Category Archives: Sourcing Future

Supply Management in the Decade Ahead IX: Leveraging Technology Enablers

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the fourth critical supply strategy identified by the report – the leverage of technology enablers.

Ten years ago, the use of information technology in supply management was just emerging. As of today, an enormous amount of technology has been introduced to make supply management “easier” and more effective. In the next ten years, there will be both a continuation and expansion of technology introduced over the past decade and the introduction of totally new technological advances that will continue to expand the scope of supply management.

The report addressed what supply executives will want from technology in the future. Their wish list consists of ease of access; visibility through web-based tools; collaboration platforms for everything from product development to operations to schedules; tracking and simulation; powerful tools for risk, compliance, and supply market analyses; and user interfaces that can be grasped as intuitively as customer-focused e-tailer’s sites are.

In the future, these supply managers will focus increasingly on collaboration and collaboration-enabled technologies, advanced analytics will become common, and needed information and interaction with suppliers will become external rather than internal. Other strategies employed will be the use of a common company-wide data store for supplier, item, and service data; integrated applications and processes for supply-management; the embedding of best practices in supply management tools; and using tools that provide transparency of operational information throughout the supply chain.

The authors of the report believe that 2007 was the year where we “crossed the chasm” with respect to most of the functional areas in supply chain management and that we will thus, from this point on, see continued refinement of technologies already introduced. Specifically, spend management will continue to expand its flexibility for analytics and companies will be less challenged by the need to perform extensive data cleansing; optimization will continue to expand its feature set and capabilities; and contract management software will become more integrated.

New technology introductions over the next ten years will go beyond sourcing and compliance into more value-based areas. For example, collaboration tools will be linked to PLM and future tools will allow workflows for different supply chains to have different sets of processes. The emerging technology solutions, whatever they are, will leverage improved analytics, broader data integration, and collaboration.

Supply Management in the Decade Ahead VIII: Designing and Operating Multiple Supply Networks

This post continues our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the third critical supply strategy identified by the report – the design and operation of multiple supply networks.

In tomorrow’s world, the ability to respond to change will just be the price of admission. Competitive advantage will require agility, while supply chain excellence will be defined by the ability to:

  • Anticipate changes in customer requirements, product offerings, supply conditions, regulations, and competitor actions
  • Adapt to the changes by deftly reconfiguring existing supply chains or creatively assembling new ones
  • Accelerate implementation of change to capture the new opportunities ahead of the competition

 

The report is dead-on when it notes that make-to-order or assemble-to-order product/service bundles that fill distinct and possibly numerous market niches will quite obviously require the management of several supply chains simultaneously on a global scale as a single supply chain will not afford a company the required flexibility.

The big question will not be whether or not you have one or multiple supply chains, but what form each of your supply chains will take – modular or integral. A modular supply chain is designed to be flexible in operation and structure by way of interchangeable supply relationships governed by the specific needs of various customer and market niches. An integral supply chain, in contrast, features supply relationships that are unique, tightly structure, and distinctly coordinated.

The four most important strategies identified in the design and operation of multiple supply chains were:

  • Standardized processes across companies in the supply chain
  • Management of lead times throughout the supply chain
  • An ongoing process for the management of outsourced activities
  • The creation, leading, and management of global supply networks

The report also outlines a four-step approach to employ when designing multiple supply chains to satisfy the company’s full range of customer and product / service needs. This process is outlined as follows:

  1. Determine customer and market niche requirements and define an appropriate segmentation
  2. Logically construct the necessary distinct supply chains
  3. Match business models and strategies to each of the supply chains
  4. Define a reconfiguration plan that turns these concepts into practical, detailed plans for implementations

The report also noted that complex models will be used to evaluate supply chain risk, continuity, performance and design and that leading-edge companies will use modeling techniques to evaluate strategic supply options, costs, and risks. Among other things, these models will allow firms to more aggressively manage fixed assets while factoring risk into the value proposition.

Companies will also increase their ability to perform “what if” simulations across a range of variables and scenarios, making strategic sourcing decision optimization a key part of every sourcing event, as well as supply chain network optimization (see Part I, Part II, and Part III of the doctor‘s series).

The report also notes that anticipating change may require companies to take a three-phased view where they anticipate temporary blips, directional shifts, and disruptive forces, each of which, if not planned for, could interrupt their supply chain agility. Planning for blips will mitigate unnecessary disruptions when demand spikes, planning for shifts will insure that the company has the right structures, processes, technology and relationships in place when it needs to introduce new products to stay competitive, and anticipating when disruptive forces will be introduced will make sure that the company is always working on potentially disruptive offerings of its own in its innovation group.

Supply Management in the Decade Ahead VII: Developing and Managing Suppliers

Today we continue our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead” (a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research), and our review of the seven critical supply strategies for succeeding in a dynamic world in particular, with the second critical supply strategy identified by the report – the ability to develop and manage suppliers.

According to the report, in the decade ahead, the development of a competitive worldwide supply base and suppliers that collaboratively help to create value in support of the buying company’s business models will become the norm. Although the doctor is not sure whether or not it will be the norm across all companies, the doctor is sure that it will definitely become the norm across market leaders. Furthermore, as the report notes, the leaders of the pack will enter into an era characterized by companies looking for ways to strategically leverage key supplier/buyer capabilities for innovation and “enlarging the pie” rather than playing the zero-sum game whereby one company’s gain usually comes at the expense of the other. The importance of strategic partners, both buyers and sellers, will increase.

The report outlined thirteen strategies for working with suppliers. The top six were the following:

  • Improve Working Relationships with Strategic Suppliers
  • Allocation of Management Attention and Resources to Suppliers
  • Grow the Volume of Purchases from Strategic Suppliers
  • Require Suppliers to Take a Greater Role in Cost Management
  • Employ Joint Evaluation of the Working Relationship
  • Collaboratively Share Risks, Rewards, and Cost Savings

In the decade ahead, companies will put greater care into strategically structuring their supply base in order to support the business model and category strategies. Effective cross-functional teams will be employed to structure the supply base and help achieve the overall goals of the business. The supply base will be structured using a “bottom-up”approach that will be applied to each category. The collective supply base identified will contain the right number of suppliers for the company.

The report also provides some good questions to ask on a category-by-category basis when attempting to strategically structure the supply base around strategic categories:

  • How many suppliers is right for this category, and what role should each play?
  • What current and future capabilities are required, and where in the world should the supplier(s) be located?
  • Which suppliers do we want and why?
  • Do we want to lead and/or manage supplier networks at the Tier 2 and Tier 3 levels?
  • Which suppliers do we want to cross-collaborate with each other, why, and how can we influence this collaboration?

Suppliers will play a greater role in the innovation process and companies that work in industries where technological change is a driving competitive force will opt to work in an “open innovation” environment that celebrates the power of discovery and dedicates significant resources to working on such efforts. In addition, supplier relationship improvement will be a growing need, as suppliers will be increasingly viewed as a source of innovation, which is a change in the traditional western buyer-seller dynamics.

Furthermore, two different approaches to collaboration – “initiative driven” or “institutionalized” – will be employed as circumstances warrant to enhance future working relationships with strategic suppliers. The initiative-driven approach will establish a leadership team that will drive the company to rationalize the supply base, enhance segmentation, and identify preferred or strategic suppliers, improve performance scorecards, create or further develop capability matrices, modify performance driven sourcing behaviors to identify and reward best performers, and implement a company change program focussed on improving working relationships.

Mature strategic suppliers will be moved from the “initiative driven” state to the “institutionalized” state where the goal of the supplier relationship will be focused on improved value creation along multiple dimensions – including innovation, revenue enhancement, and business continuity – and not just cost reduction.

The report also noted that in contrast to today’s quarterly business reviews, stale supplier training programs, and narrow-focused joint improvement efforts, periodic, cross-functional reviews and meetings with key suppliers will be the way of the future.

In summary, in the decade ahead, the supply management function will have to clearly understand company needs and align with the appropriate suppliers, develop close working relationships with suppliers that are strategically important to unlock value-creating potential, and invest in not only reactive, but proactive supplier development efforts to maximize the value achieved by the supply base.

Supply Management in the Decade Ahead VI: Developing Category Strategies

In this post, we continue our coverage of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, a detailed report based on research jointly undertaken by the ISM, A.T. Kearney and CAPS Research in an effort to update the 1998 CAPS Study on The Future of Purchasing and Supply: A Five and Ten Year Forecast. The heart of this report was seven critical supply strategies for succeeding in a dynamic world. This post, and the six posts that follow, will focus in on each of these strategies in detail, starting with the development of category strategies.

Category strategies are designed to maximize value by leveraging resources and capabilities. In the future, changes in business models, industry structures, technologies, customer demands, environmental regulations, and a host of other factors will change not only how value is defined but how external resources and third parties help you deliver it. We’ve already seen the transformation from “best price on assured supply” in the early 90’s to total cost of ownership in the early 00’s.

However, as the doctor has been predicting for quite some time, we’re starting to see the push towards total value, which will increase as time goes on. For example, as noted in the report, companies are now looking at options to outsource business processes and activities that are not core strengths, creating new categories, and for suppliers with capabilities that can add new types of value. For example, engineering companies are no longer looking for the lowest cost suppliers, but suppliers with NPD (new product design / development) capabilities and suppliers who can improve the the design of existing products. In the future, leading companies will seek to gain access to, and leverage of, each other’s value chains as a way to enter into new markets.

Category strategies – which will address how companies speed NPD, how they implement the best value for a category worldwide, and how they stimulate the creation of new products and services with the support of suppliers – will focus on the total alignment of customers and suppliers to meet competitive objectives across the end-to-end supply chain. For example, a robust category strategy could include multiple and concurrent initiatives, including low cost country sourcing, design specification change, and switching suppliers to increase product innovation and supplier development.

The report also noted that the time horizon for category strategies will extend beyond the typical time frame of three years (or so), to six or even ten years. Moving production from mature to developing countries, developing performance and capabilities knowledge about best-in-class suppliers, developing supplier relationships and establishing on-the-ground supply-market and government regulation knowledge all takes years to accomplish. Furthermore, given the short life-cycle of many of today’s consumer products, while you’re sourcing today’s product, you need to be actively engaging with your supply partners that are going to help you design tomorrow’s product and prepare it for production, while also engaging innovation experts to help you brainstorm the product that will replace tomorrow’s product.

The report also polled professionals on which strategies will be the most important in the days ahead. The top six strategies identified were:

  • Aggregation and Management of Total Expenditures for Key Categories Across the Enterprise
  • Spend Analysis in Products and Services
  • Drive Decisions with Total Costs
  • Develop and Manage Supply Strategies using a Formal Process
  • Price Benchmarks
  • Improve Price Forecasts

The report also found that the category strategy portfolio will have to increase significantly, and that the tools used to evaluate strategy alternatives and risks/rewards will have to multiply as well. The report highlighted the following strategies and tools as important extensions to your current strategy portfolio.

  • Supplier Integration into NPD and Order Fulfillment
  • Risk Mitigation and Contingency Planning
  • Total Value Measurement and Learning
  • Change Management
  • Category Strategy Documentation

The chapter concluded with some generic strategy enablers that will help you regardless of the strategy you employ:

  • Executive Engagement
  • Cross-Location and Cross-Functional Teaming
  • High-Quality Spend Analysis
  • Category Research, Fact Finding and Analytics

Finally, I’d like to point out that the report has a very good table on page 47 that compares the differences in strategy development and strategy enablers between the decade ahead and the decade past. The table alone is worth downloading the report for.

Supply Management in the Decade Ahead V: Missions, Goals, & Performance Expectations

In Part I of our review of “Succeeding in a Dynamic World: Supply Management in the Decade Ahead”, we overviewed the various external forces that will impact a company’s supply chain. In Parts II and III we took deep dives into the eight major forces that were identified specifically by supply managers who took part in the survey. In Part IV we focussed on some of the major impacts to business models and strategies in the decade ahead. In this post, we will address the new and expanded missions, goals, and performance expectations for supply management as identified by the report.

The report notes that chief executives will ask far more of supply management – requiring it to take on a broader, more strategic mission, evaluating it on a more comprehensive set of goals and expecting a higher level of performance. To accomplish this, supply management will need to expand its influence across functions, business units and geographies, go beyond the comfort zone of traditional success measures, and find creative ways to deliver even more value to the corporation.

The report than indicates that tomorrow’s missions, goals, and performance expectations for supply management will fall into four main areas:

  • Delivering More Innovation From Suppliers
    The need for innovation will accelerate as companies continue to pursue new geographic and demographic markets. With the demand and supply for innovation destined to be in a constant state of flux through the coming decade, and with the limited resources that will be available within any single company (thanks to the talent crunch), business will need to overcome the usual “not invented here” barriers and tap into all available sources of innovation on a global scale.
    Companies will have to develop advanced approaches to how they identify external sources of supply, how they structure the commercial and working relationships with those sources, and how they make those resources an integral part of the product and services development process. Reinvention of the innovation model will be required to fully leverage external sources – and companies will need to formalize an ongoing process for sourcing innovation.
  • Contributing More Broadly To Revenue Generation
    Close attention to costs for goods and services leads to more competitively priced end products while a focus on quality and service reduces failure rates, improves availability, and leads to higher customer satisfaction and loyalty. However, some companies will expect even more. Some will seek to boost revenue by rapidly introducing products with a limited life-cycle to smaller, niche, markets. Other companies will seek to leverage the existing asset base and distribution channels to bring to market higher value or radically different products. Others still will ask supply management to take a lead role in finding new revenue streams using their unique knowledge of the business. And some will ask supply management to assist sales in co-selling products and services in one channel to suppliers of another channel.
    In the first case, supply management will need to find suppliers and create processes that support entering and exiting these unique offerings quickly with speed, agility, and minimal waste. In the second case, supply management will need to develop or restructure the supply case to meet the needs and costs of the markets into which the company wants to sell. In the third case, supply management will need to assess, screen, and take a lead role in negotiating with the relevant external parties. In the last case, supply management will need to provide deep insights into the dynamics of upstream supply markets.
  • Anticipating And Managing Supply Risk
    Extended global supply chains that include geographically distant, unproven, and even unknown suppliers pose supply continuity, liability, reputational, and intellectual property risks. Changes in buyer-supplier market dynamics reduces predictability. Actions related to environmental protection, sustainability, and labor practices pose uncertainty. The volatility of commodity prices, currencies, interest rates, and even tax structures adds additional complexity. Risk is everywhere!
    Supply management executives will be epxected to play a more strategic role in identifying and interpreting risks, and making tough decisions about risk exposure and mitigation. The level of sophistication required to manage the complex, wide-ranging portfolio of supply risks and integrate risk management into overall supply activities will need to increase.
  • Expanding the Breadth And Impact of Cost Management Efforts
    Performance expectations will be raised considerably as global competition forces companies to squeeze unnecessary cost out of every part of their business. For supply management, this will mean widening the breadth of spend areas covered, managing costs more holistically, and delivering cost savings faster. A range of tools and techniques will be used, including complexity reduction, greater standardization, tighter management of specifications and demand, compliance management, target costing, value analysis, value engineering, price benchmarking, statistical price modeling, should-cost analysis, expressive bidding, lean design, and Six Sigma.

Cost Management, Revenue Management, Risk Management, and Innovation management covers a lot of the bases, but I’d add at least the following:

  • Supplier Management
    Suppliers are going to become more critical to your operations as a whole – and this is going to require better management of not only their performance, but your overall relationships – as well as all of the data you collect about them, their products, and their operations. This will involve implementing and utilizing the next generation of SRM (Supplier Relationship Management), SPM (Supplier Performance Management), and SIM (Supplier Information Management) technology, which will eventually be unified in a common platform.
  • Sustainability Management
    Sustainability is the word on everyone’s lips these days and sustainability from social, environmental, and business perspectives will be critical. It will cease to be a secondary concern to cost, revenue, and risk management and many of tomorrow’s strategies will be designed with sustainability as the key priority.
  • Talent Management
    In a knowledge economy, talent is key. As talent becomes scarce, HR will be looking to supply management to help them identify available sources of talent within the supply chain to meet the organization’s needs via outsourcing, insourcing, and new types of talent sharing agreements between organizations, third parties, independent consultants, and semi-retired individuals.

After a break, this series will return with Parts VI through XII that will cover each of the seven critical supply strategies for succeeding in a dynamic world that were identified by the report.