Today’s guest post is from Dalip Raheja, President and CEO of The Mpower Group (TMG) (former leader of the Strategic Initiatives Group for Bank One and former Principal of DEC) and a contributor to the News U Can Use TMG blog.
You are invited to the wake … the tab is on us!! This will be the last of our posts on the Death of Strategic Sourcing. It has become clear to us that most of our community is generally in agreement that we need fundamental change.
For those that still need a bit more convincing, you can look at an interview (Next Practices Innovators Award – Executives Who Elevate Our Function) with Lamar Chesney, CPO of SunTrust Bank and the keynote speaker at the 2010 Aberdeen CPO (Chief Procurement Officer) Summit, whom I first met at Tim Cummins’ IACCM conference earlier this year. Tim was kind enough to provide me with a stage and Lamar and I ended up having a follow-up conversation over some drinks (ummm, I think it was called Scotch!!). If a very senior and highly respected current practitioner is generally in agreement, then I think it’s time to move on. If you need further proof, there is a very interesting report by Kevin O’Marah (Supply Chain Almost at the Table in 2010) at Gartner that clearly points out that even after 25 years, we’re still not there. While the initial numbers look very good, it becomes clear when you dig inside the numbers that the picture is not quite as rosy as we think. “But before we get too excited about this trend, it’s worth asking whether or not the business really knows what supply chain is all about. Only 29% used the label ‘supply chain’ to describe this leader. Nine percent called it ‘procurement’. Another 9% chose the label ‘operations’, while yet another 7% said ‘logistics’. Forty-three percent of respondents were unable to find the functional title for their highest-ranking supply chain executive among these terms“. Bazinga!! Or, as Paul Harvey used to say, “and now you know … the rest of the story“. Basically what Kevin points out is that even though we may have made some progress, we are clearly not there yet.
What is interesting are the views that Supply Chain organizations have about their role. According to Gartner,
“The most encouraging facts revealed in this research have to do with the expanding view supply chain has of its own role. … In terms of priorities, although the No. 1 overall stated goal is still cost oriented (56% chose ‘reduce operational costs’ as one of their top-five priorities), the No. 2 is ‘improve customer satisfaction.’ And even though they’re lower on the list, competitive imperatives such as product innovation, or ‘getting new products to market faster,’ (28%) and risk management (24%) rated significant awareness”.
Two points I would like to make here. First, please note that cost continues to define us, but even more importantly, the second point is that this is supply chain’s view of its own role and I would humbly submit that at the end of the day, it matters not what we think of ourselves but rather what our stakeholders think of us. And I would further submit that if asked, most of our stakeholders would view us through the cost prism and not much else. And here is the money quote from Kevin: “Supply chain has a lot to do with whether or not a company wins its competitive battles, and it’s trying to get the rest of the business to see this. It’s time we get our story straight“.
If you need further proof, take a look at the recent cover story in CPO agenda that screams out “When do we get to SRM?“. Here are some of the statements that strike a chord with me:
- “… For all of the potential benefits, many organisations have struggled to make it further along the road to supplier relationship management than the contract monitoring stage ..”.
- “SRM activity is about value creation, not cost reduction ..”.
- “The best suppliers are going to be in demand ..”.
- “Those organisations that take the SRM approach with a supplier are more likely to be seen as a preferred customer … the benefits of SRM show it is about more than process and procedure. It also requires the right behaviours, skills, resourcing, and organisational backing to ensure it delivers to its maximum potential”.
- “The skills required for SRM are different from procurement’s traditional strengths, which underlines the importance of the people question — not only in development terms but in deciding whether it is procurement that should carry SRM responsibilities ..”.
That last quote should be very disturbing for us in the community because essentially the point being made is that procurement organizations are so mired in the traditional mindset of cost reduction that they don’t have the right competencies, and this is leaving value on the table. OK, so far that seems to be in line with what I said in Old MacDonald Was Right — It Is About E-I-E-I-O!), in The Sourcing Emperor Has No Clothes! and in Strategic Sourcing is Dead!!! (The Debate Rages On!). CPO Agenda even goes a step further in stating that perhaps Procurement is not even capable of handling such an important responsibility and perhaps it belongs somewhere else. Hmmmmm, I hope they are ready with their chain link armor to absorb the arrows headed their way because at least we were saying that we are more than capable of leading the charge on value.
Here’s what Jeff Dobbs, Global Head of Diversified Industrials for KPMG, had to say: “almost four in ten now acknowledge that driving down costs has damaged relationships with their suppliers“. “Those businesses that continue to follow the traditional low cost or bust models in supply chain management are at risk of losing a foothold in the market. … the expected marketplace winners are entering into strategic relationships with suppliers that not only deliver product, but provide innovation as well …”
Clearly, KPMG is also pointing out that this cost focus has actually destroyed value along the way. In fact, if you read the entire article, they point to this as additional risk being introduced by the sourcing organization.
Before wrapping up this conversation, I would be remiss in not pointing out the other part of the argument. Even if you think that you are a truly strategic organization that is adding significant value, we would postulate that there is still too much of a focus on the consonants (tools, process, technology, etc.) and not nearly as much as needed on the vowels (Adoption, Execution, Implementation, etc.). Even someone who has been called one of the greatest communicators ever (Obama) is now acknowledging that he paid way too much attention to the legislation and policy (consonants) and not nearly enough to the politics and selling of the change (the vowels). Whether you agree with him or not politically, he is clearly pointing out the imbalance between the two and how it has hurt him dramatically.
I would also point to the series of posts by the doctor recently, where he has been analyzing this whole notion of “strategic” and especially the last one on the one commandment of value. I like the simplicity of that. It’s easy to absorb and talk about. I would hope that we can all agree that the definition of value requires a fundamental shift in the way we think and conduct business and that value goes way beyond what most of us have defined and measure today. If all it means is nibbling around the edges and focusing on more spend analytics and risk frameworks, then I’m afraid that the doctor and I will agree to disagree.
To those that think this debate is “nonsense”, “the most laughable statement”, “nothing more than market pitches”, “a long winded rant”, “an outlandish attempt to call attention to the idea” … we wish you all the luck and success in the world. To the rest of the community, many thanks for the support and encouragement, let’s continue our conversations and focus them now on solutions. We have already partnered with IACCM to conduct a research project on some aspects of this issue and will continue to look for others who wish to engage in constructive confrontation. But for those critics that still refuse to concede, we are in the process of documenting a case study where this process was implemented at a Fortune 10 company with incredible results.
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