In this post, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on why you have to focus on the end consumer.

Although Supply Management doesn’t typically deal with the end customer, one of the ultimate keys to success is a fanatical focus on the end customer. In a successful organization, everything you source is sourced to add value to the products and services you offer the end customer. Everything. No exceptions. Legal spend? Services to protect your IP and ensure you can offer your customers unparalleled products and services. Market spend? Services to not only communicate the products and servies you offer to the market, but to also educate the market as to the value they contain. IT? Systems to help you source higher quality materials at lower price points to increase the overall value of the products and services you offer. Simply put, if a product or service isn’t adding value to the end customer, it’s not adding value to the organization’s bottom line. This means that it isn’t increasing shareholder value (which business is all about) and the organization should be thinking twice about that product or service. But enough of my ranting … let’s see what the participants of the executive debate had to say.

When asked if it is a priority for any business to know exactly what their customers want and to build everything around it and if it should become a high priority for the corporate strategy, Austen Bushrod responded that we don’t want to wait for the customer to get to that point. We have started putting in some strategy in terms of targeted marketing, which allows us potentially to tie in with various suppliers in terms of targeted promotions. This is because successful Supply Management operations know what their customers want and actively pursue sources of supply that will give the organization’s customers exactly what they want.

Furthermore, when asked how it would work in a business-to-business environment as opposed to business-to-consumer environment, Guy Allen responded that if you don’t totally satisfy your customer, they will cancel the contract, but if your customer only thinks you are average you could lose out on extending that contract and taking on new areas, indicating that you need to be almost obsessive about what your customer wants and deliver service above and beyond what they are expecting.

But if you become obsessed about the customer, as Austen Bushrod noted when asked if they were first out of [the recession], you will be the first to recover after a down-market when customers start spending again because, just as Colin Davis said when asked if he was talking about the people, when it comes to a focus on the customer, the answer is yes, absolutely.

In the next post we’ll talk about how you have to balance this customer obsession with supply base involvement.

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In this post, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on why you have to take a strategic focus.

In response to whether a CPO would be prepared to be more fluid on quality or on price in order to get that flexibility, Colin Davis said that their organization’s primary goal is going all the way back to the sourcing decision and making sure that they have got everything absolutely aligned to business drivers with the initial contracts and also in the relationship going forward. In response to whether non-retailers get this flexibility to be part of the corporate strategy, Andrew Vaughan said that it comes down to the link with the market, and that if you start with the market from a strategic perspective and work back down, then to my mind it is just about effective communication. And in response to what extent might they be out of the loop if the stakeholders are talking to the suppliers directly, Andrew then said you want your stakeholders to engage because you want to drive innovation. What we try to do is operate cross-functionally so we go together as a team and discuss innovation; we discuss delivery and we discuss quality and costs.

Clearly one of the primary prices of flexible supply chains is strategy, but this is a good thing. Because when you get right down to it, your ultimate success or failure comes right down to your supply chain strategy. If your strategy is to ocean freight high-priced low-volume consumer electronics like laptops, tablets, and cell phones to try and save a few dollars on freight, which is a rather low percentage of the total cost of these items, instead of air freighting them in well-engineered, low-volume, packaging, you’ll not only have difficulty responding to demand changes (when it takes three weeks to restock instead of three days), but lose more in market value than it costs you to ship the products (as most products depreciate in value a couple of percentage points a month).

Furthermore, if your strategy is purely to get the best price today and you overlook the going-forward innovation capabilities of a supplier who could be a strategic partner and who is willing to work with you to take cost out over time, you could not only be giving up 5% year-over-year savings in the future, which the supplier might be willing to commit to because your contract will enable them to purchase more efficient equipment and institute more efficient processes, but a potential source of innovation, integration, and/or inspiration that could be the source of the next big breakthrough in your market … which the supplier might end up taking to an emerging competitor who is willing to look beyond current cost to future value.

You need strategy, and in particularl, you need a strategy that is collaboratively derived through the participation of stakeholders because if what you have is a failure to communicate, your supply chain won’t be very effective, with everyone walking around blindly with dead eyes, following orders, not knowing what they do, not caring. If you want to succeed, you have to remember that your assignment tonight is strategic. You can’t give the enemy a break and the only way to win is to saddle up, lock and load and tackle strategy head on. But with double digit percentage returns available from strategic spend analysis, strategic sourcing enabled by advanced negotiation methods (such as strategic sourcing decision optimization), and global trade visibility, what do you have to lose?

In the next post we’ll address why a customer obsession has to be part of this strategy.

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In this series of posts, I’m going to discuss highlights from the CPO Executive Debate on “the price of flexible supply chains” and focus on not only why you need flexibility in your supply chain, but what you have to do to get it.

In response to how do you balance flexibility with cost and quality considerations and can you measure whether you are striking that balance, Michael Walsh said that beyond knowing that it will be cold at some point in the year and it will be warm at some point in the summer, it is hard to be accurate. We need to build in flexibility to drive the volume responsiveness, and the trade-offs need to be thought through carefully and he was right. With many types of consumer goods — like electronics, fashion, and toys, you can’t predict precisely what demand will be or when demand will surge. You have to be ready to respond or lose business. It’s as Guy Allen said, the nearer you are to the consumer retail market, the more flexible you will need to be. This requires long term flexibility in your supply chain, especially if you are selling multiple types of goods, as well as short term agility which, in the words of Martin Hogel, determines how you react to sudden changes on the demand or on the supply side.

With regards to longer term flexibility, also in the words of Martin Hogel, you need to figure out how you adapt to wider changes in the market structures, such as shifting vertical industry structures, stricter environmental legislation, technological changes or movements in international labour costs? How do you incorporate that into your corporate strategy, your manufacturing footprint, your supply chain approach and so on?

The reality is that vertical industry structures always change over time. In the early part of the century, we had centralized supply chains where companies owned their end-to-end supply chains and centralized them as much as possible. Then we had the downsizing, rightsizing, and outsourcing crazes where everything was outsourced and sophisticated multi-echelon supply chains were formed that cross many borders and included many players. Now we are seeing a shift to center-led supply chains where a center of excellence, which some consulting companies might term a 4PL, will manage (warehousing and global shipping) operations across a supply chain for multiple parties (in contrast to a traditional 3PL that would manage logistics for a single player).

Environmental legislation is still in its infancy, and we are soon going to see many Asian equivalents (in India, China, and other progressive countries) to the European RoHS legislation and at some point, as India and China take more and more global GDP, the US is going to have to sit down and play nice with the rest of the world. Technology never stands still, and the low cost country of today is not the low cost country of tomorrow once the low cost labour market is saturated, which results in a swelling middle class, which results in the demand for a better quality of life, which results in higher salaries. You have to be flexible, or you’ll be left behind.

However, you’re only going to get this flexibility if you design it into your supply chain. As Andrew Vaughan said, one of the keys to flexibility is effective supply chain design where you segment your supply base to focus on key components that you source as generic parts from a variety of suppliers, and customized parts that are specific to your requirements. With your generic parts, you set up a structure that allows you to resource from auxiliary or new suppliers quickly if you need more than your current suppliers can provide, and with customized parts, you set up relationships with custom manufacturers who have the ability to increase production when necessary (even if it is at overtime costs, etc.).

And finally, you have to be cognizant of the impact of each decision you make. As Martin Hogel said, when you look at the supply side, really advanced procurement supply chain organisations understand today the ripple effects that a natural disaster, or an epidemic, has on their overall supply chain, and take immediate preventative action even though only a sub-tier supplier to their main supply base is directly affected, because they know that if their supplier won’t be able to get they part, they won’t be able to get the part … and by taking action right away, they know they’ll have the product when they need it.

In the next post, we’ll discuss how flexibility starts with strategy.

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