long term.

  • Develop the small vendor ecosystem…to make the vendor universe a better place!

Last but not the least, let us try and help develop a more diverse and productive vendor universe by helping small vendors to innovate in our own way, just the way someone let Steve Jobs and Bill Gates do their thing!

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