Supplier Consolidation Vs Sourcing

In a Sourcing team meeting at a client I recently worked for, a senior Sourcing Manager lamented that instead of “Sourcing” they were merely consolidating suppliers. A pretty insightful statement! And it is true for many organizations where the central focus of “Sourcing” is just to achieve greater volume leverage during negotiations, and using that leverage to get a better purchase-price from a subset of incumbent suppliers. This pure ‘purchase-price reduction by supplier consolidation’ approach does have its merits, but is this what sourcing is all about?
The best-in-class Sourcing organizations do not think so. For them, Sourcing starts way early, with an analysis of spend by categories, and the creation of a sound organizational sourcing strategy which also places emphasis on factors like cycle times, standardization, compliance etc., rather than just purchase price. This is followed by prioritization of sourcing categories, supplier prospecting, and an RFx process that adheres to the sourcing strategy. The result being that such organizations are able to identify and establish a long-term, high-benefit relationship with suppliers which helps achieve lowest total cost, and gives best results on product development, quality and services. The pure purchase-price saving on goods and services is just one of the many benefits.

The client that I quoted earlier, is already on its way to become a “sourcing organization”. Using simple IT tools, they now have a clearer understanding of their spend categories. This has led to a better prioritization of categories for sourcing. An emphasis on long-term supplier relationships has opened up opportunities for collaboration in new product development while inclusion of non-cost parameters in RFx scoring has ensured that quality and compliance are not compromised upon. And yes … the pure purchase-price savings are getting better too.


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