Sourcing 3.0 – How to Breathe on Mars?
India recently launched a satellite into Mars. This is a great accomplishment for any nation to have a successful launch in its first effort. I had been curious to hear my ten-year-old daughter’s perspectives about it. I framed my question awkwardly and asked her “how do you breathe on Mars?” She looked at me curiously and replied — you need an oxygen tank! We discussed and realized that if one has to live on Mars and not visit Mars; one can’t continue to bring the Earth’s environment to Mars. We must adapt and find a way to utilize the resources there. Of course, my daughter and I could not address the issue; scientists are still figuring it out. One thing was apparent; however, given differences in gravity, closeness to the Sun and humid surroundings, we will need to do lots of things differently than we unconsciously perform on Earth, to breathe and live on Mars.
Where do you find “Mars” in business?
Think of companies like Apple, Nike, Starbucks, Google, and others. You’ll come across these businesses have a culture of excellence. On the flip side, it provides a challenge as traditional business approaches may not work well in their company.
For example, to maintain their competitive advantage, they demand buying highly personalized solutions rather than standard solutions offered in the market. Starbucks had to develop a distribution base for its coffee blends in several developing nations instead of buying coffee beans which were readily available in the marketplace. Traditional competitive sourcing approaches aren’t suitable to buy these customized solutions effectively. To be successful, sourcing teams have to identify what’s valued in an organization’s culture and then tailor their strategies to these values.
[The challenges mentioned above aren’t specific to sourcing organizations. In this article, I’m focusing on sourcing. However, the same concepts can be used for other functions as well.]
How do you source excellence?
Excellence in my mind is like utopia; everybody wants it, but nobody knows how to get it. Sourcing in this environment is hard due to the lingering question regarding if the solution being sourced is excellent. I spent significant time on my first project with a client staff in multiple iterative cycles to develop a solution they would consider excellent. Every time we came up with a solution someone invariably challenged if it was excellent. Eventually, we developed the ideal solution using a process of elimination. However, it was inefficient.
After reflecting on the experience, I understood that there’s a better way of executing this kind of sourcing jobs. Instead of utilizing a structured strategic sourcing process, we adapted our approach to match what’s valued in the customer’s culture. Described below Is the strategy we employed at a highly successful financial services firm that appreciates excellence in every aspect of its business.
Approach to Sourcing Excellence
- Define Excellence: The first step is to specify what the customer would consider an excellent solution. It requires strong cooperation between the business and sourcing teams. There are numerous approaches to achieve this — the voice of customers, expert opinions (in-house and outside), research, select provider interviews, etc. Also, it requires triangulation with different stakeholder teams to ensure the solution being developed is genuinely excellent from other perspectives.
- Validate: The sourcing team then validates the solution with external suppliers through an RFI followed by comprehensive provider interviews. The objective is to find out whether such solutions exist in the market and if not, how to arrive at it via a combination of suppliers and in-house tools. Cost is looked at from an aggregate level to ensure the solution being developed is practical.
- Source: After validation, the next step is to select the ideal provider and supplier team. Learning from previous sourcing efforts showed that selecting the ideal vendor is not sufficient. To achieve excellent outcomes, we have to select the ideal provider lead and team. A different approach than just selecting a provider. The sub-steps are:
- Identify the right suppliers – Evaluate capabilities of different suppliers and select the ones that are capable of operating in client’s culture.
- Select team – This can be the very time consuming and crucial part of the procedure. Initially, when we began selecting the supplier group, we’d interview them. We soon realized that we’re encountering interview bias, e. we’re selecting team members that reflect the interview team rather than the team necessary to perform the job. To refrain from interview prejudice, we have started selecting supplier team through personality evaluations. This strategy was successful, and we are still refining it.
- Negotiate pricing and service level agreements – In parallel with the provider team selection, we negotiate price and service levels. The technique of “should cost” modeling is beneficial here as purchasing customized solutions makes pricing comparison and discussion with providers that considerably harder.
We’ve successfully used the above approach to different source types of products and services that the customer would consider exceptional while significantly reducing time to source.
Can we breathe on Mars?
Yes, breathing on Mars is not as difficult as it sounds particularly in a company culture of excellence — of course, harder on the real planet Mars. It requires maintaining an open mind to work inside an organization’s culture. Tailoring the sourcing approach and creating a team that could work within this environment will transform sourcing organization from a cost center into a business partner.