Four Key Considerations for Supply Chain Decision Makers
When it comes to buying a new product or service, supply chain pros utilize a variety of methods to gather information, analyze results, and make decisions.
These solutions range from no-tech methods like working the phone, to high-tech methods like conducting an e-procurement process using industry tools. While the methods on the lower end of the scale are more labor intensive and can be subjective, and the methods at the higher end of the scale tend to be more objective, formal and efficient, each has its place in the world of procurement. However, there's a fundamental question that all decision makers need to be able to answer; what are we actually buying?
The following four considerations are helpful before embarking on any procurement initiative:1. Are you buying a commodity or a value-added product or service?
The method and approach are vastly different if you are buying a product or service that is well known, mature, and doesn't have a lot of distinguishing features. Tactical buying relies on a body of knowledge and product or service specification that is widely published or available, the features of the product don't change much, nor does the price or the delivery. These items don't require a sophisticated procurement approach. That's not to say this buying isn't important to the organization, a bolt shortage that shuts down a line can be catastrophic, but the method to procure them doesn't have to be top heavy. An RFP process is usually appropriate and adequate for commodity products.
Any product that represents a unique value proposition such a an engineered product, or a product that has value added to it in a supply chain process, is likely not a commodity and may warrant a different approach. These include products that may have specific and demanding service requirements attached to them, like service parts, or items that require an associated service before they can be placed in service. When procuring this type of product or service, organizations would be well advised to utilize both an RFI, to collect information and capabilities from known and unknown players in the industry, and an RFQ to provide a satisfactory quote. The RFQ allows the supplier to tell more of a story about their “solution“ which includes the product or service being procured.2. Does your organization currently utilize, or is it capable of, external research and benchmarking?
To create objectivity and make informed decisions, supply chain leaders need to understand what is available across a wide array of industry players. An organization that goes to the same source for information typically gets the same results. Expanding the search beyond the current supply base provides information on new products and services that may be available yet remain unknown to the buyer, and hence the organization. An organization that conducts some level of primary or secondary research on its own makes better decisions, unfortunately this capability has all but disappeared from today's organizations. The opportunity cost of not having this capability means leaving a lot of value on the table.
3. What is the organizational maturity level of your procurement resources and do they utilize industry best practices?
Industry and HR professionals have been agonizing about a “supply chain talent gap“ over the past several years. There are many articles, white papers, and studies indicating a supply chain resource apocalypse. We frequently find that our clients are not actually experiencing a “talent gap“ within their organizations but rather an “experience gap.“ Our clients have highly educated and talented supply chain resources. What they lack is direct experience in creating, re-engineering, and continuously improving supply chains. In other words, they don't know what they don't know. Investing in industry research, particularly learning about industry best practices is a great way to take a quantum leap in understanding how others have solved similar problems. Many best practices are portable across industries, and are based on a solid foundation of academic and practical experience from leading companies.
4. What does the decision horizon look like?
Is your company at the beginning or in the midst of a strategic transformation? If so, there is no better time to assess strategic procurement practices. Perhaps there is a need for a refresh of current practices to deliver different outcomes. Whatever catalyst presents itself in your organization, different thinking and behaviors will be necessary to drive positive change. Inertia is not a strategy. When it comes to fully realizing the benefits of strategic procurement, one thing to be aware of is a disconnect between the executives and leaders driving the change and the resources required to execute the practices that will produce the change. If you are looking for near-term results, you may be tempted to take a 'big bang' approach. In a continuous improvement environment, research, best practices, and professional development may be sufficient. However, in our experience, for the majority of organizations, a more pragmatic step-by-step approach will deliver reduced complexity and realize measurable value when looking across procurement, logistics and operations.
- If you would like to talk through the opportunities discussed in this article and find out how Maine Pointe's TVO™ approach can help drive value your supply chain and operations to enable growth contact us for a no-obligation chat:
Maine Pointe is a global implementation-focused consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in both EBITDA and cash across their procurement, logistics and operations to enable growth. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe's engagements are results-driven and deliver between 3.5:1-12:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com