Daily Archives: May 1, 2012

Where Should Your Supply Management Organization Be Located? Part I: Factors

Chances are, if your organization is a better-than-average Supply Management organization on the path to becoming a world-class Supply Management organization, then it is in the process of moving from a centralized to centre-led organization — and in the process of trying to figure out where to locate the centre of excellence (CEO). It’s a tough decision. Chances are the organization has identified the following factors as important in location selection:

  • customer location
    the organization should be close to its customers
  • supplier location
    the organization should be close to its suppliers
  • business incentives
    the location should provide some business advantages over other locations
  • infrastructure
    there should be a good infrastructure (in terms of utilities, business support, and personal services for the employees) to support the organization
  • the local talent pool
    there should be a good mix of talent to draw from

And on the surface, these sound like good selection criteria. However, for an organization on the path to world class centre-led Supply Management excellence, only one of these factors really matters. Can you guess which one?

Let’s take them one by one, starting with customer location. The organization should be close to its customers, but this doesn’t mean Supply Management has to be. Sales and support should be close, because they interact with the customer on a daily basis, but Supply Management can be half a world away as long as they take the time to consult with a customer focus group periodically to find out what needs are emerging and with sales and support regularly to find out if the current customer needs are being met with the current products and services being sourced.

Similarly, while the organization should desire to be close to its suppliers, generally speaking, it’s more important for the manufacturing organizations to be close to the raw material and component suppliers, as this minimizes shipment time and lead-time requirements when a spike in sales requires a corresponding spike in production or a quality issue or supply interruption requires a quick shipment replacement (from a different supplier). Plus, your suppliers today may not be your suppliers tomorrow and some are unlikely to be your suppliers in three to five years with constantly shifting market conditions and organizational needs. Thus, any attempt to locate near suppliers (unless, of course, your organization is a significant shareholder of a supplier and it’s part of the organizational strategic plan to take a strategic interest in the supplier for the long term) is likely futile.

Business incentives sound like a great idea, until you realize that any incentive on tax reduction is probably not going to result in any savings as most taxes are based on the (country) headquarters location. Similarly, any reduction on payroll taxes is going to be minimal as Supply Management tends not to the anywhere close to the largest division in the organization. And any one-time start-up grants that may be offered are going to pale in comparison to the savings a good Supply Management organization is going to deliver. So, from a Supply Management perspective, business incentives are rather irrelevant.

This takes us to infrastructure. This is somewhat important, but nowhere near as important as it is for the placement of a manufacturing facility. It’s not like a Supply Management organization requires 3-phase 480-Volt power, hundreds of thousands of gallons of water each day, or a thousand telephone lines coming in. The only thing it requires is decent phone service and good bandwidth so its people can collaborate in real time with their colleagues around the world. And these days, you can get decent bandwidth in just about any city, so infrastructure is only a minor concern.

This leaves us with talent, and this is the one factor that really matters. You can take the doctor‘s advice and get the best technology available, and manage the implementation using the best transition process that change management gurus can provide, but without talent to properly use the technology or implement the transition, it will all be for nought. Processes and systems don’t find savings, people find savings, implement the changes to capture those savings, track those savings, and ensure that those savings are delivered. This says that you need a good talent pool available to you. While a few top-notch people may be willing to relocate to your chosen centre for the experience, and a few more new hires might be willing to move for a chance to rise rapidly through the ranks, most people won’t move just anywhere for a job — no matter how good that job is. Consider the findings of Professor Richard Florida, as chronicled in Who’s Your City, when he asked his students if they would move anywhere for a great job. While most initially said yes, diving deeper into the answer (by asking if they would move to a place like Des Moines, Iowa), we find that most people would not be willing to move just anywhere. Most people who say they will consider moving anywhere in fact mean they will consider moving to any big city with lots of opportunity or a growing city where they have lots of connections. This means if you don’t already have a talent pool locally, you’re not likely to attract one.

So where should you locate your new centre-led Supply Management organization? Using talent as our indicator, we’ll discuss that in detail in Part II.