Bill McBeath, supply chain veteran and founder and Chief Research Officer at Chainlink Research, recently penned an article that reminded us of the importance of that old saw, “I don’t really want to buy a drill bit, what I want is a 2″ hole in the wall.”

Bill’s point, while seemingly simplistic, is oft-overlooked by strategic sourcing and supply chain professionals: the best way to capture innovation in the supply base and maintain good supplier relationships is to state your end goals and give suppliers the freedom to develop best-value solutions to meet your objectives. A concept Bill terms, outcome sourcing.

“Outcome sourcing — moving from buying things to buying results or outcomes — is one of the most important developments in supplier relationships,” writes Bill. “Specifying desired outcomes provides more flexibility to suppliers. It allows them to bid on a specific outcome, rather than a buyer-specified solution, which results in better solutions for the buyer.”

Yet, he is quick (and correct) to point out that few companies truly practice outcome sourcing. Instead, most buyers spend way too much time “dictating every detail of the answer.” Such over-specification restricts what the supplier can propose and can actually add cost and stifle innovation in the final solution.In his article, What is Outcome Sourcing? (registration required), Bill offers evidence of how leading organizations have used outcome sourcing to dramatically increase supplier innovation, access hidden opportunities for cost and performance improvement, and better align supplier incentives and customer needs. He adds that outcome sourcing is poised to become standard operating procedure thanks to flexible bidding options available in e-sourcing solutions that empower suppliers to offer alternative solutions and offers that address the customers’ requirements while maximizing the suppliers differentiation and cost structures.

For example, the article cites the Defense Department’s move to “performance-based logistics programs” that specify aircraft uptime requirements rather than spare parts availability levels. Under these “PBL” contracts, the manufacturer is responsible for overall aircraft uptime, which is what is most important to the nation’s able and ready defense.

Bill also points out examples of a diversified manufacturer using outcome sourcing to encourage multiple suppliers bid together to provide the best and most innovative solution to meet its intended goals.

The article is a much-needed reminder of what strategic sourcing is intended to be about — working with suppliers to achieve best-value solutions that advance your business objectives. It is also a primer in how to put outcome sourcing into practice.