Supply Risk: Keep Doing What You're Doing And Take Advantage of the Crisis
Rahm Emmanuel, Obama's chief of staff, once remarked: "You don't ever want a crisis to go to waste..." This statement holds true for procurement as well.
A couple weeks back, I spoke on a panel to the ISM Silicon Valley chapter about Supply Risk. One of the more interesting points that came out of the conversations was that, in a majority of the company's represented, procurement people are being tasked (on top of everything else) with addressing supplier risk. Not finance, not operations; mostly procurement. Executives assume that asking Sourcing and Procurement folks about which suppliers are risky will yield cogent responses; after all, those are the folks who deal with suppliers daily, right?
The sourcing manager sees a drop-off in participation from a particular supplier or industry. Buyers notice increased activity in catalog item pricing and availability or, worse still, they see missed deliveries or declining quality. And AP or treasury sees an uptick in early-payment discount offers on published remittance schedules.
As logical as an executive's assumption is that supplier-facing folks would know which suppliers are at risk, I would love to hear a spend management professional push those executives to follow through on that logic. Why stop at the anecdotal knowledge and sparse coverage of spend management professionals when automation of their processes and e-enablement of their suppliers can yield the same detail across thousands of suppliers?
I would advise leveraging the current attention given Supplier Risk to lobby again for the basic tools to get best practices spend management done. One of the best practices is, after all, supplier inclusion/enablement/collaboration/partnership (pick your favorite touchy-feely term here). A natural offshoot of good spend management, then, is much better KRIs (Key Risk Indicators) obtained by really knowing your suppliers. Turns out improving the fundamentals of spend management is still key to really acting on the newer, trendier issues coming down from the executive suite.
So there you have it. Use the hot button interest around supply risk management at the moment to push through your own agenda and needs, grabbing budget and attention for a broader set of issues that transcend -- but encompass -- supply risk. But act fast. The window might be closing, as it does with all trends.
- Paul Noel
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First of all, did you really just say "e-enablement ". Cough...1999...cough. Can we lose the whole "e" thing?
Second of all, if I was a CEO or a CFO, I would damn well expect my Sourcing and Procurement executives to be able to advise me on supply risk. "...after all, those are the folks who deal with suppliers daily, right?" Yes. That is why I am paying them. If they can't do that they can move on.
The rest seems a little bit markety and mostly about "Buy More Software now!" but you get a pass on that as this is your first blog. Cheers.
I wouldn't call my first posting as fully consummated without some criticism so now I'm official.
Sorry about the marketing speak, it'll take a while to drum that out of me. Meanwhile, the message is that procurement and sourcing folks need more resources if they're going to be adequately covering things like supplier risk or saving money or ensuring manufacturing uptime. If that takes software, fine, but I expect many would be happy with not having to let go of staff or with having an executive support them when they make a recommendation that suppliers to marketing (for example) submit to more sourcing events and process controls.
Supplier risk is a hot topic... use it or lose it to get what you've needed all along.
Paul Noel (first time blogger, long time lurker)
What makes us think that some random software company, or some random bunch of buyers somewhere, can make a good decision about risk? Fact is, nobody has figured out how to make a good decision about risk, and anyone who claims they have is blowing smoke.
So yes, worry about it and try to make a good decision. But also understand that the tools are likely to be no better than the tools that got us into this whole financial mess, and probably worse.
For one thing, we are now seeing inventories at levels we have never seen before. Check out yesterday's WSJ article on capacity and inability to forecast in electronics, noting how links have shut down capacity, which may take a long time to increase once the wheels start turning (http://online.wsj.com/article/SB124260855682928885......). What people are beginning to realize is that there may not be any gas in the tank when it comes time to step on the gas. Once the stimulus money starts hitting the street, growth WILL occur in one form or another, inventories will be replenished, and things will start to chug slowly forward again.
The smart executives are locking in contracts with suppliers for the longer term, which is allowing these same suppliers to access capital given that there is some business on the horizon. There are many ways of supporting suppliers who are strapped not because of poor business practices, but simple lack of capital. I have heard this in focus groups in Houston, in Raleigh, in Charlotte at ISM, and in the UK last week. People with foresight are moving quickly to lock in key suppliers while prices are still low.
And oh, by the way, I have a strong feeling that inflation will come creeping back. Expect oil to get back up to $80/bbl by the end of the year, combine that with recovery in copper, steel, nickel, and put a big dollop of US dollar currency movements based on the printing presses moving in Washington, and what do you get?
Hmmm....smells like inflation to me! One more reason to lock in those contracts now!
Looking forward to your insights!
Cheers
Rob