“The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”
– Sir Albert Einstein
Procuring materials with the intention of production, sales and service fulfilment is a given for every single business. Each sourcing leader chooses from a variety of strategies to achieve this. In order to make the difference, organisations take several strategic steps to transform the thought process from traditional purchase to the beneficial modern day Vested model.
Earlier, traditional purchasing used to be a support functions in organisation, which focused on transactions between a buyer and suppliers. The objective of the purchasing manager was to go the market, ask for quotations based on customer needs and award the contract to the lowest quoting supplier. The science of traditional procurement depended upon the following skills:
• Cost: Lowest possible cost per unit
• Quality–quantity: High volumes for generating mass discount
• Skills: Negotiation, analytical and proficiency skills
• Location: Locally known supplier base
• Procedure: What to buy and from whom
• Relationship: Based on acquaintanceship
• Effective supplier performance: Completing activities and achieving goals by doing the right things
• Adjustments: Reactive approaches for failure improvement
This method lacked visibility and often missed the opportunities of collaboration and cost synergies. It also failed to integrate and coordinate between local and global domains and resources involving monetary, human, informational, etc.
The challenges were soon felt by large corporations, which slowly gave rise to the concept of ‘Strategic Sourcing’. The reasons for these progressions are regional non-existence of suppliers and resources, cooperative growth, customer- and supplier-base expansion as well as the attempt to cut cost and overcome domestic supply chain disruptions or statutory restrictions. A key difference is that strategic sourcing focuses on converging and sustaining buyer-supplier relationships. The objective is to leverage them, exploit mutual capabilities, and integrate and complement the core competencies of various partners in the supply chain (interdependence) in order to provide value, cost efficiencies and uniqueness to the customer.
The concept of strategic sourcing provides these advantages:
• Cost: Best possible value and total cost of ownership
• Quality-quantity: Highest possible quality for lowest possible cost
• Skillset: Soft negotiating, solving, collaborating, cross-functional skills based on mutual respect and compromises
• Location: Global supplier network
• Procedure: Requesting and comparing for identifying best cost-quality-service-offer
• Relationship: Intense and sustainable
• Efficient supplier performance: Lean approach, achieving higher outputs, with minimum inputs, by doing the things right things
As strategic sourcing incorporates strategic dimensions and capabilities of suppliers — such as an emphasis on quality management practices, process capabilities, design and development, and cost reduction capabilities — into the decision-making process, it is possible to achieve accurate information and best-in-class market results.
Lastly, with technology and network evaluation, a new dimension, Vested Outsourcing, has disrupted sourcing methods. Coined at the University of Tennessee in the US, this dimension is slowly gaining traction among industry leaders. The concept was built around the simple Win-Win principle, which moves around shared risks and rewards. It can be further classified into four indicators:
1) Specific performance outcome
2) Prioritising internal efforts
3) Developing solutions under mutual discussions
4) Motivated to improve processes and decrease costs
To sum up, Vested Outsourcing involves three key drivers — an inspiring partnership built on loyalty, trust, empowerment and stability; mutual profitability based on growth, multi-services and cost to service; and transparency based on communication, proactive and share innovation.