For a number of years we’ve been watching the trend of supply managers to think more strategically, for instance, looking for ways that relationships with suppliers can bring innovations that could increase sales instead of simply reducing costs. The Hackett Group recently released a research alert that confirms that trend. Read it here.
The report is based on an annual survey of procurement leaders, and this year’s survey found supply managers looking past cutting or containing costs to more strategic priorities as expanding the scope of procurement’s influence on spend and tapping suppliers for innovations.
The Hackett Group Global Managing Director and Procurement Advisory Practice Leader Chris Sawchuk said, “We believe many procurement organizations have reached the upper limit of cost reductions possible in categories they are actively sourcing today. So they’re looking for ways to reinvent their value proposition. A key part of this is expanding their influence, and taking a life-cycle approach to category management. This requires working more effectively with spend owners, executives, requisitioners, suppliers, and other stakeholders. It also calls for skills that are outside procurement’s traditional areas of expertise.”
The big idea from this research is that long term success for supply managers comes when they think like a CEO. However, as we all know, if you are stuck in the swamp it’s darn hard to see what it looks like from the mountaintop. To get from here to there it may take investments to raise your skills and those of the team around you. It may take a continuous process improvement approach to the work your department does, and it may take investments in technology to reduce the transaction costs of non-strategic purchases. In short, you may have to start thinking like a CEO of your team before you can align with the CEO of your organization.
Posted in Professional Development, Staff Skills, Supplier Relations, Transformation
Tagged cost containment, global business, procurement, purchasing, sourcing, Supplier Relations, supply chain, supply management
Early in my career I bought parts to build typewriters — which happened to be important pieces of equipment for purchasing departments everywhere because manually typing purchase orders was one of our important functions. The typewriter and that job became obsolete together.
I was reminded of that by an article in Forbes about how “We Need to Change How We Think About Talent.” It points out how the skills needed to succeed are always changing. Technology is an important part of that. We don’t need typewriters and clerks to manage a supply chain any more, we need sophisticated technology and skilled professionals. And as supply management is more tightly integrated with overall corporate strategies, the breadth of those skills is constantly increasing. It’s uncomfortable for some of us, but we really ought to embrace it. The fact is that software is doing to cubicle work what automation did to the factory floor — replacing people who did repetitive tasks.
The only way to stay on the top of your profession is to become a continual learner. World-class supply organizations have recognized that, but you don’t have to be part of a global purchasing operation to find opportunities for learning. I’ll put in my pitch for ISM educational resources, because they are very accessible to any professional and can lead to credible professional credentials. However, a number of degree-granting universities are also very active in online programs, if that’s your goal.
Most Americans probably couldn’t locate Crimea without the help of Google Earth. (It’s the peninsula that juts south from the northern coast of the Black Sea.) Nevertheless, the actions of the Russian army in and around Crimea are sending shock waves through some key commodity markets, including oil. Here’s the Washington Post coverage of the story.
Have you felt any effects from the spikes in market prices? Even if you have not, this is another reminder that your supply chains likely have connections around the world that may not be obvious from your first tier suppliers. It’s good practice to map your supply chains and analyze scenarios for disruptions that could happen at any moment.
While the chances of any individual incident might be very small, there are so many potential disruptions that it is quite likely something will go wrong sometime. Smart supply managers build risk management strategies into their planning to accommodate them.
Posted in Commodities, News Analysis, Risk Mitigation
Tagged commodity prices, fuel costs, global business, oil prices, procurement, purchasing, risk management, sourcing, supply chain, supply management
The ISM Manufacturing Index this month showed that the overall U.S. economy has been growing for 55 consecutive months. The manufacturing sector has trended positive for seven straight months. Employment numbers aren’t terrific, but they aren’t terrible either. These are generally favorable signs for business — but they suggest higher pressure on buyers to contain costs. Based on our experience and work with current clients, here are five predictions for the year ahead.
1) Buyers will see increasing pressure on pricing as industries with tight capacity or depressed margins attempt to improve margins.
2) Buyers will find longer lead times and reduced capacity as suppliers have left industries as a result of recession and remaining suppliers are enjoying higher margins based on high demand and low supply.
3) Talent management and development will be critical to the success of supply chain management success.
4) New government regulations in health care, energy, banking and other sectors will increase complexity, compliance and cost.
5) More procurement and supply chain leaders will reach the C suite.
How does this match what you are seeing?
Posted in Commodities, News Analysis, Report on Business
Tagged commodity prices, cost containment, global business, manufacturing, procurement, purchasing, sourcing, supply chain, supply management
The global economy is at a point now where more companies are considering mergers and acquisitions for various strategic purposes – and one of them is often perceived savings from consolidating purchasing and supply management functions. And while it is generally true that consolidations can generate significant savings, the execution is always harder in practice than it is on the org chart. It’s a case where more does not always lead to less — in this case, lower costs. Here are a few things to consider:
Knowledge is power. Conduct baseline assessments of supply management functions in each location or division. At a minimum there are likely differences in systems. In a worst case, there could be a huge mismatch where one division has a purchasing department fulfilling a purely administrative function while another has a supply management operation that operates at a strategic level working with cross functional teams driving innovation and quick market responsiveness. No easy blending in that situation.
Change is hard. Expect resistance both passively and actively. Some people will naturally prioritize saving their job over saving money for the firm. Others will just find adjustments to new procedures difficult. Create cross functional and cross-location teams to work on projects, and use specific stakeholder engagement strategies to help team members understand and work with each other.
Parts are parts – or not. Not every category of purchase is suitable for centralizing under a corporate purchasing center. What may seem like a commodity may have subtly different specifications for different locations. Analyses of where to source ought be based on the total cost of ownership – not necessarily a simple benchmark price.
Look for the low-hanging fruit. There are often significant savings in indirect categories where the ownership of the spend is dispersed. In your baseline assessment, identify those areas where a quick change can make a big difference. When executive management sees savings it is more likely to provide the support you need to implement more complex, long-term supply changes.
We regularly write about using your supplier base to bring innovation to your company, but here’s a twist on that theme. According to Crain’s Detroit Business, Ford patented a process for welding aluminum, then shared it with a supplier to develop the technology for production. The deal was made under the umbrella of minority supplier development because the supplier is minority-owned. But it also takes advantage of the supplier’s knowledge and experience. Who better to take an idea from the lab to the assembly line than someone who is already fabricating aluminum in production volumes?
There was a time when automakers would develop a new process from beginning to end, then simply dictate to suppliers how it would be implemented. In practice, that approach only gets you to the starting line. Sharing development responsibilities sets a better foundation for improvements even after the process is production-ready.
Automakers have a bad reputation for supplier relationships, so it’s good to see evidence of more collaborative approaches.
Posted in Auto Industry, Supplier Relations
Tagged automotive, Ford Motor Co., global business, manufacturing, minority supplier development, procurement, purchasing, sourcing, supplier innovation, Supplier Relations, supply management
A few years ago when the global economy was in a funk, companies could point to their own cash-flow problems as they extended their payment cycles to 90 or even 120 days. That’s a pretty hard case to make now that the economy has been growing for more than four years straight (according to the ISM Report
Nevertheless, it’s apparently not that uncommon still. In fact, British Prime Minister David Cameron has started talking about legislating limits to late payments. Here’s the coverage a Twitter follower of mine found in The Guardian.
Pushing payments out to four months certainly gives a boost to factoring companies, which will advance funds based on invoices. And it may help a company to winnow out weaker suppliers for components or services that are easy to source. However, for critical parts or strategic suppliers that are bringing your company innovations or unique value — slow payments are a good way to dry up the working capital your suppliers’ need for expansions, replacing equipment or R&D. Or worse, drive them to take their unique value to your competitors.