This post continues 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), and concludes our review of the seven critical supply strategies for succeeding in a dynamic world in particular, tackling the sixth critical supply strategy identified by the report – enabling the supply management organization.
Over the past decade, companies have responded to strong competitive pressures by increasing the centralization of supply management. However, these strong competitive pressures have resulted in the need for an organization to implement best practices across the organization. To achieve this goal, companies are moving away from classic centralized organizations toward more center-led, hybrid, shared services organizations to allow them to take the best of the centralized and decentralized structures. Companies that have implemented these center-led organizations have, generally speaking, reduced costs, increased control over spend, and increased the value gained from the supply base.
Even though the research found that the top two strategies companies intend to use to enable the supply management over the next decade will be to (continue to) use a center-led model for supply strategy development (with decentralized execution) while centralizing strategic responsibilities, the authors note that the research data suggests that in some organizations, the supply organization, or part of it, will need to be tailored to respond to the external forces impacting the business the most and to align with the business model. This may mean that some categories need to be fully centralized while others need to be fully decentralized. The role of the center-led organization in these cases will be to fully manage the categories and transfer the knowledge required by the necessary (remote) personnel to order off of the enterprise contract in the first case and to provide the remote units the guidance they need to fully manage their categories in the second, while also insuring that all spend transactions are recorded in the central data store.
The report also notes that the following forces, strategies, and operational requirements will be quite significant in the decade ahead:
- Need for Local Leadership
- Cost Savings from Aggregation and Standardization
- A Decline in Upward Pressures on (Some) Commodity Prices
- Embedding Best Practices and Processes in Technology
- Increased Mobility and “Instant” Productivity through Common Processes
- Cross Unit Collaboration through Technology
- Increased Control for Business Units
- Appropriate Location of Supply Management Expertise
The study also found that continued pressure on supply management will drive more companies toward greater automation or outsourcing of select parts of supply management. Companies will centralize and automate transactions and free up resources or higher value supply management work, such as strategic sourcing or spend analysis.
Companies will also take a more holistic view of measuring supply management performance, using a balanced scorecard that balances cost savings, total cost of ownership, contribution to the business units and corporate, value achieved beyond cost, and predictive metrics that cover the financial, customer, operational, and innovation aspects of the supply chain.