By Dan Berthiaume
Now that sourcing has matured to the point that most organizations understand concepts such as total cost of ownership (TCO) and risk identification and mitigation and realize it is an ongoing process, supply chain professionals can now focus on longer-term governance. According to a recent white paper from advisory firm ISG, “Strategic Governance: Achieving Next-Generation Benefits with Sourcing,” longer-term procurement relationship governance in areas such as contracts, negotiations and provider management can produce transformative results.
ISG states that just as the shift from mass production transformed supply chain from a clerical to a cooperative function, the global integration of the supply chain is transforming strategic sourcing to an activity routine enough that companies are starting to outsource it. Thus the next logical supply chain/procurement function for companies to address in a strategic manner is governance.
Strategic Procurement Governance Defined
Specifically, ISG defines strategic governance in this context as “the approach all partners in the supply chain use to achieve enhanced and innovative relationships.” This means stakeholders, suppliers (including BPO service providers) and buying organizations a clear understanding of who is ultimately responsible and accountable. Beyond cost and transactional components, strategic governance encompasses process, innovation, relationship quality and continuous improvement programs involving all the enterprise stakeholders.
Making Strategic Procurement Governance Happen
Naturally strategic governance of the procurement process does not simply happen. Everyone involved, including the company procuring goods, the supplier(s) of the goods, and BPO services provider(s), needs to collaboratively achieve strategic governance. ISG advises that both business skills and advanced leadership capabilities are required.
Necessary business skills include the ability to work collaboratively with both the providers and internal stakeholders with a heightened adaptability for managing changing circumstances and finding joint opportunity for maximizing services, value, and continuous improvement. Everyone involved must also have the abilities to build relationships beyond contractual obligations without forgetting them, and facilitate communications.
On the leadership side of the strategic procurement governance equation, executives for all companies involved in the process must make sure that their enterprises adhere to concrete management processes with measurable outcomes, perform accurate reporting, correctly place accountability for service excellence and financial outcomes. These steps require an enhanced management focus on skills and capabilities of the employees.
And for any companies involved in a procurement outsourcing relationship that do not think achieving strategic governance is worth the effort required of all partners, ISG offers a sobering statistic. During the March 2012 Sourcing Interest Group (SIG) Global Summit, an audience of sourcing professionals at an ISG session event was polled to see who felt their outsourcing relationships had failed, with “failure” defined as “being in a miserable relationship where services are delivered to contract standards but no one is happy.” More than half of audience members raised their hands.