Dangerous Supply Chain Myths Revisited (Part 2): Supplier Development and Management: The Fruit of a Poisonous Tree?

Posted on August 16, 2011

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Each day for the next seven days I will be posting parts 1 through 7 from what is considered to be one of the most popular series in the Procurement Insights Blog’s history.

The Dangerous Supply Chain Myths series was based on my review of the ISM, CAPS and A.T. Kearney Report that was originally released in May 2007.

Considered to be a breakthrough assessment of the purchasing industry at the time, I felt that there were several gaps in the study.  What is important, and within the context of present day realities, what do you think.  Do the key areas highlighted in the study still carry weight in the here and now?  If not, what has superseded them in terms of overall importance?

Missed a previous post?  Use the following link to access the entire 7-Part Series.

Segment 2 – Supplier Development and Management: The Fruit of a Poisonous Tree?

  • Supplier Development and Management 
    Effective supplier development and management should deliver a competitive advantage in cost, quality, delivery/responsiveness, technology, and innovation achieved.

In Segment 1 I reviewed the inherent risks associated with the broad application of a consolidation strategy.  This was an appropriate starting point due to the fact that any adjunct undertakings that extend or branch out from this original “tree” will by and large fail.

Let me start off by saying that the ISM, CAPS and Kearney report was correct in terms of highlighting Supplier Development and Management as one of the seven key tenets of succeeding in a dynamic world.  However this determination is undermined by the consolidation strategy that is pursued by the vast majority of organizations.

Specifically, do suppliers perceive your current e-procurement strategy as a threat or a benefit to their organization?  What is worth noting is that this question even extends beyond the concerns of the SME community to include supplier organizations of all sizes. In 2005 I addressed an audience of 200 senior executives from the supply-side of the automotive industry.  The general consensus regarding e-procurement (re technology) overall can be summed by just two of the innumerable concerns that were voiced afterwards.  They are as follows:

“It (e-procurement – technology) will have a negative effect on my business.” 

“The product (we sell) is commoditized under an e-procurement program . . . we will do everything to resist participating.”

These are strong sentiments that were still being echoed by suppliers in a March 2007 seminar I gave in Toronto.  This should prompt you to ask the question; is my organization’s current strategy seen by our supply base as a benefit or a threat?  Of an even greater significance is the question, will a broad consolidation strategy enhance or erode my supply base? Now there are certainly organizations which have both the volume and means to “flex” their buyer-side muscles, and are therefore prone to be less than empathetic with supplier concerns.  However if history has taught us anything, it is quite simply this – supplier buy-in is a critical element of a successful e-procurement strategy.

From the automotive industry’s failed Covisint initiative (for those of you unfamiliar with this massive initiative which was championed by a consortium of manufacturing heavyweights such as Ford, Daimler Chrysler and Nissan, I would be happy to provide you with more information upon request), to Ford’s abandonment of their own Oracle-based Everest program, supplier resistance was cited as a determining factor.

Staying within the automotive industry (although these statistics are somewhat consistent across all sectors), a 2004 study provides an imperative numerical means of measuring the impact of supplier resistance.  Of the 45% of U.S.-based customers who have contracted vendors, 33% of all purchases were from non-contract suppliers.  In Canada, this number ballooned to 79%.  Is this a compliance (or non-compliance) issue, or is it the result of a questionably conceived, broadly applied consolidation strategy?

This is a question that needs to be asked . . . and answered before any strategy is ultimately embraced and introduced in the real-world.  Unfortunately, most decision-makers abdicate this responsibility by looking outside of their organizational expertise to seek the input of consultants and vendors whose vested objectives may not necessarily align with those of their customers’.  (An article I wrote titled Technology’s Diminishing Role in an Emerging Process-Driven World provides actual case references, and as always I would be pleased to provide you with a copy upon request.)

In conclusion the ISM, CAPS and Kearney Report, while on the surface makes a solid point, it is actually beneath the surface at the foundational level of your core strategy where the effectiveness of Supplier Development and Management will ultimately be determined.

(Next Installment: Multiple Supply Networks)

 

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