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 include the supply base.
The reality is that, no matter how much you try, only so much innovation and flexibility is going to originate from within your four walls. Most of the innovation, should you be ready to accept it, is going to come from your partners, and your supply base in particular. Furthermore, an A+ supply base can revolutionize the way you do business and significantly increase your profit potential. Consider the case of Zara, as discussed by Martin Hogel. Zara sells 85 per cent of its store stocks on initial price and the average in the clothing retail industry is 60-70 per cent. Zara’s on-target price:sales ratio is clearly an effect of a well-crafted and executed supply chain strategy … a strategy that is significantly increasing it’s revenue, and profit, by enabling it to outsell it’s competitors on an additional 15% to 25% of its product offerings.
While the obsessive customer focus discussed in the last post is critical, as Austen Bushrod notes, you need to get the supply base involved in that too because you truly need to have every stage of your supply chain involved to maximize your success. Even if it means, as Michael Walsh points out, that you have to nurture the supply base where they are struggling. After all, if you help them, they’ll remember that in your times of distress and help you. While there may be a few sociopaths in the business world, most people in business want to do what’s right, and that generally means helping you when you help them.
So how do you get there? As Guy Allen noted, you start with a transparency of information flow, then you, as noted by Colin Davis, cooperate, and finally, when it comes time for negotiations, leave the gun, take the cannoli. And before you’re done, you should, as Martin Hogel puts it, have a really good understanding of the structure of your supply base: which are strategic suppliers, which are, let’s call them preferred suppliers, and which are commodity suppliers or vendors. Then you can work with your strategic and preferred suppliers to come up with products and services that are truly value add to the customer, which, as per our last post, should be your obsession.
In our next, and final post, we’ll talk about how the final price of a flexible supply chain is eternal vigilance.