Moving Beyond Traditional Supply Chain Management

Companies have two main options when it comes to supply chain management strategies: single vendor or multi-vendor. Is one better than the other? Not necessarily, but one might work better for one business than another.

When procurement managers opt to move their organization to a single vendor sourcing strategy, they can reap several benefits, including improved innovation and design collaboration, better supplier responsiveness, or even gain better bargaining power to reduce costs.

A multi-vendor strategy, however, has benefits as well. For example, it can decrease the likelihood of a lopsided dependency – when both sides will not consistently respond to issues with mutually beneficial behavior.

According to recent reports, it’s crucial for organizations to take numerous factors into account before making a decision. Furthermore, the same strategy might not work for all businesses.  The heterogeneity of the supply-chain ecosystem means that different concerns are in play for different players.

There are, however, concerns that are central to all players.

A recent Accenture survey shows that 76 percent of companies see supply chain risk management as essential to their business. Even so, of the 1,000 surveyed companies across the globe, only 7 percent are generating returns of more than 100 percent on their supply chain risk management investments.

With such a wide gap between investment an return, it seems that supply chain risk management is something of a puzzle in procurement—it’s a central concern, but one with a extremely poor ROI.

Accenture senior managing director of strategy and operations Mark Pearson points out that this may not necessarily be the case. Commenting on the Accenture report, he noted some strategies, specifically a top-down approach to supply chain risk management, have better track records generating ROI on risk management than others.

“Although unforeseen events or natural disasters lead some to give up on risk management, most risks can be managed to not only minimize the downside but also to gain a competitive advantage as a result of being prepared to respond to circumstances when they arise.  Scenario planning and robust analytics can play a key role in developing effective risk mitigation strategies.”

Top Issues For Procurement Leaders

So, let’s say that a vendor strategy is chosen, and there is a productive risk management solution in place. The procurement specialist still has more to ensure that the supply management chain remains as smooth as possible.  Not only that—this “more to do” is expanding almost daily as the focus of procurement is moving beyond simply cost calculations.

The Hackett Group released a study this year that showed that procurement leaders are expanding their priorities in 2014. Specifically, executives want to move beyond the historic emphasis on reducing purchase costs, and expand and deepen the scope of spend influence. Additionally, surveyed procurement managers said they wanted to better support supplier-led product innovation.

Study participants included executives from over 150 large companies in the U.S. and abroad who were asked about their business strategies, revenue and budget expectations.

Over three quarters of those surveyed stated that the top issue to overcome is expanding the scope of procurement’s spend influence. The second-highest priority – cited by 69 percent of those surveyed – said that tapping into supplier innovation was necessary.

Report author Chris Sawchuk explained that this year, companies are looking to innovation to drive revenue growth and margin improvements.

“Cost reduction is still a top priority,” Sawchuk said. “But we believe many procurement organizations have reached the upper limit of cost reductions possible in categories they are actively sourcing today. So they’re looking for ways to reinvent their value proposition. A key part of this is expanding their influence, and taking a life-cycle approach to category management. This requires working more effectively with spend owners, executives, requisitioners, suppliers, and other stakeholders. It also calls for skills that are outside procurement’s traditional areas of expertise.”

Sawchuk’s last point is addressed in a recent survey organized by Worldwide Business Research’s ProcureCon Indirect East (PIE) conference with partner Beeline, a software developer for sourcing and managing the flexible workforce. According to PIE’s research, procurement functions are not adequately staffed to successfully execute their transformation goals and do not operate on a strategic level within their respective organizations.

In a survey of over 310 procurement executives, 56 percent said that their procurement teams were not properly staffed. However, the report explained that this didn’t necessarily mean the amount of people, but rather, ensuring that the right people were in the right positions with the right skill set.

Overall, companies want to be successful while not overspending. Depending on what your B2B business does, a single vendor approach or a multi-vendor approach could be the answer—and everyone needs to provide for a productive risk management solution.  The procurement professional of the future, however, is moving beyond the spending and technical details to leverage their spend and data against creating a more better and more influential supply chain.