Profit from Procurement

3SOURCING EXECUTION: Making Sure That the Engine Room Delivers

Strategic Sourcing is the engine room of good Procurement and lies at the heart of maximizing its impact. However, the term is much abused and badly understood. In particular, the difference between good sourcing and bad sourcing is fundamental, and people often don't know the difference.

So, what exactly is “Strategic Sourcing?” It's not rocket science, it's really just a logical, structured, holistic way to take out large swaths of external cost. It's called a seven-step process (or similar) by the consultancies, based on Kearney's methodology developed at General Motors in the 1980s. It was a way for buyers and engineers at GM to work together to engineer and source out cost. It proved to be a winning formula, because in the GM scenario they found they could optimize the specification, and when they went out to market they had the internal customer (the engineer) on the same team and fully aligned, which improved their leverage with the suppliers. So, the magic right from Day One lay in the fact that Strategic Sourcing (or Global Sourcing, as they called it at the time) was cross-functional in nature…the user and the commercial guy, working together to optimize the total cost of the component.

We would categorize Strategic Sourcing as: holistic (addressing the entire annualized spend and working all levers, including specifications), structured, stakeholder intensive (constant communication with, and agreement ...