Beyond Supply Chains - Sooner Than We Think


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86th Annual International Purchasing Conference & Educational Exhibit

April 2001

Author(s):

Roberta J. Duffy

Session SA
Sunday, April 29
2:45 p.m.

Joseph L. Cavinato, Ph.D.,
Senior Vice President and NAPM Distinguished Professor of Supply Chain Management
NAPM/Center for Strategic Supply Leadership

Did you ever wander what your CEO is thinking? Ever wish you knew his or her opinion about supply chain management? What would you give to be a fly on the wall for that conversation? Thanks to some recent research by Joseph L. Cavinato, Ph.D., workshop attendees were privy to that exact information.

A portion of Cavinato's Sunday afternoon workshop illustrated the views that top executives have about supply management, as well as their perceptions of how the function's role has changed and will change in the coming years.

During focus groups facilitated last year, more than 50 top executives from various consumer goods/manufacturing organizations were queried. They were asked to describe supply management's role from three perspectives: the greatest challenge or core responsibility facing the function/firm in 1973, the role the function plays today, and the role the function should play in the future. They described these roles in terms of seven categories.

Supply

In 1973: The greatest challenge was in terms of managing commodity shortages and inflation.

Today's solution: A move to supply management, system efficiency, flow, and total cost.

In the future: The function should be addressing supply market management, driving suppliers' behavior, investments, and activities, etc.

Buying Power

In 1973: The purchasers had low buying cloud, were more passive, and were more price-driven.

Today's solution: To be more aggressive and develop supplier relationships.

In the future: Address and control cost structures and dynamics.

Innovation

In 1973: Purchasing was always "the last to know," being on the tail end of the organization's processes, in terms of new products/services.

Today's solution: Today's supply managers are able to support innovation by being involved earlier in the process.

In the future: Supply management should be doing opportunity sourcing, specifically driving and championing innovation with suppliers and within the firm.

Relationships

In 1973: Back then, suppliers and the market dictated the relationship to be held with the purchasing firm. There was little flexibility.

Today's solution: Supply managers are able to identify different strategies that are appropriate for various supply relationships, depending on the particular product/service being bought.

In the future: The value will be found in supply management driving internal relationships to create value through the supply processes.

Acquiring Products and Services

In 1973: The norm was for purchasing to simply "buy" what other internal business units dictated to them.

Today's solution: There is more purchasing/supplier early involvement and there has been a focus on streamlining systems for efficiency. There is investigation into Internet solutions for optimizing the process.

In the future: Supply managers will be tasked with eliminating the so-called "bottleneck" quadrant of purchases that is characterized by being high-risk, but of low-dollar value. In addition, another quadrant of purchases characterized by low-dollar value and low-risk value (MRO, etc.) will need to be transferred to e-procurement, customer ownership, or outsourcers. (Cavinato refers to the familiar four-quadrant graph which segments purchases by a scale of risk along one axis and value along the other axis.)

Measurements:

In 1973: Past measurements were antiquated and were primarily accounting-focused. The most dominant measure was price-based.

Today's solution: Prove one-by-one cases for appropriate take-charge actions. In other words, measurements should be customized for different supplier relationships and also different objectives desired from the relationship (price vs. value or other goal).

In the future: Supply management should create organization-focused measurements for critical supply.

Contributions:

In 1973: There was little attention paid to purchasing's functions.

Today's solution: There is a cumulative set of changed roles that purchasing must learn and sell throughout the organization.

In the future: Executives want supply managers to come to them with value as a top and bottomline contributor. Present business strategies first that then lead to corresponding supply management strategies. The executives might not necessarily seek out the supply manager for input, but will rely and require him or her to take the initiative.

In essence, Cavinato's main points were that CEOs and other executives want supply managers to be value-added contributors and want those professionals to think like senior management. They should identify and drive changed when needed so that the executive will not have to rely on outside sources (i.e., consultants) to suggest changes in supply management or the business. It's up to the supply manager's own vision and leadership to gain the skills required.

By Roberta J. Duffy, editor for Purchasing Today®.

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