This month The Times published Supply Chain 2012, a 16-page supplement on the big issues and trends facing those involved in procurement and supply chain.
The report covered procurement, risk, collaboration, SRM, logistics, sustainability and finance, with David Atkinson commenting on SRM and cost-reducing Procurement.
On the subject of SRM and ‘Mutual Gains’;-
There are, says David Atkinson, founder of Four Pillars Consulting and former procurement director at aero-engine maker Rolls Royce, three main levels of SRM. At the bottom is performance management, which means making sure that the supplier provides exactly what was contracted for at the agreed price.
The next level includes performance management, but will also involve a degree of collaboration. “In automotive, that’s been known as supplier development for many years,” says Mr Atkinson. “But the focus of supplier development and performance management is typically around driving down cost and risk to get assurance of supply.”
The third level is strategic SRM, where the organisation is confident that costs are under control, but concedes that a small number of suppliers are genuinely critical to business success. “You are working on cost and top-line revenue development,” he says. “Indeed, you’re almost bordering in jointventure territory.” In short, he adds, it’s all about “post-contract value management”, with the emphasis on value.
In the article ‘Cutting with Care’ there is more on squeezing suppliers for costs reductions:
Royal Mail’s approach contrasts sharply with that of outsourcing giant Serco, whose chief financial officer Andrew Jenner sent letters to its 193 key suppliers demanding a 2.5% rebate. When news of the squeeze became public, Serco was shamed into refunding the suppliers that had succumbed to the pressure. The strategy backfired dramatically. These two episodes illustrate the pressure that all major organisations are under to cut costs, and how suppliers often get caught in the line of fire. The trouble, says David Atkinson, founder of Four Pillars Consulting and former procurement director at aero-engine maker Rolls-Royce, is that imposing straightforward across-the-board cuts on suppliers rarely works.
What is required is more analytical approach. “You have to analyse your spend,” says Mr Atkinson. “It seems obvious, but a lot of organisations have not got a grip on how their money is spent in their supply base. You have to segment that into categories, and prioritise in terms of the amount of money you are spending versus the complexity and maturity of the supply market. Then you have to develop procurement strategies accordingly.”
For example, if a particular supplier has a near-monopoly in one market, a heavy-handed approach could be positively damaging. The key is to develop a “shared manifesto” that can also benefit the supplier, perhaps enabling that business, likewise, to cut its costs.
The supplement is a good read and undoubtedly helps in raising the profile of supply chain issues amongst business leaders. Indeed, it’s particularly useful for those internal stakeholders who would like to tune in to what’s happening in the supply chain.
The full supplement is here, where you can also find a PDF version for onward circulation.
By David Atkinson