Going to the Gemba
The Lean Start-Up movement has taught us that great innovations arise from having a good understanding of the customer problem. This lean start-up idea of understanding the problem, originates in the lean Japanese concept of “going to the Gemba”, which means going to the place where things happen or value is created. Entrepreneurs everywhere have benefited from this advice by getting out of the building and engaging deeply with their customers around real needs.
So if this advice has been so valuable to Entrepreneurs seeking to innovate, surely strategic sourcing practitioners everywhere should find it valuable to discuss problems in the organisation in order to find innovative solutions to these problems?
The Innovator’s Dilemma
Unfortunately, modern procurement practices have inhibited innovation from occurring in many large corporate B2B companies. To understand this behaviour we can refer to Clayton Christensen’s classic description of the Innovator’s dilemma. Christensen explains that over emphasis on current needs neglects the attention required to innovate based on future needs.
Never has this principle been more applicable than in today’s strategic sourcing practices. The initiation of the strategic sourcing process is almost always based on the lapse of a current contract, which is a natural indication of past purchasing behaviour and a strategic sourcing practitioner’s first point of reference for determining future purchasing behaviour.
Is Bigger always Better?
Unfortunately with most strategic sourcing practices there is normally the understanding that if purchasing behaviour were to be bundled together, a company would save money. Most of the focus of strategic sourcing is therefore on increasing the volume that can be put into a contract. For instance, a bank rarely decides to purchase a pencil on its own, but rather purchases bulk stationery or promotional material. In this way various small purchases are combined into one single contract and then tendered out for the best price.
The thinking is that the length of the contract together with the scope of the contract would allow a supplier economies of scale and allow for the reduction in the amount of suppliers with an reduction in the cost associated with these suppliers. This is often not the case as all that happens is that the current relationship with an existing supplier get’s taken up by a first tier supplier.
Procurement departments that are high on the strategic sourcing maturity curve have gone about involving their counterparts in the business through cross functional collaboration and have been able to view the total cost of ownership. The paradigm driving the outcomes have, however, always been grounded in a decrease of the current purchasing cost, rather than joint problem solving.
How Strategic is Strategic Sourcing?
It is ironic that this purchasing behaviour is called strategic sourcing in that the major goal of strategy is to differentiate the company. This differentiation rationale is rarely true for the rationale behind purchasing decisions. Ordinarily the purchasing decision is made based on what other competitors purchase. A purchasing practitioner is much more likely to purchase an offering, and sometimes even base the rationale for their purchasing decision, on whether their competitors in the same industry have purchased the same offering by the same company.
The above mentioned behaviour therefore means that Entrepreneurial companies with a six-month cash flow forecast have little to no chance when exploring innovative hypothesis with large corporate companies. Considering this behaviour it is the rare procurement practitioner that asks themselves, or even more rarely, asks their colleagues in the operations, what the problems are that are faced by the operations.
Should Strategic Sourcing be “Going to the Gemba?”
Considering all of the above it might at this time be relevant to ask ourselves if more value for the company could be created by initiating the strategic sourcing process in the identification of operational/process or customer related problems or opportunities (pain or gain in lean start-up terminology). In doing this procurement might become a much more strategic partner of the organisation rather than policing current purchasing behaviour.
1. Christensen, Clayton (2011). The Innovator’s Dilemma: The Revolutionary Book That Will Change the Way You Do Business. HarperBusiness
2. Trent, Robert J. (2007) Strategic Supply Management: Creating the Next Source of Competitive Advantage. J. Ross Publishing