Dangerous Supply Chain Myths (Part 2) Revisited

In the year since this segment was first published, I have written a number of follow-up articles that have focused on testing the metal if you will of my position that the majority of supplier development and management programs are inherently flawed.  What is the old adage about the unexamined life?  Everything, including what I write should be subject to scrutiny and where appropriate – constructive challenge.

That said rather than diminishing in its veracity, the belief that most programs such as vendor rationalization have very little to do with operational efficiencies, and more to do with technological limitations has gained considerable mainstream acceptance.  (Note: Be sure to read Part 7 when it is posted sometime next week, as I will delve deeper into the reasoning behind this conclusion.)

In this context, the lens through which you read today’s post as opposed to a year ago, takes on greater signifigance as organizations in both the private and public sectors are now scrambling to overcome the damage (in some cases irreparable) of an ill-conceived supply strategy.

And while the aforementioned follow-up pieces (The Continuing Dangers of Vendor Rationaliztion – November 27, 2007, and The Bands of Public Sector Supplier Engagement – December 13, 2007; https://procureinsights.wordpress.com/?s=Vendor+Rationalization) expand on the ideas first introduced in the original segment, there are also success stories relative to effective supplier engagement and development worth noting.

One such story is the Commonwealth of Virginia’s eVA program, where an increase in the number of actively engaged suppliers coupled with an equally impressive increase in the distribution of business over the supply base has resulted in more than 80% of the targeted $3.5 billion being processed through the system.  Compare this to the results of similar programs with other governments during the same time period and you can see why Virginia was ranked number 1 in the 2008 Pew Center Report (https://procureinsights.wordpress.com/2008/03/04/virginia-is-ranked-number-1-in-2008-pew-center-report/).      

So without further delay, I am pleased to present Part 2 of the Dangerous Supply Chain Myths series.

 

Dangerous Supply Chain Myths (Part 2) – Reprinted from May 29, 2007

 

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 

 

To learn more about the Dangerous Supply Chain Series as well as our other Seminars, simply use the following URL Link: https://procureinsights.wordpress.com/seminars-and-conferences-with-jon-hansen/