Daily Archives: June 17, 2011

Supply Management: Secret Agent of Business Impovement (Key NPX Take Away 5)

James Bond Theme Song

In our final post for the week on our discussion of the key take aways from The Mpower Group‘s Next Practices Xchange and its discussion of what is required to get to the next level of supply management, we finally get to what matters most: A Next Level / Practice / Generation Supply Management Organization that identifies, secures, and executes on value is the Secret Agent of Business Improvement and every Supply Management Professional is an organizational 00 with a license to kill [waste].

Of all of the messages delivered at the NPX, this message from Alastair Donald, the Chief Procurement Officer of Global Procurement Services of ConocoPhillips Company (which currently holds the #4 slot on the Fortune 500) is probably the most important. Supply Management is the secret agent of business success, and ConoccoPhillips continued prominance in the top 10 of Fortune 500 over the last five years years (#6 in 2010, #4 in 2009, #5 in 2008, #5 in 2007, and #6 in 2006) is largely due to significant improvements in Supply Management over the last four years, which went from delivering, on average, a low single digit annual cost reduction from 2002 to 2006 to a low double digit cost reduction from 2007 to 2010. (While SI cannot release exact numbers, the improvement is very impressive.)

So how does Supply Management deliver such significant improvements to the business? First of all, it gets its house in order and ensures that the following ten functions are adequately staffed by its secret agents:

  • Strategic Sourcing
  • Contract Management
  • Category Management
  • Materials Management
  • Supplier Relationship Management
  • Talent Management
  • Procure-to-Pay
  • Governance & Compliance
  • Sustainable Sourcing
  • Market Intelligence

Then it addresses the threats to national security (and organizational stability):

  1. tactical focus
  2. wrong skill sets (engineers are not enough)
  3. ineffective contracts
  4. too much money spent on PO processing
  5. weak governance
  6. lack of value creation

by way of

  1. strategic execution
    which focusses on correct time allocation, the right organizational design, and integrated processes and tools
  2. skill enhancement
    which focusses on identifying cross-functional high potentials, recent college graduates who can be future secret agents, identification and absorption of external expertise, and an end-to-end talent management process
  3. contact excellence
    which focusses on getting the majority of contracts (including all high value or high risk) on company paper, getting templates in place to expedite the process, and ongoing risk assessment
  4. lower PO costs
    by way of a single global ERP instance, appropriate P2P support systems, and low-cost tactical processing centers
  5. globalization
    managed with a center-led philosophy and key stakeholder councils
  6. true value creation
    by way of a value-driven sustainable strategic sourcing process, dedicated SWAT teams, commercial astuteness, robust models driven by high-powered analysts, financial validation, and fact-based decision making

Secret agents will be needed to pull all this off because only secret agents will be able to deal with all of the challenges that will arise, including:

  • artificial constraints
  • strategy changes
  • short term focus by the peer group organizations
  • talent abduction
  • availability of SMEs
  • change management
  • sleeper agents

but when Supply Management has a seat at the grown-ups table, is on investor relations radar, is being pulled in by other organizational units on a regular basis, has its budget increased (while every other organizational unit sees a decrease), and is no longer seen as the leper colony or roach motel, it will be worth it. Because once every dollar taken out by Supply Management hits the bottom line, Supply Management will truly be the secret agent of business improvement.