Supply based management in Tough times
10 March 2009Supply Based Management is a new book by Stephen Rogers that I’m reading right now - a review to follow shortly. In the meantime, I have the pleasure of posting an excerpt by the author himself about supply based management in these difficult times.
SUPPLY-BASED MANAGEMENT IN TOUGH TIMES
In today’s deep recession, customer vulnerability and top line revenue declines need to set the tone for the actions that create advantage not merely survival.Cutting costs is vital to your competitiveness but the knee jerk reaction to squeeze suppliers, as much as you fear your customers will squeeze you, will not create a business model that rises above survival.
Stephen C. Rogers is the author of the new book, The Supply-Based Advantage: How to Link Suppliers to Your Organization’s Corporate Strategy (AMACOM 2009). He is a Senior Consultant with the Cincinnati Consulting Consortium, concentrating on Purchasing and Supplier Management, and an adjunct professor at Xavier University. During his 30 years at Procter & Gamble, he had sourcing roles in every major business unit, and as the “father” of strategic sourcing at P&G, participated in the development and expansion of Procter & Gamble’s global sourcing efforts and the redesign of the Folgers Coffee supply chain. He was named a Supply and Demand Chain magazine “Pro to Know” in 2004, and has served on the American Management Association’s Supply Chain Council for the past 10 years.
While understandable, this reaction can increase supply risk and leave hard feelings in the future.How supply chain cost control is accomplished is just as critical as achieving it.Mindlessly squeezing suppliers to the breaking point is not the answer.Instead you need to:
1. Maintain realistic communication and consistent direction: Strategic supplier relationships endure beyond the crisis, so sudden philosophy shifts from “partnering” to “competitive butchering” are a recipe for supplier confusion and distrust.Track key markets, maintain expectations that suppliers keep you, their customer, competitive by finding ways to work well together in bad, not just good, times. Pare those that won’t work this way now when the economy makes replacements more available.
2. Leverage supplier capability: Suppliers need you to sell more so they can too, especially now.Innovation is an overused word, but unleashing supplier capabilities to deliver cost innovation will improve your product’s customer value proposition.This means eliminating cost not just driving supply prices down and that requires close communication and cooperation - impossible to do if you are trying to wield a butcher knife at the same time.
3. Manage supplier risk: Suppliers under pressure can fail.Worse, their fear can cause them to hide bad news from their customers.Blind buying without penetrating supplier circumstances can be a prelude to disaster.Ongoing due diligence and frank talk, built on relationships forged in good times, smoke out risk.Joint dialogue anticipates, copes with and/or creates back up for supplier setbacks.Smart sourcing identifies alternatives in advance of supplier shutdowns.
4.Expect volatility:Commodity prices will not be depressed forever.Speculation and supply/demand adjustments will make today’s low prices beget higher ones tomorrow, just as yesterday’s high commodity prices spawned today’s low ones.Scenario planning and stress testing of supply forecasts, supplier relationships and sourcing strategies must encompass these swings.Building them into your company’s business plans will provide flexibility and contingency planning now and on the up side after the crisis.
5.Budget for tomorrow not just today: Dramatic head count reductions only work when there is fat to begin with.Once the fat is gone, work process change takes more effort but can lead to longer term advantages.Return on supply staff investment is key - both in terms of recognizing how much savings/waste elimination each person delivers and tough disciplined leadership that insists on continuing returns to avoid overstaffing.This is the balance supply leaders must demand.
In this economy, the challenge is balance - tough cost expectations that suppliers keep you competitive with closeness that supports supplier investment in your business and enables you to monitor, anticipate and help avert their vulnerabilities.
Tags: Supply Chain, Supply-Based Management, Stephen Roger, Supplier Risk, Supply Chain Risk, Leveraging Supplier Capability
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