FROM PURCHASING TO SUPPLY CHAIN MANAGEMENT ONE OF THE BEST PATHS TO SENIOR MANAGEMENT
Supply chains are long and involve many activities encompassing many contributions.
There are different levels of maturity used in managing these activities which we refer to as “Supply Management Process” and are different from company to company where the use of these terms often differ also.
How do you refer to your role? Is it buying, purchasing, procurement, contract management, supply management or supply chain management? What do these terms mean? Are some subsets of others? Are they interchangeable? How many such terms are there? Does it really matter?
Definition is needed to clarify roles and avoid duplications.
Includes: order management, receipt, payment, critical issue management. Refers to the activity for acquisition administration of required materials, services and equipment.
Includes: ‘Buying’ + objective definition, user requirements definition, supplier market research and qualification, supplier selection (negotiation or bidding), support in technical, commercial evaluation, contract management. Refers to the activity for acquisition of required materials, services and equipment.
Includes ‘Purchasing’ + supplier quality, and inbound transportation and logistics.
We will refer to a paper from CIPS “The Definitions of Procurement and Supply Chain Management.
When CIPS Australia set out to identify the key issues for Australian procurement professionals we undertook a survey of those active in the profession. The survey responses indicate that there is a wide variation in the intended meaning of the terms we use. … Procurement definition encapsulates a broad commercial role ranging from external resource management through entrepreneurship towards customer benefit and even residual sales. Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives. Procurement exists to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to the organisation, its stakeholders and customers. Procurement applies the science and art of external resource and supply management through a body of knowledge interpreted by competent practitioners and professionals.”
Includes ‘Procurement’ + Category Management (Interfunctional collaboration, situation analysis, risk analysis, category plan creation) + Supplier Strategic Management (Interfunctional collaboration, supplier positioning, performance mgt, supplier plan creation).
Supply Chain Management
Includes ‘Supply Management’ + all activities aimed at satisfying the end consumer with a value analysis approach and the definition of outsourcing plans.
It is a strategic role; it is pivotal because its spans from the end-customer's requirement to the suppliers that provide the goods and services to meet that need. Upstream it involves going beyond the suppliers that interface with the organisation to the second or third tier of suppliers, in order that improvements can be made or risks managed.
Value analysis:the ability of identifying where the value lies within the whole supply chain i.e. identifying the value chain and then segmenting it so that each segment can be addressed individually.The purpose of this is to diagnose each value segment to determine whether the organisation could improve it.
Make/ buy decisions resulting in more goods and services being bought in, and longer-term partnering arrangements leading to fewer key suppliers to become strategic suppliers.
Supply chain management therefore represents and reflects a holistic approach to the operation of the organisation. In other words, supply chain management relates to the entire company cycle. According to this definition, supply chain management is the management of the whole demand process, starting with the end customers' requirements and managing the meeting of their requirements right up to the supplier of the goods or services.
Only a few industries are moving in the direction of fully integrated supply chain management.
In the automotive sectors there are some examples where a supply chain management concept is on the way to be implemented. Another sector with high maturity in supply chain management is the retail sector where the supply chains close to the final customer have been managed to the extent that all goods and services required by the organisation are demand-driven, with technology enabling end-customers' requirements to be communicated direct to suppliers.
Question and Answers
The first typical question is: According to these definitions which is the level of my function?
In order to answer this question CIPS assess organisations using five structural levers:
The second typical question is: how can I improve? To increase value creation you can design a transformation plan based on the same five structural levers. CIPS offers a service of ‘Corporate Certification Journey’ to support you.
As leadership and organisation is the first structural lever the third question typically is: who should be leading these activities in the different levels?
For the Purchasing level the power competition is between the Purchasing leader who has the responsibility to reduce the ‘Maverick spending’ and the Internal User who is the budget owner and trys to keep his freedom in supplier choice.
For the Procurement level, the ‘early involvement’ concept at this level has been accepted in the organisation and the Procurement leader has managed to increase his/her influence in the supplier selection decisions activity. The power competition is typically with ‘COO’(Chief Operating Officer) for the influence in the inbound logistic activities.
At this level it is better to have a the Procurement function reporting directly to the CEO to be able to deal as ‘peer to peer’ with the COO (Chief Operating Officer).
Buyers should become increasingly involved, and where possible lead however, it is recognised that not all buyers have the skills necessary to manage even the upstream part of an organisation’s supply chains. Proper use of the ‘People lever’ is suggested. This means selection of your staff as well as recruiting and training new staff.
For the Supply Management level it is suggested to have the Supply Management Leader reporting directly to the CEO and member of the Executive Committee to be able to understand the company strategy and support it by developing a Category Management Strategy and a Suppliers Strategic Management Strategy.
Such a role, requires objectivity, an ability to work with all stakeholders within the chains such as Sales, Marketing, Finance, Production, Procurement, Outbound -Logistics and Distribution. In particular, supply management need to work closely with Account Managers who are best placed to feed information back into the supply chain. Many organisations still work in functional silos instead of cross-functionally – supply chain management demands this crosscutting approach to managing the customers' needs.
The key skill of an effective supply manager is relationship management. Good procurement professionals are well equipped in this skill. The ability to manage customer relationships, both internal to the organisation and external, and supplier relationships is fundamental to success in supply management. In the context of supplier relationship management, supply management is able to provide benefits over and beyond backward integration.
The skill of the professional working in a supply management environment lies in getting suppliers interested in working with the buying organisation. The suppliers will perceive the buying organisation as a valuable long-term client relationship which is worth investment. A key competence is sophisticated interpersonal skills. Ability to persuade, influence, communicate, facilitate, coordinate and manage the human implications of change.
To move from level 2 to level 3 in some cases it is suggested to use the support of an external specialist.
Supply chain management requires a senior leader with also a solid experience in the sector; this is because it is such a central function and is fundamental to the commercial management of the business. Supply chain management is at the fulcrum of the business as it involves responsibility for the end customers' demand right through the organisation to the suppliers, and where appropriate, beyond. There are also many hard skills which are also key, notably
Process design (redesign);
IT integration/role of eCommerce;
Supply chain modelling; and performance management.
The ability to challenge existing processes, policies, procedures. Professionals should continually question and challenge where it is appropriate to do so, and not just within the buying dimension.
Professionals wishing to promote and develop supply chain management must adopt all of the above skills and competencies but most importantly, should be able to think in terms of the whole business. To achieve maximum benefit, supply chain thinking would of course pervade the whole of the company's corporate strategy.
This role in many organisations is lead directly by the CEO.
For a high flying Supply Management professional to contribute to this activity is one of the best paths to senio