Value first, cost later: Total value contribution as a new approach to sourcing decisions

Abstract

Firms compete on value, not cost alone. However, sourcing decisions are often heavily weighted towards minimizing costs, even though these decisions also can affect revenue, risk, and other stakeholder values. To address this disconnect, we introduce a new approach to strategic sourcing, “total value contribution” (TVC). The TVC name by itself promotes attention to value. TVC's structured approach begins with the question: “what do our customers, current and future, value about our products?” The TVC approach builds on insights from the literature on individual and group decision‐making to offset human biases and organizational incentives that emphasize cost reduction. TVC builds on gains already achieved by “total cost of ownership” (TCO) sourcing methods, which broadened the list of factors considered in sourcing. We provide examples of TVC‐like thinking in real organizations and argue that such thinking would be more common with the dissemination of TVC. We also provide access to a version of this JOM Forum piece suitable to assign to students, and discuss a new teaching note which describes how to implement TVC in a popular strategic sourcing teaching case. We believe widespread implementation of TVC would improve both organizational and social outcomes.

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“…<< Table 1 will be inserted here >> All interview data were subsequently transcribed, validated, and coded. The interview questions (available upon request) were developed as an interview protocol based on previous literature (e.g., Gray et al, 2020;Ivanov & Dolgui, 2020), considering the aims of the research and research questions. Questions were designed to identify and explore the effect of COVID-19 on textile supply chains, and their response to the potential issues and challenges.…”

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Introduction to the special issue on mobility, climate change, and economic inequality

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