By: Michael Hotchkiss, Director of Sales, SB&W
Supply chains for large companies have always been process–driven. Adding structure to shopping/buying is a proven way to increase efficiency and savings; a process that has trickled down into smaller operations. In many cases, however, this method of operation does not result in efficiency or cost savings.
Any organization that has a systematic approach to sourcing things critical to their own products attempts to plan and control spending and eliminate surprises. This looks great on paper but is not always the best technique, especially for smaller organizations.
Think back to the days when there was a purchasing agent, who spoke to the engineering department, which had designed things based on input from the sales team, which had targeted an audience provided by the marketing folks. This was an analog process where the information flow traveled from one end to the other like a continuous groove of a vinyl record.
Nowadays, each segment of this process is boxed into individual functions. The premise behind this new method is that if each node along the way follows the protocol for that specific function, progress hops from one functional activity to another like the digital code that makes up a CD. Each boxed function along the way is intentionally blind to what occurs in the other boxes. In this way each step can be optimized, judged and rewarded for performing a specific function regardless of the outcome at the end of the line.
Case in point: A buyer in a digitized supply chain is tasked with reducing the cost of buying the items they are responsible for. This is incentivized by a system that rewards percent savings and such. The buyer may not have any awareness of the cost of non-compliance, late deliveries or any other history that may be associated with a supplier, but is rewarded for securing a 3% cost savings from the last order.
While each boxed function operates separately, management should oversee the entire process and understand what happens in other boxes and what other factors affect a decision. All too frequently, the ends drive the means and buying decisions become only about price because that is where the greatest individual reward can be realized.
The single greatest challenge facing companies that sell into a digitized sourcing process is selling value. Every supply chain pro will cite many factors related to supplier performance, including communication, on-time deliveries, quality product and, of course, price.
Each one of these elements in a supply chain is evaluated by a function, i.e., a person, in a particular box that says whether or not Supplier A has a good quality record or impeccable on-time deliveries. Because they are in a different box, the buyer(s) aren’t privy to this important information unless management has mandated that it be part of the process. Unfortunately, that is rarely the case.
The challenge suppliers face is getting the necessary information from the right people. The new “box” process has made that more difficult to achieve. Success requires “thinking around the box” to establish the true worth as a supplier.