Roadmap to a Comprehensive Supply Management Strategy

Is your company getting the most from its supply management function? Here's a step-by-step look at how to phase in a successful "end-to-end" supply management strategy.


Enable Change — Begin the Transformation

As the organization's supply management strategy begins to change, a supply philosophy must be established for each material or SKU, and is closely tied to the material and supplier categories. Supply philosophies are designations of the approach taken to sourcing any particular material. The spectrum in obtaining material ranges from multiple qualified sources (dual) to a single source selected from several qualified sources (single) to a sole source (the only source for a particular material).

Next, automate the core procurement processes, including the transactional processes and the RFx (request for information (RFI), request for proposal (RFP) and request for quotation (RFQ)) process. Establish a Web-enabled desktop e-procurement platform to foster correct procurement behaviors, reduce and/or eliminate transaction costs, increase trust and satisfaction with the procurement organization, make it easier to procure common items, enforce utilization of preferred suppliers and global contracts, and achieve volume aggregation goals.

Implement a formal RFI, RFP, and/or RFQ process to ensure that suppliers understand that they are in a competitive situation and to make it easy for a potential vendor to respond to your posted needs. Automate the process with a Web-enabled vendor portal that includes workflow capabilities. Provide guidance and policy information online so that vendors understand expectations and codes of conduct, and have available all necessary contact information. Foster collaboration across the supply chain to achieve cost reductions through modification of engineering requirements that move materials from "unique" and "custom" categories toward the "commodity" classification.

Then design, develop and implement information systems integration strategies and architectures between key suppliers and the company's back-office systems and processes, making it easier for suppliers to do business with the company. This also makes it easier for employees to follow the prescribed procurement processes, rather than go around them, thus reducing off-contract buying and ultimately lowering the total delivered cost of materials.

Based on the as-is process maps, it is time to determine the costs of common procurement activities so that the net benefit of process changes and procurement initiatives may be valued and shared within the organization. Create commodity-costing models that allow the calculation of total delivered cost of materials, especially those sourced from low-cost countries. These models can be used in the evaluation of procurement opportunities and allow an apples-to-apples comparison that includes the risks associated with offshore sourcing.

Finally, utilize resources from business units that have a vested interest in one or more classes of commodities to commission commodity managers, commodity teams or global-contracts managers to address a variety of procurement initiatives on behalf of the organization. Make it clear that the quid-pro-quo of this activity is that while these resources are working to source materials at the best value for themselves and the rest of the organization, other teams are doing the same for commodities that will benefit their business units. Establish ongoing training programs to transform the procurement function from "order placers" to strategic business partners. Professional societies and their accreditation and certification programs; peer-to-peer sharing of successful procurement projects; and online, self-paced skill instruction and review all add to the knowledge and acumen of the procurement function.

Deliver the Value

Now it's time to see how the supply management strategy affects the company's bottom line. First, define the procurement initiative process. Every project launched to reduce procurement costs will require time, attention, resources, approvals, data, and a project plan. While details may vary, the basic approach to all procurement initiatives is similar, and having a defined methodology will ensure that commodity teams and contracts directors have the necessary information, approvals, and authority to commit the organization's funds to external parties.

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