Supply Excellence — The Top 5 Worst Supply Management Moves of All Time

The Top 5 Worst Supply Management Moves of All Time

February 16th, 2007 · by Tim Minahan · No Comments · LCCS and trade, Top 5 Supply Strategies, automotive sector, sourcing, supply management, supply market dynamics, supply risk

People love lists. It doesn’t matter what the subject. Lists rule.

Consider the overwhelming response to the Supply Excellence expose on the Top 5 Supply Strategies. Or the spate of recent predictions from the blogger and analyst communities on what 2007 might hold for supply management. Not to mention the countless magazine covers at airport newsstands featuring lists ranging from The UK’s Most Eligible to Five Steps to Six-Pack Abs to People Magazine naming George Clooney the Sexiest Man Alive for the second time. (No comment. Too easy.)

Most lists promote the biggest or best. Don’t know why. Must be the rules laid down by the list police.

But rules are made to be broken. I personally think you can learn as much – if not more – from failures or mistakes as you can from best practices. Truth be told, in my nearly 20 years in supply management, I’ve seen more of what doesn’t work than what does.

I’ve taken the liberty to assemble a list of the Top 5 Worst Supply Management Moves of All Time:

Ignacio Lopez: I realize this is a person and not a strategy, but this former General Motors CPO has become synonymous with shady supply management practices. Lopez became infamous for his decision to tear up valid contracts and threatening to fire suppliers unless they acquiesced to double-digit price reductions. (An action that tagged GM as the most-hated customer of automotive suppliers.) Lopez was later accused of corporate espionage when he defected to Volkswagen, allegedly with GM secrets. To this day, the phrase “to pull a Lopez” sends shivers through supplier circles.
China: China has become a euphemism for low-cost country sourcing – and, some might argue irrational exuberance. Conventional (read: CEO) thinking was that Chinese suppliers offered prices 30% to 50% cheaper than more developed regions. (Even after factoring in landed costs, China sources still looked like a comparative bargain.) This spurred a mad frenzy to source from China – often times without well defined plans for assessing and managing suppliers there or for getting it if relationships went south. But by making China the world’s manufacturer, we may have unleashed a monster. China is now the biggest consumer of key commodities, such as copper, oil, and gold. This is causing shortages and driving up prices for supply management groups around the globe. Worse yet, there are signs that China’s bargain basement status may soon be threatened. The culprits: currency concerns, logistical challenges, and skilled labor shortages. The Economist reports that “most multi-national operations in China must contend with 20% - 30% annual staff turnover rate” with supply chain talent among the most scarce in the region. And prognosticators like businessman Sir Anthony Jolliffe argue that things could get worse: “I see China as a 10-year wonder because wages are going up: seven percent of people have an income of more than $100,000. What will happen when that goes up to 15-20 percent? How will China address the imbalance of wealth?” The point: don’t place all your eggs in one supply market basket. Diversify and constantly readjust your portfolio to balance performance and risk. And start investigating new low-cost regions, such as Brazil, Africa, and a revitalized Japan.
e-Marketplaces: I’m sure I’ll get heat on this one. People will claim that certain retail and energy marketplaces still survive and are processing more transactions than ever. True. Yet, few can dispute that e-marketplaces failed to live up to their initial hype. Of the thousands of online marketplaces launched, only about 30 survive today – with just five of those representing half of the market volume. And you’ve got to agree that the idea that CPOs from fierce competitors could create an effective virtual purchasing environment was misguided at best. Supply management is a competitive differentiator. (Just ask Honda or Toyota.) Commoditizing this activity with your chief competitor may have temporarily elevated market caps for certain e-market ventures. But it certainly didn’t help the competitiveness of participating parties or their suppliers in the long run. In the supply management realm, decisions to found or join e-marketplaces were based more on the hopes of a quick stock-market payoff rather than sound business improvement principles.
Reverse auctions: I’ve heard some argue that reverse auctions have set back the supply management function 20 years. There is some truth to this statement. Early auction tools were focused solely on creating price-only market transparency and competition. Some early users also abused these tools, failing to instill integrity in the negotiation process. However, today, many reverse auction solutions support the negotiation of multiple price and non-price factors. Some even include options for more collaborative bidding, allowing suppliers to offer alternative bundles and offers. And there are market protections to ensure both buyers and suppliers to clearly define and comply with rules of engagement and award. In fact, when used appropriately, reverse auctions instill greater integrity and fairness into buyer-supplier negotiations than traditional offline methods. Reverse auctions give suppliers a better understanding of requirements and award criteria, providing a level of comfort that they will be rewarded fairly for bidding more aggressively.
Supply management blogs: At last count there were more than 20 blogs dedicated to the purchasing/procurement/spend management/supply management discipline – each with different angles. Many provide useful tips and best practices on supply strategies. (Hopefully you feel Supply Excellence falls into this category.) Others play the role of Page Six for the supply management technology market space. And some are merely extensions of a vendor’s storefront, openly promoting new features and functions of their latest wares. Truth be told, there’s valuable insight and information in almost all of these blogs. However, there aren’t enough hours in the day to scan them all. Instead, try using helpful tools like RSS feeds and e-mail Updates/Newsletters which push new posts and summaries to your desktop. (Warning: Shameless plug. Be sure to put Supply Excellence on your RSS feed or get Updates on my latest posts directly in your In Box.)

Disclaimer: This list is based on my experience and does not necessarily reflect the beliefs or opinions of Supply Excellence sponsors. However, I highly encourage readers to comment on this list. (In fact, I have a number of other worsts that I was tempted to add to the list myself.) Feel free to add some of the worst practices you’ve seen in your own experiences.

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