What Mid-Market CFOs Need to Know About Collaborative Sourcing

What Mid-Market CFOs Need to Know About Collaborative Sourcing

In an increasingly competitive business atmosphere, where profits and growth are harder to come by, collaborative sourcing is a way for companies to see increased profit margins by viewing their sourcing process more strategically.

Consequently, companies are building more collaborative relationships with their suppliers across supply chains. Recently, for example, the U.S. Department of Commerce saved $200 million through collaborative sourcing.

What is collaborative sourcing? As defined by Michel Philippart, Christian Werstraete and Serge Wynen in their book “Collaborative Sourcing: Strategic Value Creation through Collaborative Supplier Relationship Management,” it means: “Developing supplier relationships to generate sustainable competitive advantages that creates shareholder value.”

In essence, collaborative sourcing is about getting all parties involved in a purchase  to work together to maximize the benefit for everyone involved—a decidedly less zero-sum proposition than what typically occurs.

And it’s becoming increasingly common: A survey of global CEOs by the firm PricewaterhouseCoopers in 2006 found that 29 percent said that their relationship with their suppliers “is fully aligned in cost and business benefit objectives. Meanwhile, 25 percent said they share cost and technical data for mutual benefit. Only 15 percent said their relationship is “based on entirely only lowest cost or lowest price.”

Benefits of Collaborative Sourcing

Organizations ranging from the Commerce Department to Pepsi to Nokia are finding the benefits of collaborative sourcing.

“When it comes to managing supplier relationships, sourcing professionals are on the front lines and how well they perform their duties can have a huge and lasting impact on the overall success of the business,” according to supply management experts Ardent Partners in “Collaborative Sourcing: The Keys to Unlocking Greater Value.”

Why You Need a Third Party to Help

Read to try collaborative purchasing? You may want to hire a third part to help. As with cost-cutting endeavors, a third-party with access to comprehensive industry pricing data is best positioned to help you realize the purchasing practice’s many benefits.

“Research has shown that enterprises that simply perform spend analysis on a regular basis see the average savings from their sourcing projects nearly double,” according to Ardent Partners. “Likewise, the sourcing teams that directly link spend visibility to their sourcing process report significantly higher savings than those that do not.”

Question: How could your firm implement collaborative purchasing? What would that make possible for your finance department?