ABSTRACT
Firms compete on value, not cost alone. However, sourcing decisions are often heavily weighted toward minimizing costs, even though these decisions can also 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 believe widespread implementation of TVC would improve both organizational and social outcomes.
