Four Things to Consider in Strategic Sourcing With Stakeholder Engagement and Alignment

To effectively meet organizational goals, supply management must engage with internal stakeholders to understand and meet their needs through the sourcing process. Engaging stakeholders involves building solid relationships with internal stakeholders as well as helping the stakeholders understand the role of supply management in the organization. It also involves understanding the needs and goals of the business units, and how supply management can support those goals. Supply management can then discuss the best sourcing options with stakeholders, influence stakeholders to make the best decisions for the organization, and help them execute their decisions (Siegfried 2012). Alignment of supply management goals with stakeholder goals is essential. As noted by one supply director, “Supply management doesn’t own internal stakeholders’ budgets, we don’t own their spend and we don’t run their business unit/function,” he says. “Supply management provides stakeholders with fact-based proposals on how to better manage their spend based on reality, our expertise and best practice” (Siegfried 2012).

In some companies, supply management conducts internal customer (stakeholder) satisfaction surveys to see how they are perceived, and where they can improve. It is essential that the parties understand each other before such a survey is conducted, to clarify expectations and responsibility. Such concern for stakeholder satisfaction can greatly enhance supply and stakeholder relationships.

Understanding Organizational Strategies

Supply management is a strategic function that contributes to the attainment of the buying organization’s strategic goals. Thus, supply management professionals must understand the buying organization’s strategic planning process. A typical strategic planning process is shown in Figure 1-1.

Figure 1-1: Strategic Planning Process

The strategic planning process begins with an organization’s vision statement. A vision statement describes the “future nature and purpose of an organization” (ISM Glossary 6th edition). For example the vision for Hilton Hotels is: “To fill the earth with the light and warmth of hospitality — by delivering exceptional experiences — every hotel, every guest, every time.”4 The vision for the fashion company H & M Group is: “Looking good should do good too. That’s what our sustainability work is all about. To make sure our customers wear our products with pride we have to be conscious in all our actions.”5

Supply management professionals need to understand their organization’s vision and make decisions that are consistent with moving toward the vision. For example, the vision should be considered when selecting strategic suppliers for long-term partnerships. Strategic suppliers should have visions that are compatible with the buying organization’s vision. The suppliers must be willing to deploy resources that help the buying organization move toward its vision. For example, H & M Group publishes its supplier list on its company website and states that it is working to encourage its suppliers to take ownership for their own sustainability.6

The second step in the strategic planning process is an organization’s mission. A mission statement explains the purpose of an organization and its values (ISM Glossary 6th edition). Mission statements describe who the organization is, define its key customers, and explain how it will meet their needs. Note that some organizations separate the mission and values statements. For example, the mission for Hilton Hotels is: “To be the most hospitable company in the world — by creating heartfelt experiences for Guests, meaningful opportunities for Team Members, high value for Owners and a positive impact in our Communities.”7 Hilton Hotels provides a separate list of its values, which include hospitality, integrity, leadership, teamwork, ownership, and now.8

The mission statement should drive current supply management activities and decision- making. For example, sourcing decisions should be made and supplier relationships should be developed and managed in a way that support the buying organization’s mission. It is important to communicate the buying organization’s vision and mission to suppliers so that they are aware of the buying organization’s current and future direction. The strategic direction affects the types of resources and supplier performance that is needed.

An organization’s strategy articulates how the organization plans to attain its vision and mission. For example, to better meet the needs of travelers looking for mid-price range but stylish hotels, Hilton developed an entirely new brand, Tru by Hilton, based on customer and owner feedback.9 The organizational strategy then drives the strategies of each individual functional area such as supply management, marketing, finance, and R&D. This hierarchical strategic planning process helps to ensure all functional groups are consistently moving toward the same overall goals and objectives. For example, in the case of Tru by Hilton, when sourcing furnishings, innovative design and speed should be considered along with price.

Organizational and functional strategies lead to the development of specific action plans at the business-unit level. A business plan typically includes an overview of the business and specific plans for each functional area including operations, marketing, finance, supply management, and human resources. Supply management’s business plans must be consistent with the overall business plan and in support of the plans of internal stakeholders. Supply management decisions then are driven by the business plans. Category plans and sourcing strategies should be consistent with and supportive of the buying organization’s business plan.

Engaging with Stakeholders

Understanding the organization’s vision, mission, and strategies are critical to success, but supply management professionals also must effectively engage with internal and external stakeholders. Stakeholders are “person(s) with a vested interest in something; those who will be affected by and/or can influence a decision-making process” (ISM Glossary 6th edition). Stakeholders can be internal or external to the buying organization. Supply management professionals must collaboratively work with internal and external stakeholders to meet the buying organization’s objectives. They must be the advocates for internal stakeholders with suppliers and also be advocates for their suppliers with their internal stakeholders. The CAPS Research Futures Study 2020 suggests that supply management’s role will be that of an integrator, balancing the needs of multiple internal stakeholders and external partners within the supply chain.10

Internal Stakeholders

Engagement with internal stakeholders is essential for supply management to add value to the buying organization. Research shows that more than 85 percent of supply management professionals surveyed are engaged at a strategic level with their internal business partners, and 23 percent report highly collaborative, proactive relationships.11 Internally, there are several types of stakeholders. Internal customers who need resources such as goods and services to meet their business objectives are important internal stakeholders. For example, a distribution center operations manager may need temporary staff during the peak holiday season, or a manufacturing plant manager may need raw materials. Internal customers must manage quality, timing, and the budgets that are used to pay for the resources they need, so they should collaborate with supply management to attain their goals. However, sometimes internal customers may be negatively affected by a supply management decision that is good for the organization overall.12 For example, often internal customers may be reluctant to change suppliers even if the change would result in better performance. Thus, the ability to explain why decisions are made in support of organizational strategies and business plans and the ability to influence internal stakeholders are important skills.

The buying organization’s executive team members also are important internal stakeholders because supply management decisions affect the organization’s performance. The executive team is ultimately responsible for the financial commitments made to acquire resources as well as the organization’s performance. Other internal stakeholders within the buying organization include groups and individuals that will need to be involved with or will be affected by supply management decisions. For example, engineering, quality, accounts payable, and logistics are likely to be internal stakeholders in a manufacturing organization.

Internal stakeholders must understand and appreciate the value that supply management can create for the buying organization; otherwise they may not support supply management initiatives. Miller and Perry (2016) suggest several ways to build collaborative relationships with internal stakeholders. These are to:13

  • Understand short- and long-term business goals.
  • Integrate these goals into category plans.
  • Meet with internal stakeholders on a regular basis to understand current and future needs.
  • Help internal stakeholders understand the supply chain and supply management objectives.
  • Communicate supply chain risks and develop mitigation plans.

Supply management professionals should proactively develop a deep understanding of internal stakeholders’ current and future needs and objectives. By understanding these needs and objectives, supply management professionals can develop sourcing and supply management strategies that will best meet those needs. For example, supply management can identify those suppliers that are candidates for long-term partnerships or those that will not meet needs in the future. In addition, during supply market analysis, they can identify suppliers with new innovations or technologies that may meet internal stakeholder future needs.

External Stakeholders

External stakeholders are outside of the buying organization but can be affected by or can influence sourcing and supply management decisions. For supply management professionals, suppliers are important external stakeholders. Supply management professionals are the primary interface with the buying organizations’ suppliers and are advocates for internal stakeholders with suppliers and are also advocates for the suppliers with their internal stakeholders. It is important to understand a supplier’s vision and mission, as well as its goals and capabilities to meet the buying organization’s needs. Supply management professionals are responsible for staying current with trends in supply markets, identifying potential suppliers, communicating internal stakeholder needs to suppliers, negotiating contracts that fulfill those needs, and managing the ongoing supplier relationship.

End customers, who purchase the buying organization’s goods or services, are also key external stakeholders. Supply management professionals need to make sure that they understand the end customer’s requirements. If the supplier does not perform as needed, the end customer may be affected through late delivery, poor quality, or higher costs. Other supply chain members, such as logistics providers, are also stakeholders. Local and national governments are also stakeholders because of laws and regulations. There is a wide range of potential external stakeholders including potential suppliers, customers, employers, trade unions, and members of the communities where facilities are located. Thus, supply management professionals must understand and communicate with a wide number of internal and external stakeholders.

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