In addition to the risk management issue, the Supply Management 2.0 Forum in New York last week rekindled the old (tired?) debate on the differences between supply and spend management. 

When discussing his group’s supply management transformation initiative, National City Corporation CPO Jean-Jacques Beaussart summed it up this way: “e-Sourcing and supply management is about real cash savings. e-Procurement is about knowing and controlling our company’s behavior.”

Armed with this insight, National City has segmented tactical transactional activities (i.e., procure-to-pay) from strategic sourcing and supplier management activities from both an operational and systems perspective. The below slide provides an excellent visual overview of how National City has structured its supply management and procurement operations and where they intersect:

(Click graphic to enlarge.)

This approach is becoming increasingly popular among supply organizations as they begin to recognize that the once-heralded requisition-to-pay process improvemetns touch only a portion of total spend and often take years to effectively deploy. Evidence the fact that National City only manages about 25% of its total spending through its procure-to-pay system. “And we accomplished that primarily by digitizing our invoices,” said Beaussart, noting that his company currently uses a variety of applications from multiple vendors for the procure-to-pay process.

By contrast, National City has established a matrixed organization to manage strategic sourcing, contract compliance, and supplier performance and risk management activities. Every member of this strategic supply management group is Six Sigma certified and trained in a supply management-specific change management program. The group relies on a single, integrated platform to manage information and processes across the sourcing, contract, and supplier management lifecycle. “As the CPO, I have an online dashboard view into all sourcing, contract, and supplier management projects and information so I know what’s going on in my organization every day,” said Beaussart.

He has wisely linked his strategic supply management group to the businesses in the following ways:

• Strategic sourcing management for National City’s two key businesses (Mortgage and Banking) — with responsibility for sourcing and compliance across all major spend categories, including outsourcing, corporate services (e.g., labor, print, travel, etc.), and information technology.
• Supplier management — which manages supplier relationships and promotes common supplier performance measurement and risk management across the corporation.
• Strategic initiatives and risk management — which is responsible for supply management technology deployment, ongoing risk assessments and mitigation, contract and compliance management, and supplier diversity and development initiatives.

The supply management group works closely with National City’s CFO to validate and approve all sourcing and supply savings. Once approved, savings are removed from the business budgets. (More on that in an upcoming post.)

The decision to segment tactical purchasing activities from strategic supply management operations and systems has allowed National City to fully manage all spending and to drive quick and measurable improvements in supply cost and performance. This bifurcated organizational and systems approach has been embraced by other leading enterprises — like Barclays and UPM — that are attempting to make strategic supply management a core business practice and to transition transactional procure-to-pay operations a shared service that, if appropriate, could eventually be outsourced.