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Is Lobbying a Form of Strategic Sourcing?

Posted by ron sanderson on March 11, 2010

A recent February news release announced that Baxter International, the well known maker of medical devices and other health care products, increased its lobbying expenses to over $1 million in the fourth quarter of 2009, twice the rate during previous years of the early 2000s.  As a Chicago Tribune article on March 7, 2010 points out, medical device manufacturers want to kill a proposed annual tax of $4 billion on devices over a ten year period to help pay for the proposed health care coverage reforms.

In a related lobbying effort, JPMorgan Chase is aggressively lobbying Congress to substantially reduce or to eliminate the proposed Obama bank tax.  This tax, which, according to POLITICO.com, would cost the company $1.5 billion per year, is in part intended to lessen risky behavior on the part of banks.

There is no surprise in a company aggressively trying to head off any tax increase.  But lobbying is a special type of strategy, an advocacy approach that attempts to put subtle – or not so subtle – pressure on legislators in order to change laws that may have a negative impact on either company revenues or costs.  Boeing Company, in an example of revenue targeted lobbying, is attempting to fight a proposed House resolution to use the word “genocide” to the mass killings of Armenians by Ottoman Turks during the World War I historical period.  By coincidence, Turkey is a current customer of Boeing, with a $1.2 billion order for some new helicopters from Boeing.

So Baxter and JPMorgan Chase want to lobby to reduce their tax costs, while Boeing is attempting to reduce any risk to its revenue side with one key current customer.  Is any of this ethical?  Conventional wisdom says that it is.  Companies have long used lobbying as a strategy to convince legislators that it is or is not in the best interests of (insert appropriate key word here – the economy, workers, a critical industry) to do whatever they are trying to do.  And lobbying is certainly a fundamental First Amendment right.

There is nothing inherently wrong with presenting arguments to try to convince others to take certain actions.  Depending on one’s political view, however, all lobbying efforts may be perceived as being unethical or even a little sleazy.  The fact is, though, that if lobbying efforts are successful, the results can be even more effective in reducing costs than a complex process improvement project or a new Strategic Sourcing program.  In Baxter’s case, the impact of successful lobbying would be a direct reduction in tax.  While efforts to reduce tax payments is normally outside the scope of Strategic Sourcing, the impact is the same as reducing any external spend item, such as prices paid to suppliers or a certain commodity.

Here are some hypothetical examples of how a company’s lobbying efforts can affect supply chain costs:

  • Heading off a proposed new tariff on imported steel, which is a major raw material for company A.
  • Supporting cap-and-trade, which would require companies that pollute more to buy credits from lower polluting companies, thus reducing generation costs for low greenhouse gas producing companies.  Exelon Corp., a leading nuclear power based electrical producer, is in fact lobbying for this now.
  • Reduction in penalties for expired patent listings on packaging.  This was addressed in a previous blog and is a potential land mine that can add substantial packaging cost to a company’s products in the form of fines assessed for listing expired patents.  Should lawsuits begin to add to packaging costs, lobbying will be sure to follow.

Should lobbying be considered a part of a company’s Strategic Sourcing process?  I don’t think we’re quite ready to broaden the definition of Sourcing that much yet. But just as non-traditional areas like a company’s marketing expenses or external legal costs are legitimately addressed as part of a companywide Sourcing program through coordinated efforts, maybe it’s time to rethink the concept of external spend and what is addressable in a Strategic Sourcing program.

Your thoughts?  Has anyone ever been involved in Sourcing for a non-traditional area that at first thought was clearly out of scope for a Strategic Sourcing program?  What are your thoughts about broadening the concept of Sourcing strategies?

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2 Responses to “Is Lobbying a Form of Strategic Sourcing?”

  1. […] to help GM close 14 plants across the U.S.  The article brought to mind Ron Sanderson’s blog re: “Is Lobbying a Form of Strategic Sourcing?” Ron argued that lobbying can be a much more successful approach to reducing cost (or protecting […]

  2. […] to help GM close 14 plants across the U.S.  The article brought to mind Ron Sanderson’s blog re: “Is Lobbying a Form of Strategic Sourcing?” Ron argued that lobbying can be a much more successful approach to reducing cost (or protecting […]

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