Demanding better supply management

Supply management isn’t what it used to be, according to Carlos Niezen, Wulf Weller and Heidi Deringer. Savvy supply management can ...

Supply management isn’t what it used to be, according to Carlos Niezen, Wulf Weller and Heidi Deringer. Savvy supply management can increase shareholder value, but only if you reinvent the concept for a new century.
Demanding better supply managementIn 2004, just days after Greece pulled off its surprise victory in football’s European Championship, Adidas delivered more than 145,000 blue-and-white Greece team jerseys to stores across Europe.

Smart marketing? Without a doubt. But perhaps even more impressive was the feat of global procurement. Tapping into a centralized supply chain that coordinated orders and deliveries for each of its country-based sales subsidiaries, Adidas created just-in-time products for the championship team, with duplicate sales triumphs in every other winning country as their national teams advanced through the series. To round out the success, Adidas’s flexible supply chain strategy delivered these sales at very low risk, avoiding overinvestments in materials or finished products.

What a change from the often drab world of procurement. A company’s “purchasing” organisations once had a simple enough task: buy what the company needed while spending as little money as possible. Today the function is typically called supply management, and it faces a far more complex set of challenges. Corporate leaders expect supply managers to ensure an uninterrupted flow of goods and services, often on a just-in-time basis, no matter where in this uncertain world the purchases might be originating. They expect supply managers to help improve product quality, reduce cycle time or time-to-market and increase the rate of innovation. Of course, they also still expect that supply management will deliver the lowest possible total cost – for an ever-larger range of corporate expenses.

Demanding objectives

Perhaps the real surprise is that some companies’ supply-management teams actually manage to achieve these demanding objectives. In a survey of procurement practices at 156 large companies, Bain & Company found that 34 organisations, or 22 per cent, stood significantly above the rest. These leaders have growth rates of more than 20 per cent a year – itself no small matter – and their supplymanagement organisations seem to be in hyperdrive. Supply managers at these companies generate significantly more incremental revenue than their counterparts at lower-performing companies. They achieve greater reductions in cycle times. And they are far more likely to bring innovation to the company, either on their own or through suppliers.

A handful of companies have reinvented supply management along these lines. Not surprisingly, the leaders look and act quite differently from their more conventional counterparts.

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