Value-based Procurement Sourcing Strategy
We already discussed the role of stakeholders in procurement value creation in our previous posts.
You may imagine value as the sparkling energy running over powerlines (i.e., value chain links.) Once you produce electricity, you also need to accumulate it.
In this illustration, we suggested two categories - motor oils (direct goods) and marketing events and promos (indirect services.)
Let's briefly summarize earlier definitions and underlying concepts and take one step forward - toward creating a value-based procurement sourcing strategy.
The vital importance of stakeholders
The 1960th definition of stakeholders suggests that they are members of "groups without whose support the organization would cease to exist."
Later definitions weren't that radical, i.e., " stakeholders are personalities or entities that can affect the achievement of an organization's objectives or those affected by its accomplishment."
Nevertheless, stakeholders' vital role in a company's existence is undeniable.
Equally, a company must nurture and support its stakeholders; this is where we get to the notion of value.
"Companies succeed in the market if they create value not only for their customers but broadly for all stakeholders."
Value creation through consonance
As explained here, Stakeholder Work System consists of awareness, identification, understanding, prioritization, and engagement.
Once all these activities are duly accomplished with all relevant stakeholders, the system works in consonance (or harmony) and creates value for all groups - customers, employees, suppliers, society, and stockholders.
Value creation and appropriation
In this post, we touched upon the duality of value - it has to be created and appropriated (sustained.)
Value creation and appropriation jointly enable the competitive advantage.
Value-based sourcing strategy
Two previous sections lay the grounds for our value-based sourcing strategy.
It has two distinct features:
(a) different strategies can be applied in the stage of value creation (new supplier selection and relationship building) and appropriation (contract renewal with an established supplier.)
(b) our sourcing levers must extend to all five major groups of stakeholders.
For example, our sourcing strategy for motor oils won't be limited to cost savings in the value creation stage. This lever will only satisfy stockholders; suppliers or employees will not benefit from it.
Therefore, we need to consider other clusters of stakeholders and extend our levers to them. As proposed, the community must benefit from sustainability levers, employees from corporate discounts, suppliers from volume bundling, and so on.
We should blend the selection of levers intended for different stakeholder clusters into a single sourcing strategy. Indeed, we must distinguish our strategy between the value creation and appropriation stages.
It's all about mastering stakeholder management and the richness of our procurement toolkit. Most importantly, we shouldn't be shortsighted to a single output (e.g., savings) or an individual group of stakeholders.
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More information on this and other exciting topics can be found in "The Technology Procurement Handbook." It represents 23 years of experience, billions of dollars worth of successful sourcing projects, and 1000s of hours spent on research, analysis, and content creation for the most demanding professional readers.
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