Supply Chain Agility - What is the Role of Procurement?
Over a five part series of articles, Dr. Canan Kocabasoglu Hillmer examines what stategic sourcing entails and how companies can become more agile through its activities.
For firms facing shorter product life cycles, globally extended supply chains, volatile demand patterns, and an increased awareness of supply chain risks, supply chain agility provides tremendous opportunities. As management of organisations are reflecting on how to become more agile, this period is also proving fertile ground for examining procurement's role in this move. Our work with numerous companies from a variety of industries suggests that there is a role that procurement can have on creating a more agile supply chain. The key to this is strategic sourcing, a practice many companies are not yet getting the most out of. By reformulating your company's approach to strategic sourcing, you can use it to capitalise on the opportunities to become more agile.
In this five part series, we will investigate the exact relationship between strategic sourcing and supply chain agility. Today, we will start by redefining strategic sourcing. While strategic sourcing has been around for decades, a number of organisations have taken a rather narrow approach to it. Revisiting the question of what strategic sourcing entails opens the prospect of going beyond cost containment in sourcing and allowing it to become a tool to align procurement with the strategic aspirations of an organisation and therefore deriving the best value from it. In part II of the series, we will discuss supply chain agility and what it entails. Strategic sourcing can have direct and indirect effects on supply chain agility. The latter will be the focus of part III, where we will examine operational flexibilities as the bridge between strategic sourcing and supply chain agility. In part IV, we will show how strategic sourcing, operational flexibilities and supply chain agility are all connected and explore what kind of investments in strategic sourcing can maximise its impact on supply chain agility. The series will end with part V, where we will investigate how information systems support these complex relationships. Let's begin with our examination of strategic sourcing.
Part I: Strategic Sourcing: Fertile ground beyond cost control
Strategic sourcing has been around for decades and it has been suggested that it is time to re-examine what it comprises. Essentially, strategic sourcing requires both internally and externally facing activities. The internally facing activities are related to the standing of the procurement department within the company and its efforts to coordinate with other departments. Externally facing activities include information sharing with and the role the company takes in the development of suppliers.
In their efforts to re-examine their own strategic sourcing initiatives, companies may face a phase of self evaluation and quite possibly internal restructuring to elevate the standing and visibility of the procurement department. This is due to the fact that it is virtually impossible to get the best value from such relationships if procurement professionals do not have a clear understanding of and involvement with the company's goals, strategic and otherwise, and the power to restructure relationships with suppliers to support those goals.
The second internally facing set of activities involves better coordination with other departments. These departments are the 'customers' of the procurement department. Cross-functional training of procurement professionals and their inclusion of teams involved in activities, such as sales proposals, can both help procurement professionals understand their internal customers' needs. With respect to the externally-facing activities, both issues are strongly linked to how significant a certain supplier is. There is extensive evidence that information sharing can determine what the company can get out of suppliers. While determining the appropriate level of information sharing may be more straightforward for non-critical items, these become very complex issues when the purchase is critical, whether due to scarcity, its role in the firm's operations, its complexity or its overall monetary value.
The last set of activities concerns the firm's level of involvement in helping suppliers develop their capabilities and/or improve their performance. This involvement can range from providing formal feedback to supplier to providing technological or training assistance to suppliers. Once again the decision is tightly linked to significance of the supplier.
A last point to be made is that all these activities reinforce each other. For example, if the procurement department is not well coordinated with internal customers it is more difficult to translate their needs - present or future - into requirements and communicate them to the supplier. Thus, information sharing with the supplier may be extensive, yet it may not be the appropriate information that is being shared. This is the aspect of strategic sourcing that separates the leading companies from the rest: understanding that the whole is larger than its parts and making investments that strengthen these activities collectively.
Part II: The agile supply chain for unpredictable times is now available. This series was originally produced for the Procurement Leaders Network. Visit their website at www.procurementleaders.com