The potentially contentious environment created by a series of ongoing strategic sourcing initiatives does not lend itself to the kind of relationship-building that companies need in order to secure their supply chain. I am certainly not recommending that buyers pay too much to ensure that they have happy suppliers. However, I am suggesting that suppliers who are engaged in more substantive relationships with buyers are the most likely to extend payment terms, share savings and work with buyers to navigate through the myriad challenges that can arise during the tenure of an agreement.
Buyers need suppliers that will be able to consistently deliver quality products and services in a timely and cost-effective way. If you find a supplier who can do those things, switching providers is at least shortsighted and at most a risk to your business. An environment of partnership on the heels of years of strategic sourcing projects allows an organization to manage risk by working with qualified suppliers to create continuous improvements.
The application of these principles creates less disruption to the business, avoidance of costly implementations and opportunities for greater compliance to corporate contracts.
Next-generation Procurement: Strategic Category Management
Most of us are quick to decry the football player who leaves our favorite team as a free agent. But how much loyalty can we truly expect them to show to a team that will cut them if they tear their ACL? We know that the teams that are able to sustain a consistent roster are the most successful, but so few seem willing to do it. Players want guaranteed contracts, owners want performance, and in the end the system never really changes all that much.
Spend management professionals face the same problems. And while stories of their travails are unlikely to be carried on a major network, they can learn a lot from this familiar dynamic. Procurement already looks at their vendor base and recognizes the importance of being a “customer of choice.” They want to be important to their suppliers so that they can optimize the value that they drive out of those relationships. However, if a company views its contracts as being no longer than 30 days because every contract has a 30-day “out,” then the company’s suppliers will view the relationship the same way.
The risk facing the owners of football teams is that their players will leave in search of more financially rewarding and secure situation. While this disruption makes it more difficult to win, the risk of overpaying an underperforming player can be just as damaging. The risk that a company faces in constantly sourcing agreements is that good suppliers won’t perform at a high level for what they feel are unacceptable margins. Companies won’t deal with suppliers that can’t support their needs to reduce cost over time.
It seems there has to be a better way to manage this problem, and the analogy to football provides the answer: coaches.
Instead of owners dealing directly with players, they have hired an army of experts. Not experts on negotiating contracts, but experts in doing what the players themselves do. They have committed to helping to develop players physically and mentally, to giving them the tools and planning they need to be successful to meet the goals of the franchise. Companies should be doing the same thing with their supply bases, and they can. It’s called strategic category management – or what we’ll refer to here as “SCM” (not to be confused with “supply chain management”).
The Components of Strategic Category Management
The future of procurement lies in a combination of disciplines designed to address spend management challenges in an evolving, global economy.
Strategic category managers are the coaches that help to develop suppliers and make them better, more effective contributors to the supply chain.
In order to successfully take hold of this dramatic new approach in the post-strategic sourcing era, companies must be organizationally prepared to do the things that are necessary to managing the whole lifecycle of their contracts. This includes the adoption of six skill sets not currently present within most corporate spend management organizations.
Analysis: The identification and realization of savings will not be dismissed in the SCM approach. However, the ability to quantify and report those savings will be a more complex and challenging process. Having the skills to measure total cost of ownership improvements and demonstrate the dollar value of those changes to the chief financial officer (CFO) is paramount to the success of implementing SCM.