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Value-based Procurement Sourcing Strategy

Value-based Procurement Sourcing Strategy
We already discussed the role of stakeholders in procurement value creation in our previous posts.

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, the vital role of stakeholders in the existence of a company 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 not only has to be created but appropriated (sustained) as well. Just like electricity, which one has to both produce and accumulate. 

Maybe that's why I imagine value as the sparkling energy running over powerlines (i.e., value chain links.)  

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.

In this illustration, we suggested two categories - motor oils (direct goods) and marketing events and promos (indirect services.)

E.g., our sourcing strategy for motor oils won't be limited to cost saving in the value creation stage. This lever will only satisfy stockholders. Suppliers or employees won't benefit from it.

Therefore, we need to think about 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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My Udemy course "Value-based Procurement."

My Udemy course "Procurement Lab"

My Udemy course "Foundations of Contracts and Outsourcing."

My Udemy course "Adaptive Sourcing: Agile Procurement in Practice."

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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This post first appeared on The Good Spending, please read the originial post: here

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Value-based Procurement Sourcing Strategy