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Sourcing: Don't make it a zero sum game

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Zero Sum Game as one of the key components of Game Theory (study of strategic decision making) can be defined as "A situation in which one participant's gains result only from another participant's equivalent losses".
Some might argue that in commoditized categories i.e. non-differentiated offerings, especially 'pure products' it is the way to go, where price is only driving factor. But is it?

Zero Sum Game as one of the key components of Game Theory (study of strategic decision making) can be defined as "A situation in which one participant's gains result only from another participant's equivalent losses".

Sourcing managers often make the mistake of treating supplier negotiations as a 'Zero Sum Game' wherein they believe that, in order to achieve their own as well organizational procurement targets (read savings), they must squeeze the supplier to the maximum extent possible and that the supplier and buyers targets are inversely proportional. They tend to use moderns tools like eMarketplace, electronic auctions etc. enablers to 'drive the price down'.

Some might even argue that in commoditized categories i.e. non-differentiated offerings, especially 'pure products' it is the way to go, where price is only driving factor. But is it?

I believe that in today's time, the intent should be towards collaborative sourcing, be it in any category, and working with the supplier to develop a plan or roadmap to reach the mutual goal. Taking a leaf out of Theodore Levitt's concept of 'Marketing Myopia', wherein he suggests that "businesses will do better in the end if they concentrate on meeting customers' needs rather than on selling products", similarly goal from the procurement perspective should not only be driven by savings but rather looking at the bigger picture including not just the quantitative elements like quality, price, on time delivery but also qualitative factors like service levels, customer focus etc.

Therefore, a buyer or supplier driven entirely by price or with the belief that their success can only be at the cost other are destined to fail as with their myopic view they will miss out the bigger picture  i.e. end user satisfaction. Hence, the need of the hour is to modify our sourcing and negotiation strategies from a Zero Sum Game to a Win-Win model.

Comments

With the prevalence of technology and the quick gains in terms of savings it delivers it is difficult for procurement professionals to ignore the lure of eProcurement tools. A better strategy would be to a two pronged approach. An arms length relation (for commoditized products/services) and a partnership relation.(for strategic products/services)

Fair point Sanjay, I feel that there are very few pure products today. In most cases there is service element attached to the product, no matter how small; and when we start driving on price alone, the supplier may end up cutting corners

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