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I regret to report that I’ve recently had a number of disturbing conversations with supply management executives from around the globe. Their comments clearly indicate that, despite all the blustering of bloggers, analysts, and even CPOs, the harsh truth is that, on the whole, the supply management discipline still has a long way to go:
- Consider this comment from a VP of Supply Chain at a major high-tech manufacturer: “We agree we should get more involved in helping with product development and inventory strategies. But those functions have their own goals. And we continued to be measured on one thing: year-over-year cost reductions.”
- Or the CPO of a global consumer products company: “We just completed an assessment of our source-to-pay operations and have decided that we need to start our transformation by automating requisitioning and cataloging. We’ll get to sourcing and supplier management later.”
- Or boasting of the newly appointed Director of Global Purchasing for one of the world’s largest providers of lumber and custom materials: “When I came on board, I wanted to shake things up. I told all our carriers that they had until next Friday to lower their rates by 10% or they’d lose our business. The logistics group, DCs, and business units were up in arms, afraid we wouldn’t be able to ship our products. Suppliers had the opportunity to call me and plead their case. Most of those that wouldn’t lower their rates were cut. But, in the end, we secured a 6.5% discount across the board. That sent a message that we would be doing things differently from now on.”
My response: Bad. Worse. And downright neanderthal.
Old school approaches like these focus narrowly on creating internal efficiencies and reducing spend. Sure, these heavy-handed tactics can deliver measurable results. But how much, how fast, and for how long? There is mounting evidence that these traditional approaches can expose enterprises to unforeseen supply risks and offer limited sustainable impact. And they are certainly insufficient to capitalize on or even survive in the new global economy.
Transformation requires not only near-term impact, but also long term sustainability. Contrast the above mindset and approaches with Toyota’s insightful development and long-term commitment to labor and suppliers in recessed regions (like post-industrial America) or with innovative technology (like hybrid engines) but inadequate capabilities for volume manufacturing. Or Hewlett-Packard’s “buy-sell” relationships with key contract manufacturers or their much-heralded recycling and sustainable supply programs. Or how Abbott Laboratories is using improved spend visibility to drive savings and performance improvements and to give supply management a seat at the strategic merger and acquisition (M&A) table.
In short, we have entered a new era of supply management, one which requires a new mindset, new skills, new strategies, and new technologies both to thrive and survive. This new era is best described as Supply Management 2.0. (And not just because the name has a cool ring to it.) Supply Management 2.0 is the next-generation of supply techniques designed to drive long-term and sustainable improvements in supply costs, performance, and value impact. Supply Management 2.0 is an era where:
- the supply management function looks beyond driving internal efficiencies to optimize visibility, efficiency, and performance across a constantly-shifting, global network of supply partners.
- sourcing decisions and subsequent supplier management strategies are based not just on price or even total cost of ownership (TCO), but on overall network performance, risk management, and the value impact of supply on core business goals and differentiators.
- automation investments provide comprehensive functionality and decision support for the complete supply management lifecycle — from initial spend visibility and analysis through continuous performance measurement and improvement.
- the supply management team is entrusted with (and contributes value to) a broader portion of corporate spending and strategic business goals.
- the supply management function is measured not just on near-term cost reductions, but the ability to contribute value to the business — in the form of supplier innovation, risk management, and continuous improvements — on a long-term and sustainable basis.
I was fortunate enough to have the opportunity to discuss these Supply Management 2.0 concepts recently with Supply and Demand Chain Executive Editor-in-Chief Andy Reese. You can listen to our conversation by downloading the associated podcast here.
Even better, we’ve recruited a number of CPOs and supply management executives from leading enterprises around the globe to share how they are putting these new principles and techniques to work at their own organizations. And they’re coming to a city near you.
I’m happy to announce that Supply Excellence is about to hit the road again for the second annual Supply Management 2.0 Forums, a series of free, half-day events designed to showcase how leading organizations are putting supply management best practices to work and to foster networking among procurement, contract, and supply management executives. We’ll be visiting a number of European and U.S. cities on the Spring leg of the tour, so check here for a city near you.
Forum attendees will get a chance to hear first-hand how companies like Barclay’s, ITT Industries, UPM, Alliant Techsystems, Federal Signal, National City, Key Corp., Novation, and more are employing new strategies and technologies for supply management excellence. I will be previewing these enterprise case studies here on Supply Excellence in the coming weeks.
But I strongly encourage you to register to attend a Supply Management 2.0 Forum to hear first-hand how your peers are embracing these new concepts for competitive and sustainable advantage.
7 responses so far ↓
1 Noah Eisner // Mar 23, 2007 at 1:30 pm
Hope you aren’t still freaked out about your conversations, but they don’t shock me. Yes, the analysts and bloggers tend to run to the bleeding edge trying to promote some new line of thought, but the reality is that 99.9% of the companies out there aren’t on the edge. Your example of the consumer products company who wants to focus on eProcurement is a clear example of this. I disagree with your harsh assessment of them and calling it an old school approach. The vast majority of companies need to walk before they run. They have finite resources that need to focus on distinct problems and address them. And, notwithstanding some of your example manufacturing companies and other Fortune 100 concerns, purchasing isn’t always a strategic differentiator, especially when it comes to the non-direct material, replenishment ordering. What we are hearing and fully believe, is that purchasing does need to put in processes and systems to make it easy for the company’s employees to procure the goods and services that are needed, so that those people can be efficiently doing their jobs. Those efficient processes are sustainable and critical. After that success, companies may go down the sourcing/spend analysis/risk management path. With positive outcomes from those initiatives, companies are able to plug the optimized decisions into their eProcurement or replenishment ordering processes.
I applaud your choice to do these Supply Management half-day forums and maybe we can join you when you come to San Jose. But don’t be too surprised if others out there are taking a more focused, basic blocking and tackling approach rather than the holistic, new mindset that you are promoting.
Noah
Coupa Software
2 Tim Minahan // Mar 23, 2007 at 3:20 pm
Noah:
Thanks for your comments. With your background, you know as well as anyone the challenges of successfully driving supply management transformation.
As for walking before you run, I’m all for it. In fact, the The 100 Greatest Supply Management Tips of All-Time book (www.topsupplytips.com) was designed specifically to share proven tactics to make those first steps to supply management improvement seem less intimidating. And the tips can be pulled off quickly and at little or no cost or without huge technology investments (Gasp!).
However, my experience is that automating the requisitioning process for indirect goods is not the best starting point, particularly for supply management teams that are under the gun to deliver results fast.
Why? Deployment can be long and costly. Adoption is a challenge. And supplier enablement remains an issue. (Not to be overlooked: Your company has done a tremendous job to address the first two issues. And you have come up with some novel approaches to the supplier enablement conundrum. Not to mention your simplified UI and unique use of Open Source.)
But let’s be clear: indirect procurement — while a big opportunity — still only makes up a fraction of total spending — even less if you remove services from the equation. This does not offer a strong platform from which to demonstrate supply management’s strategic value to the enterprise.
In short, streamlining the requisitioning process — while beneficial — does not return benefits as quick or as dramatic as effective strategic sourcing. Big early wins are critical to gain support and funding for additional initiatives (e.g., compliance management tools, such as e-procurement) that will help drive repeatable success and sustained results. In my opinion, even those folks that need to “walk before they run” should take their first steps with strategic sourcing. (Although true Olympic-caliber athletes would start by improving visibility and analysis of spending…but that’s another story.)
Don’t take my word for it, check out the latest book on “world-class” supply management technology strategies from Doug Smock, Bob Rudzki, and Stephen Rogers: “Many companies started with e-procurement of indirect spend and found doing so was much tougher than depicted. Even worse, some procurement leaders were “stained” by the damaging perception of senior management–an indelible picture of a struggling, multi-million dollar IT investment to save a few pennies on the pens and pencils stored in office cabinets. Not a good mental image for the people with purse strings who were looking for strategic intervention.”
3 Michael Lamoureux // Mar 23, 2007 at 3:44 pm
Re: “But let’s be clear: indirect procurement — while a big opportunity — still only makes up a fraction of total spending”
Depends on what the company does and what industry they’re in. Most of a manufacturer’s spend might be on direct categories, but most of a bank’s spend will be indirect spend (including services) and indirect (and services) spend can top 70% at some companies!
But yes, indirect is not the best starting point and is often best left to a procurement BPO with the skills and experience to handle it.
4 Kevin Brooks // Mar 23, 2007 at 4:00 pm
Tim, I think something that occasionally gets lost in this discussion is that companies are made up of people — not abstract roles — and those people have ingrained habits, fears, aspirations, etc., that can bring an unpredictable element into the best laid business process plans. You might remember that I was once in the healthcare technology world, and I saw this all the time in the way doctors reacted to computers or automation of any kind.
I suspect a savvy corporate apparatchnik can work the numbers to demonstrate a big bottom-line boost with ANY change made to the way a company does business, from repainting the lobby to getting rid of bottled water. I know it sounds like consultant-speak, but if the culture of a company is resistant to change, and if there isn’t effective leadership, technology alone (even 2.0 iterations) won’t turn that around.
The thing that is different now, I think, is that there is a new generation gradually coming into the workforce that has different expectations about technology, and about how technology supports/enhances business relationships. Just like the doctors who initially resisted automated medical records are gradually giving way to PDA-toting residents, I think the real 2.0 of the procurement world is in the next generation of leaders.
Good luck with the tour; maybe I’ll see you at one.
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