Demand-Driven Transformation to Strategic Supply Management

Add comment August 6th, 2007 David Bush - Iasta

In a recent email from Supply Chain Brain, there was a summary of some AMR research by Mickey North Rizza and Jane Barrett named Advanced Sourcing and Procurement: The Demand-Driven Transformation to Strategic Supply Management. They surveyed over 40 companies on various topics to come up with findings in seven broad categories.

Our research also highlights that the split between direct and indirect spend categories across different industries makes a material difference on the metrics and priorities of the sourcing and procurement strategy.

1. Organization and leadership–In leading companies, value chain executives already guide sourcing and procurement strategies to provide profitable relationships with customers, suppliers, and partners. More mature companies have sourcing and procurement reporting into a supply chain leader who also owns manufacturing and, in many cases, engineering/R&D and customer service as well. The debate is no longer about centralized or decentralized structure, but rather on how to achieve outside-in, optimized spend management. Leading companies proactively involve the chief procurement officer (CPO) in business and strategy planning as part of the supply chain team.

2. Skills and talent–Across all industries, there is a shortage of skilled supply chain and sourcing and procurement professionals. In order to address this gap, 90% of companies interviewed have cross-functional education and rotation programs in place to develop and retain deeper strategic thinking and global supply chain skills and experience.

3. Performance measurement–As the ability to save costs goes down, employee and supplier performance measurement and development programs identify the lowest total cost of ownership and cost avoidance while improving efficiency, effectiveness, complexity reduction, responsiveness, and innovation.

4. Cost/value tradeoffs–Risk management, complexity reduction, and sustainability must be factored into the process, through which companies use leverage and make tradeoffs in decision making, and embedded into the supply chain strategy.

5. Business processes–Multitier visibility, business process automation and outsourcing, workflow management, and lean are the cornerstones of sourcing and procurement transformation. Companies are re-engineering sourcing and procurement strategies and measurement practices that were based on centralized shared service capabilities to deliver economies of scale to now deliver the outside-in demand responsiveness required in the value chain strategy.

6. Innovation–Leading companies use sourcing and procurement to link the value chain to external upstream and downstream sources of innovation. Supplier innovation improves product and process differentiation, but requires sourcing to be involved early in the design process. Leading companies also focus on innovative ways of streamlining and cost savings on indirect (auctions in health care, for example).

7. IT strategy–The portfolio of current supply chain and procurement applications provides a solid and necessary foundation, but is not sufficient to support the global value chain strategy. Leaders are adopting a new category of web-service-based business process applications to extend global visibility and processes outside of the traditional four walls of the buying organization.

Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology