Supply Management Takes A Strategic Set Up

Bill Markham is a principal in A.T. Kearney's Chicago office.

Findings from A.T. Kearney’s Assessment of Excellence in Procurement (AEP) Study

More than ever, CEOs expect their supply management organizations to deliver value beyond traditional cost cutting. But what kinds of value and how will the organizations deliver it? To find out, we surveyed supply management executives from 275 leading companies in Europe, North America, Asia Pacific and Latin America. The following highlights what executives see as the next wave of value creation from supply management:

Getting More from Suppliers
What innovation has caught your eye recently? The light rings around BMW headlights? The 12-can Fridge Pack for Coca-Cola soft drinks and Miller beer? Both of these ideas were conceived by suppliers and brought to market through joint development. Leaders are not just receptive to suppliers with new ideas, they expect supplier innovation and involve key suppliers in the earliest stages of new product development (see figure).

Taking Cost Management to the Next Level
Leaders pursue global sourcing like a pit bull. They consolidate volume and evaluate best prices for hundreds of items. What’s left? The leaders use a complete arsenal of advanced cost-management strategies that address multilayered problems. Some examples:

• Tiered sourcing combines volume purchases with tier 1 suppliers to negotiate more favorable contracts.
• Mega-supplier strategies offset a supplier’s advantage in a non-negotiable category by bundling other categories in the negotiation.
• Design-to-cost strategies involve revising specifications to avoid costs through techniques such as standardizing components.
• Collaborative cost reduction generates and implements cost-reduction ideas with suppliers.
• Demand management involves implementing indirect procurement policies to rationalize requirements, control approvals and reduce or eliminate nonessential purchases.

Managing Supply Risk
The leaders in our study know supply risk is a strategic issue. They identify potential weak spots in supply lines and plan for alternative sources and supply routes. They choose suppliers to avoid exposing the company to embarrassment or liability. They also anticipate possible intellectual property risks from offshoring or outsourcing decisions.

Still Room for Improvement
Among these leading companies, supply management is recognized as a strategic contributor. But executives see room for improvement. Bridging boundaries within and across companies remains a constant challenge. Continued attention is needed to further develop staff skills and capabilities, IT tools, processes and measurement techniques that will enable supply management organizations to deliver even more value in the years ahead.

source: http://www.atkearney.com/