In this post, we continue our coverage of Succeeding in a Dynamic World: Supply Management in the Decade Ahead, a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research in an effort to update the 1998 CAPS Study on The Future of Purchasing and Supply: A Five and Ten Year Forecast. The heart of this report was seven critical supply strategies for succeeding in a dynamic world. This post, and the six posts that follow, will focus in on each of these strategies in detail, starting with the development of category strategies.
Category strategies are designed to maximize value by leveraging resources and capabilities. In the future, changes in business models, industry structures, technologies, customer demands, environmental regulations, and a host of other factors will change not only how value is defined but how external resources and third parties help you deliver it. We’ve already seen the transformation from “best price on assured supply” in the early 90’s to total cost of ownership in the early 00’s.
However, as the doctor has been predicting for quite some time, we’re starting to see the push towards total value, which will increase as time goes on. For example, as noted in the report, companies are now looking at options to outsource business processes and activities that are not core strengths, creating new categories, and for suppliers with capabilities that can add new types of value. For example, engineering companies are no longer looking for the lowest cost suppliers, but suppliers with NPD (new product design / development) capabilities and suppliers who can improve the the design of existing products. In the future, leading companies will seek to gain access to, and leverage of, each other’s value chains as a way to enter into new markets.
Category strategies – which will address how companies speed NPD, how they implement the best value for a category worldwide, and how they stimulate the creation of new products and services with the support of suppliers – will focus on the total alignment of customers and suppliers to meet competitive objectives across the end-to-end supply chain. For example, a robust category strategy could include multiple and concurrent initiatives, including low cost country sourcing, design specification change, and switching suppliers to increase product innovation and supplier development.
The report also noted that the time horizon for category strategies will extend beyond the typical time frame of three years (or so), to six or even ten years. Moving production from mature to developing countries, developing performance and capabilities knowledge about best-in-class suppliers, developing supplier relationships and establishing on-the-ground supply-market and government regulation knowledge all takes years to accomplish. Furthermore, given the short life-cycle of many of today’s consumer products, while you’re sourcing today’s product, you need to be actively engaging with your supply partners that are going to help you design tomorrow’s product and prepare it for production, while also engaging innovation experts to help you brainstorm the product that will replace tomorrow’s product.
The report also polled professionals on which strategies will be the most important in the days ahead. The top six strategies identified were:
- Aggregation and Management of Total Expenditures for Key Categories Across the Enterprise
- Spend Analysis in Products and Services
- Drive Decisions with Total Costs
- Develop and Manage Supply Strategies using a Formal Process
- Price Benchmarks
- Improve Price Forecasts
The report also found that the category strategy portfolio will have to increase significantly, and that the tools used to evaluate strategy alternatives and risks/rewards will have to multiply as well. The report highlighted the following strategies and tools as important extensions to your current strategy portfolio.
- Supplier Integration into NPD and Order Fulfillment
- Risk Mitigation and Contingency Planning
- Total Value Measurement and Learning
- Change Management
- Category Strategy Documentation
The chapter concluded with some generic strategy enablers that will help you regardless of the strategy you employ:
- Executive Engagement
- Cross-Location and Cross-Functional Teaming
- High-Quality Spend Analysis
- Category Research, Fact Finding and Analytics
Finally, I’d like to point out that the report has a very good table on page 47 that compares the differences in strategy development and strategy enablers between the decade ahead and the decade past. The table alone is worth downloading the report for.