In this post, I’m going to discuss highlights from the CPO Executive Debate on the price of flexible supply chains and focus on why you have to take a strategic focus.
In response to whether a CPO would be prepared to be more fluid on quality or on price in order to get that flexibility, Colin Davis said that their organization’s primary goal is going all the way back to the sourcing decision and making sure that they have got everything absolutely aligned to business drivers with the initial contracts and also in the relationship going forward. In response to whether non-retailers get this flexibility to be part of the corporate strategy, Andrew Vaughan said that it comes down to the link with the market, and that if you start with the market from a strategic perspective and work back down, then to my mind it is just about effective communication. And in response to what extent might they be out of the loop if the stakeholders are talking to the suppliers directly, Andrew then said you want your stakeholders to engage because you want to drive innovation. What we try to do is operate cross-functionally so we go together as a team and discuss innovation; we discuss delivery and we discuss quality and costs.
Clearly one of the primary prices of flexible supply chains is strategy, but this is a good thing. Because when you get right down to it, your ultimate success or failure comes right down to your supply chain strategy. If your strategy is to ocean freight high-priced low-volume consumer electronics like laptops, tablets, and cell phones to try and save a few dollars on freight, which is a rather low percentage of the total cost of these items, instead of air freighting them in well-engineered, low-volume, packaging, you’ll not only have difficulty responding to demand changes (when it takes three weeks to restock instead of three days), but lose more in market value than it costs you to ship the products (as most products depreciate in value a couple of percentage points a month).
Furthermore, if your strategy is purely to get the best price today and you overlook the going-forward innovation capabilities of a supplier who could be a strategic partner and who is willing to work with you to take cost out over time, you could not only be giving up 5% year-over-year savings in the future, which the supplier might be willing to commit to because your contract will enable them to purchase more efficient equipment and institute more efficient processes, but a potential source of innovation, integration, and/or inspiration that could be the source of the next big breakthrough in your market … which the supplier might end up taking to an emerging competitor who is willing to look beyond current cost to future value.
You need strategy, and in particularl, you need a strategy that is collaboratively derived through the participation of stakeholders because if what you have is a failure to communicate, your supply chain won’t be very effective, with everyone walking around blindly with dead eyes, following orders, not knowing what they do, not caring. If you want to succeed, you have to remember that your assignment tonight is strategic. You can’t give the enemy a break and the only way to win is to saddle up, lock and load and tackle strategy head on. But with double digit percentage returns available from strategic spend analysis, strategic sourcing enabled by advanced negotiation methods (such as strategic sourcing decision optimization), and global trade visibility, what do you have to lose?
In the next post we’ll address why a customer obession has to be part of this strategy.