Michelle J. Flynn Expense Management Solutions, Inc.
For years, managing down cost has been the primary driver for most procurement organizations. The difficult economy and challenging times of 2009 and 2010 have only increased the pressure on organizations to manage cost more effectively. For some, survival has been their focus. As an industry, we have done a superb job of convincing management that procurement can be an effective contributor to the company’s bottom line and that strategic sourcing needs to be one of the core tenets of successful supply chain management. Companies have invested heavily in building or rebuilding sourcing organizations, implementing sourcing platforms and assuring visibility into total spend. While every organization may not have achieved all of their goals in this area, few would argue that they need to do so. As we move forward into 2011, there is a growing sense of optimism; that perhaps the worst is over and we can once again focus on bigger issues. So, what’s next? Where can procurement executives orient their energies in order to add the most value to the organization? The answer is simple – improving supplier management practices across the board.
In many ways the extreme pressures of the last few years have provided procurement functions an opportunity to gain significant mindshare in the board room. Economic difficulties have translated in some cases to a tremendous increase in supply chain volatility, rising political unrest, and falling margins that leave little room for supply disruptions due to failures or stumbles by key suppliers. “Never let a good crisis go to waste” is a popular refrain these days, from a book title, to a blog, to a commonly used platitude. Nonetheless, setting aside political affiliations, it is wonderful advice. Now is the time that procurement executives can capitalize on the focus that senior management is directing toward the supply chain. The message is clear. Optimize the supply chain to deal more effectively with volatility, mitigate risk and deliver added value to the operating teams.
When optimizing a supply chain, sourcing is just the beginning. With strategic sourcing companies have very successfully consolidated their supply bases and extracted tremendous savings through leverage and the elimination of supplier inefficiencies. However, in order to lock in the savings, companies need to capture a tremendous amount of information about their supply chain on an ongoing basis and understand how supplier performance (or lack thereof) can affect the multiple dimensions of their own business. By understanding and managing the supply relationships companies can capture the savings expected as a result of the original sourcing initiative and leverage these relationships to become a major competitive advantage.
Regardless of the product or service provided by your organization, the ability to deliver today is most likely heavily dependent upon an array of external entities. Understanding which pieces of your supply chain expose your organization to the most risk is fundamental. Ensuring that each source of supply is stable or that alternatives have been identified and available has never been more important. Mitigating and managing that risk is the ultimate goal. Procurement is well positioned to own development and management of the policy, process and platform around mitigating the exposure in the supply chain for the corporation thereby adding tremendous value, far beyond the traditional benefits of cost cutting.
Post contract execution, with a few exceptions for company-wide contracts such as office supplies, most supplier relationships are managed by the operating unit that utilizes the product or service. By nature, supplier management activities will always be a widely distributed function. Any attempt to centralize this activity would be met with tremendous resistance, would be extremely costly and would most likely fail. Yet, given the billions of dollars spent with suppliers, it is critical that effective supplier management become a widely held skillset throughout organizations. A centralized procurement team with an extensive network of connections into both the operating entities needing the services and products and the suppliers who provide these, as well as knowledge of the markets, the deals and the tools and skillsets to assess the risk each deal poses to the organization has all that it needs to become a Center of Excellence for Supplier Management across the organization.
The COE should develop policy and processes that provide clear direction to relationship managers on how to manage their suppliers most effectively. Where possible, the COE should provide and administer a platform that enables the centralized capture of data on suppliers that will be of value to many distributed managers. With appropriate workflow, templates and functionality an automated platform can contribute significantly to the ability of an organization to manage and track critical supplier data effectively. Unlike A/P or procurement systems that track static or transactional data, a supplier management solution needs to capture a comprehensive picture that is constantly in flux for each supplier. The information is no longer bi-directional but is truly multi-dimensional with a 360 degree view. Every aspect of a given supplier, what they do, how they’re performing for every service or product they’re providing, what their financial stability is, where they have geographic risk, what type of company data they can access and what controls they have in place to protect it are just a few of the things an organization needs to know to manage a supplier. While some of this data is collected during the initial sourcing process by procurement, like so many other applications in this day of social networking, maintenance and upkeep of the information is a highly distributed activity as perhaps hundreds of parties are involved with any given supplier at any time.
As priorities shift for companies all over the world, in order to stay relevant, procurement departments can add tremendous value by enhancing supplier management throughout the organization. In a business environment of high and increasing risk, increasing globalization and rapid change, companies that are able to adjust their supply chain to accommodate change quickly without tremendous expense will have a distinct competitive advantage. If procurement is the fulcrum that enables this pivotal move, there will be no question as to the level of strategic value it brings to the table.