Daily Archives: April 10, 2013

Do Successful Supply Management Organizations Adapt to their Customers?

Or do successful Supply Management Organizations adapt their customers to them?

It’s a good question. For a few years now, thought leaders, including the doctor here on SI, have been saying that good Supply Management organizations become the go-to organization in the company. They do this by making sure that each time they are engaged, they identify what the customer organization thinks is valuable and ensuring that they deliver that in addition to, or, if need be, instead of cost savings. Supply Management also works hard to identify problems, including problems the customer organization may not even know it has, and solutions to those problems. Supply Management also goes out of its way to make sure that the customer organization gets its fair share of credit so that the customer will want to use the services of the Supply Management organization again. As the success stories spread, and its reputation grows, more organizations turn to Supply Management, which begins to be known as the go-to organization. Once Supply Management has most of the organizations of the company as internal customers, it hits the target of 80%+ spend under management, and begins to deliver not only significant savings, but to identify value opportunities.

For example, if Marketing is approaching Supply Management for the first time, Supply Management won’t focus on its cost savings strengths, because, honestly, Marketing doesn’t give a damn about savings. Marketing’s job is to create as much demand and value as it can within the budget it is given. As long as Marketing stays within budget, it’s happy. As a result, Supply Management will need to identify what Marketing really needs. Is it a better campaign management process (and Supply Management is the king of processes)? Is it better supplier identification and qualification? Is it a way to qualify the value it is getting (through a balanced scorecard, for example)? Supply Management will deliver what Marketing really needs, and also identify ways that cost can be reduced on the production side (be it print, media, etc.) and freed up for more value-creation activities such as campaign design or creative development (for web and print media). In addition, if Marketing said it needed help with supplier identification and qualification, Supply Management might also notice that Marketing’s supplier management and campaign management processes were weak, and devise appropriate processes, using its RFX and/or project management tools, to improve Marketing’s processes and then demonstrate to the Marketing department how it could do better (and, if need be, let Marketing take full credit). Marketing will see a department that wants to produce value (and not just reduce budgets), make Supply Management a core part of its spend-related processes, and spread the good word.

But is identifying, and doing, what the customer wants the right thing? If, as Michael Schrage implies in his book that asks what do you want your customers to become, you are what you consume, then you should be doing more than just servicing your customer desires. Specifically, instead of adapting to the (internal) customer, you should be adapting the (internal) customer to you.

Of course, this is easier said than done when you don’t have any internal customers, or any customers beyond the customers with spend that has been mandated to you by the CEO, CFO, or COO. If you don’t have internal customers, you have to adapt to their needs, or at least appear to adapt to their needs, in order to get them. That being said, it may be that the only way you’re going to ultimately succeed as a Supply Management organization, especially when you are continually given the ludicrous mandate of cost-reduction (without any consideration of whether or not it makes sense), is if you adapt your customers to appropriate processes and technologies. If the processes and technologies your internal customers are using don’t reduce cost, increase efficiency, or add value, then theose customer processes and technologies need to be adapted to processes and technologies that do — otherwise, you will be hindered as a Supply Management organization.

Remembering that, as Michael Schrage points out, the real purpose of business is to profitably transform a customer and that the real purpose of Supply Management is to align with, and serve the, organizational goals, at some point Supply Management has to go beyond just serving the internal customers — it has to adapt them to be cogs in the Supply Management wheel that keeps the business turning. Just like Apple trained its customers to be design connoisseurs, Supply Management needs to train its customers to be value connoisseurs — who know how to balance cost and expected return appropriately for all types of spend.

While, in the end, Supply Management might just be one stray vegetable in a very large pot of organizational stew, it has a choice. Supply Management can be the bland celery that absorbs the flavours all of the other vegetables until it has absolutely no individual flavour of its own, or it can be the pepper that defines the flavour of the organizational stew. It’s your choice, Supply Managers.