Tuesday, 3 November 2015

Bring Success to your Procurement Department

Authored by Usama Shahid

Best-in-class companies recognize strategic sourcing as a value creator and consider it to be integral to their overall strategies for growth. Here's what it takes to bring your organization up to that level.

Managerial Focus: It is important to explain the linkage and alignment between an organization's competitive positioning and its supply chain processes. The connection between these two areas is governed by the decision-making process and is driven by the supply chain's managerial focus.

This focus is the most important factor in ensuring coherence between supply chain execution and a business's unique value proposal. Yet it also can be an area where organizations are more likely to fail. Such failures mainly result from a standard managerial approach that emphasizes efficiency-oriented performance indicators regardless of the competitive positioning defined by the organization. This approach encourages companies to focus on seeking local efficiencies that may conflict with their value proposal to customers, thus creating misalignment between the supply chain and business strategy.

Internal Processes: Internal processes, provides an orientation that ensures a proper connection and combination within the supply chain activities that fall under the categories of source, make, and deliver. Among the many factors encompassed by this element, the most important are asset utilization and the location of the decoupling point. The decoupling point is the process in the value chain where a product takes on unique characteristics or specifications for a specific customer or group of customers.

When the business framework is characterized by a high degree of relevance of the cost of assets to the total cost, and/or when the unique value proposal is oriented to low cost, the high utilization of assets is mandated. Consequently, the location of the decoupling point should be at the end of the transformation process, or at least at the output point for the most relevant manufacturing asset in terms of cost.

Simultaneous Capabilities, or Multiple Supply Chains?

Organizations tend to want their supply chains to have simultaneous capabilities: efficient, fast, agile, custom-configured, and flexible, among others. Yet each of these capabilities requires different skills, and in the majority of cases, these skill sets are incompatible within the same supply chain. However, it is possible to develop several parallel supply chains within a single organization, each focused on a defined market segment with a responsiveness level and a cost structure that are appropriate to the segment it serves.

The most powerful benefits of the "Supply Chain Roadmap" arise from its ability to help demystify the process of formulating supply chain strategy. It does so by identifying the key drivers of business strategy, and then helping managers understand how those drivers would align in a coherent way with each of the six generic supply chains. This makes it possible to select the supply chain type that best fits a particular business segment.