Friends, Romans and Countrymen – Lend Me Your Ears! I Come to Bury TCO………

I read with interest Michael Lamoreaux’s recent blog post called “Are You Revenue/Growth Enabled?” In this post, Michael talks about whether Supply Chain/Sourcing/Procurement organizations are revenue/growth enabled?  Perhaps Michael has forgotten the spirited debate that he facilitated two years ago when we declared that Strategic Sourcing is Dead. We welcome all new converts to the conversation and yes the Emperor Has No Clothes, but can we all stop defining the problem with more surveys and benchmarks?  I sincerely applaud Michael for continuing to be on the soap box on behalf of the community but I would like to shift the debate to actual solutions.  Haven’t we been doing the same thing to the issue of Talent Management for the last 2-3 decades?

The good news is that almost everyone is having the same conversation.  I have spoken at ten events in the last three months, and at every event my focus has been on value (no surprise there) but the real surprise has been how many others are now focused on this.  The not-so-good news is that almost all organizations are still focused on TCO and reducing costs (excluding your organization of course).

Supply Chain/Sourcing/Procurement processes are destroying value in most corporations.  I know it sounds like heresy but let me say it again, we are be destroying value.  And we’re doing that by our focus on cost as the primary driver.  Sometimes it takes time for it to show up, especially if you are en early adopter and therefore enjoy the arbitrage that goes along with being an early adopter (e.g. Apple).   Sustainability cannot just have an environmental context.  It also means that which lasts and a cost focused supply chain is typically not sustainable.  The system will try to find a balanced state over time.

Michael goes on to make the following point, “For Procurement to earn, and keep, that seat in the C-Suite, it has to continue to deliver value year-over-year. And the best way to deliver that value, once it has trimmed costs, is to help the organization grow (with its expertise in operations management), globalize (with its expertise in foreign markets) and increase revenue (with its expertise in logistics, multi-stage and multi-channel inventory management, and new product introduction [NPI]).” This is the exact conversation we had when we were discussing Value and the Intended Consequences. The issue I have with that statement is the part that is underlined. It would be better said if we replace “once” with “while”.  It does not need to be a binary and sequential choice.

I understand the argument that we must earn the right by first reducing costs.  I think that makes the job of getting a seat at the table significantly more difficult, if not impossible.  By the time we have spent X number of years focusing on costs and not the Intended Consequences (Value Drivers) of all of the extended stakeholders, we have boxed ourselves in and the resistance has already set in.  It’s like Internal Audit all of a sudden wants to be your friend (my apologies to all internal auditors).  How we frame the discussion matters.  The argument may be more powerful if we say we are focused on the Value Drivers  and one of them happens to be cost.

Michael goes on to make another interesting point when he says that ”only 5% of companies have a category-focused strategic sourcing process that is very well implemented or truly strategic.”  And that’s the second equally important issue.  Not only does the process need to be fixed (Cost to Value), but we must make sure that this time we implement it differently.  The focus cannot be just on the consonants but it also has to be on the vowels (AEIOU).

I speak not to disprove what Michael spoke,
But here I am to speak what I do know.
We all did love the cost stuff once, not without cause.
But it’s time to let the cost stuff go
O judgment! thou art fled to brutish beasts,
And men have lost their reason. Bear with me,
My heart is in the coffin, there with TCO,
But my head has moved on to Value (adapted from The Life and Death of Julius Caesar, apologies to my friend Will).