Last week explored the four levels of Value Focussed Supply (VFS) as put forward in CAPS’ recent research report on Linking Supply to Competitive Business Strategies and the holistic approach put forward by CAPS to get more value out of your Supply Management Organization.
There were a lot of good suggestions in the four levels of value focus put forward by CAPS, but a lack of realistic starting points for an average organization that needs to merge onto the value focussed path. As per the second post on the elimination of value leakage, it’s hard to protect revenue if the key revenue streams are unknown. It’s hard to reduce cost if cost has not been baselined. It’s hard to reduce working capital requirements if they, and the reasons for, aren’t understood. And it’s hard to protect corporate reputation if the risks are unknown. But how do you identify key revenue streams? How do you baseline costs? How do you document working capital requirements? And once costs are baselined, how do you go about reducing them in such a way that working capital and corporate reputation are not negatively affected?
You start with information. Information helps an organization baseline costs. Information tells the organization what its working capital requirements are. Information tells an organization what its corporate risks are. And, most importantly, information tells an organization what options it has for reducing costs that won’t negatively affect working capital and corporate reputation.
So where does this information come from? Data, and an analysis of that data. Where does the data come from? Some of it should come from internal systems, from which it will be amalgamated with a spend analysis system into meaningful reports. But the rest should come from (prospective) suppliers, who have access to data that the organization does not.
But how does an organization get that data? The obvious answer is through an e-RFX application, but it’s not that easy. Why not? It’s one thing if the organization is spot buying silver and there are only three suppliers with a surplus available within the immediate area of the factory that needs it within three days and the only information that needs to be collected is the purity, price per pound, and cost of transportation if the supplier delivers, but it’s another thing completely if the organization is renegotiating it’s global transportation contracts. The first situation is a few dozen bids. The latter could be a few hundred thousand bids. Assuming the organization can identify all of the bids that it desires, how does it get the suppliers to provide that much information? No supplier wants to get a bid sheet that requests multiple LTL rates and TL rates for 5,000 lanes … especially if it only services 2,000 of them. A simple RFX isn’t going to solve the problem. So what is?
Tune in tomorrow because, as Number 2 would say, “we want information … information … information“.
