In Part I.i we reviewed the introduction to Bob & Doug’s (& Michael & Shelley’s) classic Straight to the Bottom Line: An Executive’s Roadmap to World Class Supply Management in anticipation of Bob and Bob’s new text on Next Level Supply Management Excellence: Your Straight to the Bottom Line Roadmap which is coming out next month on June 28. Then in Part I.ii we reviewed the seven-step process that an organization could follow to get from where it is to where it needs to be. This was followed with a review of some case studies and insights from best in class in Part II. In the next two posts that comprise the third and final part of our book review, we will cover the best practice ABCs that will help you get to best-in-class more efficiently while increasing the effectiveness of your Supply Management organization.
In this third part, the authors cover ten techniques that an organization can use to take its Supply Management up a notch. In a nutshell, these techniques, which will be covered in today’s and tomorrow’s post, are:
Strategic Sourcing is the cornerstone of World Class Supply Management and without the foundatons it provides, an organization will not get to the next level. The fact based, rigourous process that involves substantial internal data gathering and evaluation, and extensive external data gathering and interactions, in order to select the most appropriate strategy and negotiations approach and ultimately select the right supplier(s), it transforms conventional purchasing into a strategic process involving all appropriate stakeholders in a company and add[s] significant value by reducing total costs relating to purchased goods and services. Depending on whom you consult, it is usually a five to nine step process, with seven steps being the most common. The classic A.T. Kearney model has the seven steps of sourcing group definition, sourcing strategy, supplier portfolio, implementation path, negotiations management, operational integration, and continuous market benchmarking where the right strategy depends on business impact and supply market complexity.
Sourcing events will be tackled in waves where easy, high opportunity categories will be tackled first, followed by moderatly complex, high opportunity categories and then, finally, by difficult high opportunity categories. Only once the high opportunity categories have been sourced will catgories with lesser opportunities be considered, and only if it’s not time to circle back to new, easy, high opportunity categories.
Supplier Relationship Management
Companies at either end of the supply chain can sharply differentiate themselves if they apply a differentiated structural approach to their relationships with each other. Given that new product development time in 2005 was 12% less than 2000, that revenues from new products was 70% higher in 2005 than it was in 1998, and that product development time was trending downward while new product revenue was trending upwards, competitive pressure is increasing and the chances of success in key categories without collaboration are getting smaller by the day.
Strategic relationships with strategic suppliers are becoming more important by the day. However, the right relationship is needed with each supplier, and the right relationship depends on the category, the readiness of each party for a true partnership, and the complexity of the market. Depending on these factors, and the supplier’s view of the buyer, the right relationship might be transactional, basic, strategic, or equity. However, regardless of the relationship, management is important and management should be done to metrics that measure what’s important.
Supplier Diversity & Supplier Recognition Programs
Diversity, which fits into corporate social responsibility (CSR) programs, is an imperative for many companies, and those that do business in the public sector in particular as some government programs are only for those organizations that award a certain amount of their business to minority suppliers. Furthermore, with minority-owned businesses expected to be 37% of the market by 2020, getting a jump start is a good idea.
Supplier recognition programs recognize and reward an organization’s best suppliers. They are important because:
- they reinforce your company’s expectations that suppliers must perform
- they create a powerful incentive for a winning supplier to work even harder to win again
- they create a powerful incentive for a non-winning supplier to step up their game for a chance to win next year
- they raise the “performance bar” which benefits your company
Low Cost Country Sourcing (LCCS)
Low Cost Country Sourcing (LCCS) was the name of the game in the early naughts, with the trend in some industries (like electronics) to source from low cost locales being dramatic. Some companies source over 70% of their supply from India and China. This is not surprising considering that, when done right, LCCS can take 15% to 25% off of a category’s costs, and there are documented savings of 29% at some companies.
However, LCCS is not a one-size fits all approach and a fair amount of complexity has to be resolved before a decision can be made. LCCS involves the following, often unique, complications that must be addressed
- country risk
- supply disruption risk
- extended lead times
- safety stock
- assessment of creditworthiness
- supplier capability determination
- business practice, and ethical, differences
- productivity differences
- shipping costs
- trade regulations
- technical differences
- foreign currency (exchange)
- local customs
- legal domain
- in-country infrastructure
For more details on the effective use of strategic sourcing, proper supplier relationship management (SRM), effective use of supplier diversity and supplier recognition programs, and LCCS (re)read Bob & Doug’s (& Michael & Shelley’s) classic Straight to the Bottom Line. It’s packed with insights on every single page. In our next post, the final of this series, we will review, at a high level, the final set of best practices covered in Bob & Doug’s (& Michael & Shelley’s) classic text in anticipation of Bob and Bob’s new text on Next Level Supply Management Excellence: Your Straight to the Bottom Line Roadmap.