Supply Excellence — Supply Management: From Cocktail Chat to Business Value

Supply Management: From Cocktail Chat to Business Value

July 24th, 2007 · by Tim Minahan · No Comments · supplier management, supply management

Today, Supply Excellence would like to welcome Chris Happ, Executive Vice President and co-founder of blueSolutions Inc., a technical and business strategy consulting firm focused on assisting with supply management technology and strategy deployments. A veteran consultant himself, Happ tackles the ever-elusive questions of What is supply management, really? And how can it deliver value to both the top- and bottom-lines?

At social gatherings, we are all forced with answering that inevitable introductory question, “What do you do?” As I answer Supply Management, I am often greeted with confused looks.

As I try to simplify and answer, “You know…reverse auctions,” I am quickly greeted with dirty looks, or in the best case, a mildly amusing response about saving a gas company money.

Little do my detractors realize, I am on their side in this struggle to define Supply Management, and I am as worried as they are about where it will end up.

We have an excellent opportunity to define what an efficient supply-chain means. Oddly enough, little of it has to do with price. The question of how we accomplish this efficiency is much more intriguing, and I will focus on the three key principles global leaders demonstrate in this area.

Analyze – Understand your population of suppliers as well as your costs of doing business with a supplier. What costs your organization the most money – ordering, invoicing, paying? While transacting with you, what expenses do your suppliers incur that make their costs rise? Understanding these costs is the first step to eliminate unnecessary expenses from the relationship. One of the most common failures in this area, especially with the increased adoption of Procurement technologies, is the notion that spend under management is the primary measure of success. In many cases, it is more of an outcome, as many of our customers have achieved significant savings by focusing on eliminating manual processing of low-dollar high-transaction counts such as Office Supplies and Telecommunications invoices.
Enable – Build an efficient network in which to transact business with your suppliers. Technology, while certainly only a portion of the puzzle, can allow for expensive and inefficient processes to be reduced or eliminated. Creating an effective way of transacting business can reduce transactional costs on both sides, thereby allowing the savings to be redistributed between Buyer and Seller. One common success we have seen in this area has been the growth of Supplier Networks such as those provided by leading e-procurement vendors. Many of our customers have reported 15-20% cost reductions due to the expanded adoption of such connection hubs. Of course the challenges remain in adopting standards, interconnection between Networks, the cost model employed by the provider, and the ease of supplier adoption.
Manage – Most important, understand the relationship you have with your supplier. Categorize them into quadrants and offer them opportunities based on strategic need. I certainly don’t worry much about where I buy my next pen, but my haircut is a different story – I want my barber to be incented to look out for me. One of our largest customers is a pioneer in this area where they segment suppliers and offer those top few hundred global partners guaranteed contracts based on jointly developed cost savings opportunities. Those strategic suppliers are considered critical to the bottom-line success and collaboration at the highest-level of the organizations occurs on a quarterly basis.

Everything I have noted here is focused on the Buy-Side, but Suppliers, you are not immune in any of this. You must make the same assessments and respond accordingly; otherwise price will continue to be the obvious measure of differentiation.

Our global economy with connective technology offers many opportunities for developing efficient networks and relationships –it is the true leaders, who will take advantage, and emerge successful in this, as Thomas Friedman appropriately puts it, ‘flat world.’

Thank you, Chris, for bringing clarity to an often overlooked subject. Your advice also provides a good framework for companies to consider when structuring a supply management improvement effort.

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