Daily Archives: September 25, 2012

Procurement Value Creation Ideas, Part II

Recently, over on StrategicSourcing.com, Mickey posted her thoughts on Procurement Value Creation Ideas, highlighting four areas in particular that she thought were good targets:

  • Revenue
    Does your Supply Management team understand the value that needs to obtained from suppliers to bring innovation to products, materials, and business processes? Does sourcing reduce time-to-market for new products and services?
  • Costs
    Does Supply Management extend their focus to supplier variable and fixed cost structures, which materially contribute to the suppliers’ product and service costs?
  • Working Capital
    Does Supply Management understand the company DSO, ITR, and DPO equations and their interrelationships? [Days Sales Outstanding, Inventory Turnover Rate, Days Payable Outstanding] Does your Supply Management team work towards improving the ITR and balancing DPO with DSO? Does Supply Management Team contribute to S&OP? [Sales and Operations Planning]
  • Fixed Capital
    Does Supply Management play an active role in capital expenditure management? Are maintenance and service standard items contained in contracts and purchase orders?

These are great ideas, and a great start, but not all of Supply Management’s value creation potential is immediately realized, and not all can be easily measured in the revenue, cost, or capital management equations.


  • New Market Identification
    By the time you identify the market, identify the proper products services, design them, source them, and sell them, it will be a while before you can measure the effects on revenue. Even costs will be difficult to measure as they will decrease as efficiency and volume increases.
  • Brand Building Potential
    Sometimes, the right supplier can enhance your brand, and decrease the marketing cost and effort require to enhance your brand the same amount. This can be very hard to measure, but Supply Management will be critical in obtaining the right relationship with this supplier.
  • Alternate Material / Component Identification
    A Supply Management team that keeps tabs on the market may not only be able to identify more cost effective alternatives, but also more sustainable / environmentally friendly ones, which could boost your brand image and lower your long term costs and risks.

Supply Management can do more than just impacting the top and bottom lines in the short term, and do more than impacting these lines in the long term. It can improve your image, increase organizational stability, and lower your risk. Don’t forget this.