Spend Matters on SCM: Same Old, Same New

This is part one of a three-part series.

At the recent 6th International Symposium on Supply Chain Management sponsored by PMAC and the DeGroote School of Business at McMaster University, Jason “The Prophet” Bush of Spend Matters gave his trademark “Emerging Issues in Procurement and Supply Chain Management Soapbox Presentation. For those of you who’ve heard it a few times before, it was the same speech he gave last year (and the year before), except it wasn’t … it was the same speech, updated to take into account the topsy-turvy roller-coaster of a year that we’ve been having and reflect the most current issues on the plate of supply management professionals everywhere.

Although I don’t have the space to cover the entire 48 page presentation within a single post (since my fellow blogger would do an auctioneer proud with the speed at which he delivers his observations and musings), I will try to highlight some of the more prominent points, and, in particular, the new points that the Spend Master is making in his fall conference tour.

In brief, costs are skyrocketing (as it now costs almost twice as much to make a penny and a nickel as they are worth), the trade climate leading up to the election is not a great one, stagflation is back, and the financial markets are melting down everywhere, which is in turn causing liquidity concerns and restricted access to desperately needed capital for your suppliers. This is, in turn, leading to economic declines and reactionary corporate cost cutting. The net effect is that we essentially have the perfect storm to upset the apple cart. And things could still get worse before they get better, especially since supply risk is also rising by the day. (This is where all of the analyst firms agree. The statistics indicate that you will experience at least one supply disruption this year. And this is true whether we are talking about products or services.)

In fact, supply risk is getting so bad that it’s not enough for a supply management professional to be a sourcing savior … a supply manager also has to be a wizard of risk. According to Jason, today’s sourcing leaders:

  • view procurement as more than just “strategic” but as an integrated business function
  • do more with less by making aggressive use of technology and the competitive advantage that good information provides them
  • focus on risk and performance management, especially in the context of all global activities

They do this because they recognize that sustained procurement results are the result of a complete evolution of the function.

Furthermore, leaders of top performing organizations spend more on technology and people, and save almost three times as much by doing so. Consider the recent findings of the Hackett Group*:

Area Average World Class
Annual Procurement ROI 281% 694%
Tech Cost per Proc FTE $12,476 $24,507
Cost per transactional FTE $55,060 $51,001
Cost per strategic FTE $81,574 $106,366
Involvement in Enterprise Budgeting & Planning 31% 55%

Finally, leaders recognize that the procurement landscape, including the procurement technology landscape, is changing, and they do their best to keep up. For example, if they heed the words of the Spend Master who predicts that the emphasis on procurement technology will shift away from the world inside to the world outside — to focus on all of the opportunities and associated risks that the outside world brings with it, they will start looking for new technology that enables them to better access and utilize the information sources that is available to them from both inside and outside the four walls of the organization.

After setting the stage and defining what leaders do, Jason concludes with his five — new and improved — predictions on where supply management is going. In the new Spend Matters world view:

  • Procurement becomes as much about staying out of the headlines as it does about getting results
  • Top performers will follow Teddy Roosevelt’s adage: “speak softly and carry a big stick”
  • Si hablamos espanol … as the US gets over its love affair with China when it comes to global sourcing
  • The management of information becomes the holy grail of all procurement and operations success
  • Metaphorically speaking, the procurement combustion engine (and car) has now been invented — now the focus will turn to everything else that must come along with it

Come back tomorrow for part two.

* For more information on the Hackett Group findings, contact Pierre Mitchell at pmitchell <at> thehackettgroup <dot> com.