Stop Thrashing Your Suppliers: Focus on value and profits, not just cost, in the sourcing process

Because external spending is the largest cost center for most companies, many firms have done the obvious things to cut costs in procurement, such as renegotiating contracts with suppliers and consolidating big-volume purchases. But these tactics, which focus on one-time supplier price reductions, cannot drive long-term performance gains.

Managers need an approach that allows them to realize and sustain high returns on their investment in improving the sourcing process. The Value Sourcing approach has helped companies in a variety of industries and regions to achieve both rapid performance enhancement and long-lasting capability development.

Performance enhancement can be achieved on three levels of progressively greater intensity and economic gain – from basic procurement improvements, to consuming better through extended sourcing arrangements, to integrating operations tightly with supplier partners.

To sustain performance gains year after year requires a company to embed this approach within its organization, with attention not just to operational processes but also to measuring performance and building new skills in internal marketing.

The experiences of Renault, Canadian Pacific Railway, and IBM show how Value Sourcing yields high returns, and indeed becomes more powerful as it takes root throughout an enterprise.

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