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A Supply Chain Manager's Guide to Strategic Purchasing, OR How to be on top of things instead of having things on top of you!

OMTEC 2010 attendees gave Becky Morgan high ratings for her presentation on this topic in June. Therefore, we’ve asked her to summarize her session for the benefit of all BONEZONE readers. (Most speakers’ presentations, including this one, are available online at www.orthoworld.com.)

Do your Supply Chain Management (SCM) processes provide competitive advantage for your business?

Does this sound familiar? Expedite shipments because of a newly discovered inventory error; correct invoice – PO price discrepancies; receive notice of an unexpected price increase on a major commodity; discover that a scheduled delivery has not arrived, without advance warning from the supplier; field dueling complaints of too much inventory from Accounting and not enough from Sales. Such non-value-added drama is the daily life of entirely too many SCM teams.

That exhausting work life doesn’t leverage the abilities of employees, nor does it help the company become more profitable. Continuing to operate supply chain functions in that manner doesn’t make sense for anyone. Here are four systems that, together, position your supply chain team for success:

  • Integrated business, marketing and operations strategies
  • Effective metrics
  • Benchmarked supply chain processes, and
  • Finish Strong™ – a process to ensure that improvements are maintained.


Integrated Business, Marketing, and Operations Strategies

Very few successful businesses operate without a business strategy, and most have a marketing and sales strategy as well. Unfortunately, entirely too many companies consider operations to be what happens after the important work of getting customers and orders is done. Operations is the “fill order” folks.

Consistent with that view, operations professionals have often not been taught to think, speak and behave strategically. University manufacturing and operations curriculum focus on tools and techniques. The “fill order” mentality reinforces that non-strategic education as experience is gained. Additionally, accounting refers to operations as a cost center. Cutting is good; thinking, strategizing and investing is frivolous.

Take a minute to consider: What is the purpose of operations? Its real role is to:

  • Support the business and marketing strategies
  • Create and deliver brand promise and competitive advantage to the market (marketing chooses the words; operations actually makes it happen, or not)
  • Connect infrastructure to business and brand promises
  • Do so within mutually defined target costs, and
  • DO SO RELIABLY

The odds of that responsibility being fulfilled by a reactionary non-strategic function are extremely long, yet a bet that many companies make daily.

Supply chain success is reliant upon context provided by integrated business, marketing and sales and operations strategies. Those strategies provide perspective for decision-making and priorities in the best interest of the business.

The operations and supply chain strategies must reflect organizational realities. Transitioning from a non-strategic fire-fighting performance to one that provides competitive advantage (or at least not disadvantage) will require investment in developing supply chain resources. Even if brilliant and fully capable, supply chain professionals need to benchmark other organizations. Likely education and training are needed as well. Changing expectations dramatically, and this is a significant change, doesn’t get immediate and automatic results. Wishing doesn’t make it so. Assessment, planning and execution can.

The operations strategy must integrate, and typically includes, product and process development, supply chain management, production, quality, engineering and customer service. Supply chain management is not independent of other aspects of operations. It must be woven effectively into the provision of brand promise and competitive advantage with the rest of operations.


Effective Metrics

In over 20 years consulting with manufacturers, along with surveying over 100 more companies, I have found that “bad metrics” top the list of confusion-inducing management direction. Ineffective metrics fail to motivate the desired behaviors, but worse, bad metrics motivate undesired, inconsistent and unproductive behaviors. Bad metrics abound.

What makes definition of effective metrics difficult? First, we let Accounting play too big a role in defining them. In fact, many companies have few non-financial metrics. Driving a purchasing professional to focus strictly on (for example) reducing purchase price or minimizing purchase price variance (PPV) leads to short sighted decisionmaking, and often motivates behavior contradictory to the metrics given the inventory manager. As management guru Peter Drucker once said, “Enterprises are paid to create wealth, not control costs. But that obvious fact is not reflected in traditional measurements.” Secondly, without an integrated operations strategy, metrics reflect a shotgun approach, with holes and contradictions a natural result.

If you expect different suppliers to contribute differently to your competitive advantage, you must have different measures of their performance.

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