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Supply Strategy for Enterprise Growth and Innovation

Posted 04-26-2010 at 09:12 PM by 95th Annual
For his session this afternoon, “Supply Strategy for Enterprise Growth and Innovation,” Joseph Sandor summarized findings from Michigan State University’s (MSU) Supply Chain 2010 and Beyond research initiative, which began in 2006. He also drew upon well a joint Darden/MSU September 2009 seminar, “Supply Chain Strategies for Enterprise Growth and Innovation.”

As Sandor — a Hoagland-Metzler Endowed Professor of Practice in Supply Management
At Michigan State University’s Department of Supply Chain Management in The Eli Broad College of Business/The Eli Broad Graduate School of Management — told attendees, a few major themes emerged from both the aforementioned resources:

1) The supply management function must expand its charter beyond the traditional considerations of price, delivery and quality to include innovation and revenue growth from a strategically coupled and value-driven perspective; and

2) Delivering overall firm value requires superior supplier
perception.

“The objective is to … adapt and share a mind-set which views the supply chain as a strategic lever for achieving additional organizational goals of growth, corporate social responsibility and sustainability,” he explained. “We tend to build relationships with suppliers cautiously, and may often take them for granted. Generally, even after years of arms-length dealings, these relationships are regarded as tenuous.”

Sandor added that buyer/supplier relationships typically aren’t measured. (An informal poll of the attendees confirmed this.) And, even when they are measured, the process is often sporadic, he added. Recommendations aren’t routinely followed, and trends aren’t usually seen as organizationally relevant.

Sandor asserted that there are three loyalty “legs” to the business-success “stool”: customers, employees and suppliers. Not only is the supplier “leg” often neglected, he pointed out, it is often both the fattest of all three and represents the best opportunity for overall business improvement. “You might wonder why it matters if your supplier is satisfied. You can just find another, right?” he asked. “Well, no.”

To illustrate his point, he referenced the recent trend wherein buying organizations and suppliers are enjoying relationships based on mutual dependence — and mutual benefit, in the end. In fact, a recent study showed that buyer-supplier relationships featuring elevated mutual dependence result in greater information exchange and joint value creation. “This is really counterintuitive,” Sandor admitted. “But, the more vulnerable you are to your suppliers, the more competitive you – and they – will be.

“Part of the effort to improve supplier loyalty requires solid understanding of current supplier perceptions,” he continued. “Most honestly believe they’re good customers, and that they are their suppliers’ customer of choice.” But, according to another survey, only 5 percent of all customers regularly receive preferential treatment. The rest fall into a supplier’s “avoid” (15 percent) or “indifferent” (85 percent) supplier categories.

Among the esteemed 5 percent of preferred suppliers, however, are Toyota, Honda and Nissan. According to a 2004 study cited by Sandor, these three automakers had a $1,600-per-unit cost advantage versus their competitors because they enjoyed preferential treatment from their suppliers. “They have significantly better supplier perception scores, or SPSs, than ‘the big three,’” he explained. This is important to note because about 80 percent of the cost of manufacturing a car is comprised of purchased goods and services, he added.

To assess where a supplier relationship truly stands, the first step is a supplier perception survey. As the economy recovers, Sandor recommended supply management organizations ask themselves a handful of questions:

• Will our suppliers fail? If not, will they still be able to supply us? Will they still even want to?

• What will make them stay with us and give us their best resources?
• What will make them eager to invest in our business?

• What will make them bring breakthrough technology to us before our competitors?

• What will make them prioritize our requirements during times of material shortage?

Based on these answers, an SPS is then assigned to the supply management organization as a customer.

“Your main job should be to earn preferential treatment, so proactive buyers will make sure they get the right answers to these questions and use supplier perception metrics as a key performance indicator,” Sandor concluded. “Such metrics should not only be important to supply management folks, but — like customer and employee satisfaction measurements — ought to be keenly regarded by the CEO, as well.”
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