The Human Factor in Strategic Sourcing
How to allow for the human factor in strategic sourcing to drive the success of procurement process optimization and cost efficiency efforts.
By Hugo Britt | August 22, 2023
Graham Greene’s gentle spy novel, The Human Factor, explores the psychological burden placed on ordinary people working in espionage during the Cold War. It’s a reminder that even the most carefully laid plans must allow for the human element, or risk derailment.
Strategic sourcing in procurement would be so easy if people weren’t involved! With no stakeholder needs to account for, no supplier relationships to manage, and no mavericks to chase, procurement professionals could simply establish a plan and trust that it will play out as expected.
The human factor in strategic sourcing
But it’s never that simple. The human factor in strategic sourcing refers to the influence of human behavior within the sourcing process. It’s essential to recognize that people’s perceptions, motivations, and interpersonal dynamics can significantly impact the success of process optimization and cost efficiency efforts. Allowing for the human element in strategic sourcing will help ensure your plan will stay on track.
There are plenty of ways to see that any new plans you develop come to fruition. Here are some key things to consider as you work to implement a strategic sourcing process.
Strategic sourcing would be easy if people weren't involved - but it’s, of course, not that simple. It's essential to recognize the human factor in strategic sourcing to ensure any plans you implement stay on track.
First up, begin by engaging stakeholders from various departments, such as finance, operations, and ESG, at an early stage. This collaboration will help you gather diverse viewpoints, align goals, and address concerns to help craft a more effective sourcing strategy.
Clear communication about your strategy is essential. Ensure that all involved parties understand the objectives, timelines, and expectations. Transparent decision-making fosters trust and minimizes misunderstandings.
Consider the human influence on risk management. Address potential risks linked to supplier relationships, new management goals, or spend mavericks. Develop contingency plans that account for human behavior in uncertain scenarios.
Whether it’s a completely new strategy or an alteration to an existing one, making a plan in strategic sourcing usually involves change. As any change manager will tell you, getting people on board with your change is 99% of the job.
Expect to meet resistance, fear, apathy, disinterest, and have a plan for overcoming these roadblocks through good communication and by building a coalition of supporters.
Perhaps the biggest human factor to account for is maverick spend. This happens when people choose to ignore procurement rules and purchase off-contract, eroding value, damaging supplier relationships, increasing costs and risks. Instead of simply getting frustrated, seek to understand why this is happening. Perhaps your new strategy and processes are confusing or difficult to use.
A skills gap can mean your strategy will not be a success unless you provide training and support to help people adapt. In terms of your own skills, the best way to prepare yourself to negotiate the human element is to invest in training to refine your negotiation, communication, and conflict resolution skills.
When sourcing involves suppliers from diverse cultures, be culturally sensitive to communication styles and negotiation approaches. Understanding cultural nuances enhances collaboration.
Emotional intelligence is particularly valuable during negotiations, aiding in building rapport, resolving conflicts, and achieving mutually beneficial outcomes.
Unfortunately, procurement fraud can occur due to human vulnerabilities such as greed, ethical lapses, or collusion. Employees’ motivations, pressures, and behaviors can contribute to fraudulent activities within the procurement process, leading to financial losses and reputational damage.
Addressing the human factor in procurement fraud involves implementing robust internal controls, whistleblower mechanisms, and thorough background checks on suppliers and employees. It also requires fostering a culture of integrity and ethics within the organization, where employees are encouraged to report suspicious activities without fear of retaliation.
People are central to every business process and function. Without factoring in human emotions and behaviors, any new process will fail, including strategic sourcing.
Successful strategic sourcing needs a human approach
The best indicators of success don’t come from emotionless business metrics, but from people. Establish a feedback mechanism allowing internal stakeholders and suppliers to contribute insights and voice concerns throughout the sourcing process. Regularly revisiting and adjusting the strategy based on feedback and changing circumstances is vital.
People are central to every business process, including strategic sourcing. The protagonists in Graham Greene’s novel are hampered and eventually overcome by the human factor, but by acknowledging and accommodating people in your strategy, you can transform the human element from a source of risk into a major strength.
For more resources, check out Una’s procurement savings and strategic sourcing section of our resource center.