Vision is a funny thing. Until relatively recently, humans were at the mercy of circumstance when it came to sight – if you had 2020 vision, you were lucky, but if not, you had no choice but to hope for the best. Then, glasses, telescopes and microscopes were invented. Then, flashlights. Suddenly, we could see very near and very far, and even in the dark. With the right tools, our world was transformed. 

Similarly, visibility in business is transforming with technology. In the past, we used notebooks and spreadsheets to transfer information. Today, we’ve seen customer relationship management (CRM), enterprise resource planning (ERP), and human capital management (HCM) software take off and transform the level of visibility within the business, allowing for unprecedented impact. Now, it’s Sourcing’s turn to transform and break free of spreadsheets and cumbersome legacy tools.

VSP Global Looks to Transform Sourcing

At VSP Global, the largest not-for-profit vision benefits provider in the United States, this sourcing transformation was a key priority. VSP serves over 77 million members by focusing on quality and affordability in eye care insurance, high-quality eyewear, ophthalmic technology and connected doctor-patient experiences.

To continue delivering the best results for their members, VSP Global set out to transform the way it approached the procurement process to drive better business outcomes, increasing stakeholder collaboration and visibility across the enterprise. The procurement team aligned on prioritizing four specific processes:

America’s love affair with e-cigarettes evaporated quickly as millions of users were recently confronted with unnerving news—their vapes could actually contain toxic chemicals powerful enough to be deadly.

With 12 confirmed deaths and more than 800 people sick with a mysterious lung illness, tainted THC-infused vape products appear to be the culprit. Unchecked systemic risk combined with a complex supply chain has jolted the e-cig business.

The CDC issued words of caution on September 27, “Anyone who uses an e-cigarette or vaping product should not buy these products off the street.” The sentiment is clear—consumers need to avoid e-cigs from potentially shadowy manufacturers and distributors fed by an unregulated supply chain.

Duty to the Consumer

E-cig manufacturers have a responsibility to pinpoint precisely what in their products is harmful, just as distributers must be confident they are only carrying reputable items that are sourced through a responsible supply chain. Many vaping products have been found to contain illegal synthetic marijuana, even when consumers believed they were buying THC-free products such as CBD pods.

In an industry as young and unregulated as e-cigs, it’s not surprising an unknown health consequence was lurking on the horizon. Consumers had no idea what ingredients or manufacturers to be wary of because no one yet knew there was a concrete hazard.

During a panel I hosted at Coupa Inspire on the role of the CPOs as “spendsetters,” the conversation evolved, as they often do, to the topic of third-party risk management. We quickly got around to discussing “tail spend” and the amount of inherent risk in the tail since it is fairly typical to not have done any true sourcing of this spend. Even more concerning, we don’t know who our third or even fourth parties are with any degree of background, let alone the risk exposure. An audience member during the Q&A asked a great question: If you could ask your tail spend three questions, what would they be?

This struck me funny and felt like we were putting a human face on something that is typically so intangible and unknown, almost like being face-to-face with a distant relative who you always speak about in whispers (admit it, we all have one). This made me feel like it was time to get personal and ask all the things that I had thought and whispered about, but never had the guts to ask... and this was my chance.

When I asked my panelists to comment, they did not hesitate.

“Who are you?”

“Why do you even exist?”

“How can I make you go away?”

“How did you even come to be in the first place?”

“I don’t even know you!”

The entire audience became engaged in a lively conversation. I told the person who asked the question (and I hope to find this person one day and thank him, in case you know the man in the second row, with glasses I believe, stage left, please tell him to reach out to me), that this conversation was not over. There was so much left uncovered.

Very few companies operate today without external support from third parties. Whether they are providing services, such as catering or cleaning, or specific parts necessary to manufacture products, most companies rely on outside suppliers in some capacity. For years, many organizations treated suppliers like nameless, paper-based transactions, designed to get the best price and little else. Over the past decade or more, much research has been done that supports a fundamentally different approach, one that embraces the idea that more can be gained from suppliers if the agreements are collaborative and based on output or outcomes – if they are seen as “relationships” and not “transactions.”

This article outlines seven sourcing business models that organizations should consider to improve their sourcing effectiveness and get the best results from supplier relationships.

Key Concepts to Improve Sourcing Effectiveness

Nobel prize winner Dr. Oliver Williamson laid some of the groundwork for the business models with 10 key lessons that contribute to more effective sourcing agreements.

1. Look at sourcing as a continuum, not a final destination
2. Develop contracts that create mutual advantage
3. Identify all costs, including transaction costs and their impact on risk and price
4. Understand that the greater the bilateral dependencies, the greater the need for preserving continuity
5. Use a contract as a flexible framework, not a legal weapon
6. Develop safeguards to prevent defection
7. Minimize transaction costs with shared visions and predicted alignments
8. Be credible – your contracting “style” matters (read: don’t strong arm your suppliers)
9. Build trust – leaving money on the table will come back to you in spades
10. Keep it simple

SIG University Certified Sourcing Professional (CSP) program student Jessica Maki works at Driven Brands. She shares what she’s learned about contract negotiation and how she is implementing newly learned best practices and techniques to score bigger wins and drive more savings for her company.

In the CSP program, students focus on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.

Negotiation planning plays a big part in the procurement industry. Procurement is always looking for the best price, best supplier performance and cost savings for the organization. In SIG University’s Certified Sourcing Professional program, I learned several key factors when it comes to negotiating with suppliers including preparation, best practices, and what to do versus what not to do. Throughout my experience as a procurement specialist, I’ve learned to apply these important techniques during the negotiation process, and it has helped me become a more confident negotiator.