How to put the "strategic" back in supply management
Under pressure to produce "quick wins" in procurement? This seven-step process will help you gain top management's support for strategic sourcing—even in a bad economy.
As the economy continues to undergo a painful transition and adjustment, many supply management professionals have come under extreme pressure to generate "quick wins" that cut costs in a very short time. These demands come from upper management, which itself is under pressure to take immediate action and produce quick results.
In this environment, it can be tempting to set aside projects with longer-term, strategic goals and instead focus your team's attention on projects that could cut costs in the short term. In fact, it may be hard to avoid doing so: even though most supply management professionals recognize that quick wins typically produce only a portion of the results that could be achieved with long-term programs, they still feel compelled to respond to pressure from above, often at the expense of valuable strategic initiatives.
Article Figures
[Figure 1] Supply management's effect on four drivers of financial performanceEnlarge this image
This kind of pressure presents a challenge for supply chain leaders. How can you do what is right for your company in the long term without putting your career at risk? The answer is to strike a balance between quick wins and strategic initiatives. The seven-step program outlined in this article will help you achieve that balance—and, ultimately, gain high-level support for maintaining a focus on strategic sourcing. It is even possible to obtain additional resources for your department, despite the economy.
Seven steps to transformation
To help you achieve a balanced portfolio of short-term and long-term initiatives—and thus, maintain corporate support for a world-class, strategic sourcing organization—I recommend a program of seven interlinked actions.
First, you need to effectively communicate with senior management. The way to do that is to speak the language of the executive suite—that is, the "financial language" of the chief executive officer (CEO) and the chief financial officer (CFO). In my experience, learning to "speak like a CFO" is particularly important. Procurement and supply managers who understand the CFO's perspective and can present their ideas in that context are heading to the top of the profession. Those who don't—or won't—master this skill seem to end up perpetually carrying out tactical directives and are unable to gain control of their careers. (For a list of some key financial terms you should know, see the sidebar, above.)
The second, closely related step is to develop a plan with bold objectives that reflect senior management's interests and objectives, such as earnings per share (EPS), return on invested capital (ROIC), cash flow, risk management, and so forth. Figure 1 illustrates how supply management initiatives can directly influence four major drivers of financial performance: revenue, cost, and working capital initiatives as well as capital expenditures.
Third, lay out your transformation plan and detailed "roadmap" for advancing your company's current practices and processes based on best practices. This requires starting with a "current state" assessment; comparing the current state to best practices; and using the gap analysis to identify areas that require attention and improvement. Next, use technology as an enabler of your transformation plan and associated "stretch" objectives (such as a large cost-reduction target), not as an end in itself.
Fifth, based on the transformation plan, build a detailed business case that explains what you expect to deliver in exchange for the resources and budget you are requesting. The sixth step is to gain top management's commitment and support by using your transformation roadmap and business case to demonstrate that you are willing to make a commitment to deliver new, financially beneficial results. The final step, of course, is to lead the transformation effort and make the promised change happen.
Let's take a look at two of these steps and some suggestions for successfully carrying them out.
Build a credible business case
One of the most important skills needed to carry out this seven-step plan is knowing how to build a credible business case for change and for allocating the resources needed to make that change happen. This is true not just in relation to your overall transformation agenda but also for specific objectives, such as technology investments. It's best, however, to start by building a business case for the long-term, overall initiative rather than for specific objectives. In other words, start by thinking about what kind of financial improvements you could achieve if you embarked on a comprehensive transformation of your procurement department's role, processes, skills, organization, and technology.
This broad approach is preferable to focusing on a specific area like software implementation because it is part of a logical sequence. Once you have assessed your current state and compared it to best practices, identified the improvements that could result from transforming your own practices, and designed the detailed roadmap to get you to the desired goal, why not request the full amount of resources needed to do the job well?
It might sound overly optimistic to ask for more resources when the current business outlook for your company is weak, but that is not necessarily the case. Several supply management professionals who followed the seven-step process outlined above are now receiving the bottom-line benefits of taking that bold leap—and they actually added more resources to their strategic procurement staffs during the recession.
The alternative to taking broad-based action is to be subject to the same headcount-reduction guidelines that often are applied to all departments in times of business stress. That's not where you want to find yourself, and, quite frankly, there is no reason to end up there.
The power of a good roadmap
How long does it take to transform procurement at a large or medium-sized company to a world-class organization? That question came up at a recent meeting I attended, where a supply chain manager from a well-known company said, "We benchmarked Company X and learned that it took them seven years to transform their indirect procurement activities to become world-class." The manager wanted to know if that was a typical time frame.
The answer is straightforward: if you lack an organized assessment process and a properly formulated transformation roadmap, it can indeed take a long time to transform your procurement activities (including your direct and/or indirect spend). In fact, without a roadmap and the associated business case and resources, the goal is probably not achievable in any reasonable amount of time. On the other hand, with a well-constructed roadmap, it is possible to achieve a great deal within 18 to 36 months.
Creating an effective transformation roadmap starts with an independent, candid, and comprehensive comparison of the current state at your company versus best practices in supply management across all industries. This exercise will allow you to identify opportunities for improvement and prioritize initiatives. It will also provide input for constructing a roadmap that is tailored to your company's specific situation and to your desired speed of progression. Pay special attention to the sequencing of your roadmap's elements; this extremely important task is part art and part science.
Done well, the assessment and roadmap process will create understanding, excitement, and support among your company's top executives. And if you approach and communicate this subject in a way that makes sense to the CEO and CFO, then you can indeed achieve what might seem like an impossible goal: getting senior management to commit to world-class supply management regardless of the state of the economy.
A balanced plan
Now, back to the original challenge: what to do if you are under extreme pressure from above to deliver some quick results.
As discussed earlier, a credible and effective approach is to build a balanced plan comprising both quick wins and strategic, long-term projects. The quick wins generate the immediate results that your management might be looking for while buying time for you to properly carry out the strategic projects. The quick wins also help to fund the strategic projects that clearly offer the best, long-term, sustainable value to your company. Ideally, this "hybrid" plan will reflect the overall plan of transformation that you envision, helping you to obtain management's buy-in for your strategic direction as well as the resources you need.
Here is a real-life example of how this approach can help you. With one client, we developed a plan comprising about 10 quick win projects and 20 strategic sourcing projects. We produced a schedule that projected the financial benefits of those projects over the next 6 to 18 months. That schedule also showed the costs associated with adding three, full-time strategic procurement positions related to the proposed projects. The compelling ROI of both the short- and long-term initiatives quickly convinced the company's executives to proceed with the projects as well as the additional staffing—and the results lived up to expectations.
It has been said that no rational senior executive will consciously impede projects that have clear, strategic value. If that's the case, then make it easy for your executives to support you by following the seven-step plan outlined in this article. Within that framework, lay out a hybrid plan of specific projects in two categories—quick wins and strategic initiatives—and estimate when executives can expect to see results.
A final point: Putting "strategic" back in supply management doesn't have to involve a lot of time and money. A full assessment and transformation roadmap—including a detailed business case—can be developed in less than 10 weeks.
Note: More information about building a transformation roadmap for procurement organizations can be found in the white papers located in the "Resources" page of Greybeard Advisors' website: www.greybeardadvisors.com/white_papers.
Balancing "quick wins" and strategic initiatives
Following these seven steps will help you achieve a balance between short-term cost-cutting and long-term, strategic programs—and, ultimately, gain high-level support for maintaining a focus on strategic sourcing.
Communicate effectively with senior management by speaking the "financial language" of the chief executive officer (CEO) and chief financial officer (CFO).
Develop a plan with bold objectives that reflect senior management's interests and objectives.
Lay out a transformation plan and detailed "roadmap" for advancing your company's current sourcing practices and processes based on best practices.
Use technology as an enabler of your transformation plan and associated objectives, not as an end in itself.
Build a detailed business case that explains what you expect to deliver in exchange for the resources and budget you are requesting.
Gain top management's commitment and support by demonstrating that you are willing to make a commitment to deliver new, financially beneficial results.
Lead the transformation effort and make the promised change happen.
Key financial terms you should know
The first recommendation in the seven-step program outlined in this article is to "speak like a CFO." That requires understanding the chief financial officer's perspective and being able to present your ideas in that context. Here are just a few of the financial terms that are bound to come up in those discussions.
DIO (days of inventory outstanding): Year-end inventory divided by average daily revenues
DPO (days of payables outstanding): Year-end accounts payable divided by average daily revenues
DWC (days of working capital outstanding): Year-end working capital divided by average daily revenues
EPS (earnings per share): Earnings divided by the number of outstanding shares
ROIC (return on invested capital): Earnings divided by the capital invested in the business (long-term debt plus stockholders' equity)
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.
Honoring supply chain professionals and companies for their contributions to the industry is a tradition at the Council of Supply Chain Management Professionals annual EDGE Conference. The following are some of the recognitions given out this year.
The 2024 Distinguished Service Award was presented to Heather Sheehan, owner of Crispy Concepts LLC, instructor with Penn State University, and board member and adjunct faculty member with the University of Denver’s Transportation & Supply Chain Institute.
Sheehan, along with Roger Penske, chairman of Penske Corp., were inducted into CSCMP’s Supply Chain Hall of Fame.
Travis Kupla, Ph.D, of the University of Arkansas, won the Doctoral Dissertation Award for his paper “How Supply Chains Respond to Disruptions: Three Essays on Responses to Operational, Geopolitical, and Natural Disaster Disruptions.”
The Bernard J. La Londe Best Paper Award was given to Matias G. Enz from the University of Missouri-Saint Louis, and Douglas M. Lambert from The Ohio State University for their paper “A Supply Chain Management Framework for Services.”
Wenting Li and Dr. Yimin Wang of Arizona State received the E. Grosvenor Plowman Award for their research paper, “A Procurement Advantage In Disruptive Times: New Perspectives On ESG Strategy And Firm Performance.”
The Teaching Innovation Award was given to Dr. Shane Schvaneveldt of Weber State University for his paper, “A Lean 5S Experiential Learning Game for Logistics and Supply Chain Management.”
To see a full list of honorees, please visit cscmp.org and click on the tab "Academia & Awards."
Supply chains today are facing an onslaught of disruption and change from geopolitical events to technological advances to economic shifts. Supply chain partners that successfully navigate those changes together will seize a competitive advantage that will win them market share and increase profits.
The “2025 Third-Party Logistics Study,” spearheaded by Dr. C. John Langley of Penn State University and developed in collaboration withNTT DATAand Penske Logistics highlights the crucial role that change management plays in the relationship between third-party logistics providers (3PLs) and their customers. Unveiled today at the Council of Supply Chain Management Professionals (CSCMP) EDGE conference, the study delves into the dynamic nature of relationships between shippers (companies that manufacture goods or provide services) and third-party logistics providers.
“While users and providers of 3PL services continue to report successful relationships, they find themselves having to deal with an increasingly wide range of challenges,” said Dr. C. John Langley, Professor, Supply Chain & Information Systems, Penn State University. “While examples include economic concerns, geopolitical unrest, and changing markets for supply chain services, they also are taking advantage of change management processes to benefit from new and improved capabilities such as artificial intelligence (AI) and direct-to-customer proficiencies.”
The survey found that both shippers (61%) and 3PLs (73%) agree that supply chain change management is vital. Respondents from both groups indicated that the top factors that are driving the need to change their operations were shifting customer demands, economic factors, and technological advancements. In particular, both shippers and 3PLs believe that improvement and change is needed in supply chain visibility, with 69% of shippers and 68% of 3PLs citing it as an area of concern.
AI as change agent
One technological advance that is enabling change in supply chain operations, according to survey respondents, is AI. Both shippers and 3PLs agree that AI can be pivotal in automating data analysis, identifying patterns, solving problems, and automating repetitive tasks. Top implementation areas for AI cited by respondents include supply planning and demand forecasting (33% of shippers and 19% of 3PLs) and transportation and route optimization (27% of shippers and 22% of 3PLs).
The e-commerce effect continues
Omnichannel retailing and e-commerce continue to exert pressure on supply chain operations for shippers and their third-party logistics partners. Both shippers and 3PLs view delivery speed and visibility as strong areas of differentiation. According to the study, 48% of shippers and 53% of 3PLs reported that customers routinely expect deliveries in less than two days, and 27% of shippers and 26% of 3PLs noted that there are three-day or less delivery expectations. Shippers (44%) and 3PLs (38%) are willing to absorb a small percentage of the costs related to shipping speeds.
The Annual 3PL Study surveys 3PL providers and users of 3PL services to understand the current state of 3PLs and how 3PL relationships are evolving with their customers. The 2025 study and past versions are available for download at www.3PLStudy.com.
Container flows at dozens of U.S. East Coast and Gulf Coast ports shuddered to a simultaneous stop this morning when dockworkers launched a promised strike over pay levels and job automation.
The action is affecting work at major locations such as New York/New Jersey, Savannah, Houston, Charleston, Norfolk, Miami, Baltimore, Philadelphia, New Orleans, Jacksonville, Boston, Mobile, Tampa, and Wilmington. That broad span of geographic locations will affect imports and exports for industries spanning retail, automotive, agriculture, food and beverage, and manufacturing, according to an analysis by Overhaul.
Those impacts are forecast to grow rapidly with each additional day the strike continues, since more than 100 vessels are estimated to arrive at the 36 affected ports this week alone, according to analysis by supply chain visibility provider Project44. The recovery from that backup could take some time, as some shippers estimate that for every one week of strike, it will take 4-6 weeks to fully recover, the firm said.
Because of the sudden stop, logistics providers today are quickly reaching out to shippers and other clients to plan for future cargo movements. Specifically, the strike immediately froze a range of work such as the movement of import and export containers and the loading and unloading of containers, according to German maritime transportation provider Hapag-Lloyd AG. “As a result of this situation, which is beyond our control, we will need to adjust our services or temporarily suspend operations as conditions evolve. Our priority remains the protection of your cargo during this period,” Hapag-Lloyd AG said in a note to shippers.
Despite those large impacts, the timeline is unclear for finding a resolution of negotiations between the union—the International Longshoremen’s Association (ILA)—and the port management group, United States Maritime Alliance (USMX).
Under those conditions, retail and manufacturing groups have renewed their calls for their White House to step in and force workers back on the job while negotiations resume.
One of those voices came the National Retail Federation (NRF). “NRF urges President Biden to use any and all available authority and tools — including use of the Taft-Hartley Act — to immediately restore operations at all impacted container ports, get the parties back to the negotiating table and ensure there are no further disruptions,” NRF President and CEO Matthew Shay said in a release. “A disruption of this scale during this pivotal moment in our nation’s economic recovery will have devastating consequences for American workers, their families and local communities. After more than two years of runaway inflationary pressures and in the midst of recovery from Hurricane Helene, this strike will result in further hardship for American families.”
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Flying Ship CEO Bill Peterson poses with a model of his unmanned ground-effect maritime cargo craft.
Perfect Planner, a cloud-based platform designed to streamline the material planning and replenishment process, and Flying Ship, an unmanned ground-effect maritime cargo craft, took home the second annual “3 V’s of Supply Chain Innovation Awards” tonight at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tennessee.
This awards contest is hosted by Supply Chain Xchange and 3 V’s framework creator and supply chain visionary Art Mesher. It serves to recognize those companies that have created technology or automation solutions that exemplify Mesher’s 3 V’s framework of “embracing variability, harnessing visibility, and competing with velocity.”
Business Innovation Award
Art Mesher, creator of the 3 V's Framework (left) and Rick Blasgen (right), former CSCMP President and CEO, present Tom Biel (center), CEO of Perfect Planner, with the 3 V's Business Innovation Award.
Susan Lacefield
Perfect Planner won the 3 V’s Business Innovation Award for its software solution that uses artificial intelligence to automatically generates daily "to-do lists" for material planners/buyers. All the “to-do’s” are ranked in order of criticality. The solution also uses advanced analytics to understand and address inventory shortages and surpluses.
The two other finalists for the Business Innovation Award were AutoScheduler AI, a predictive warehouse optimization platform, and Davinci Micro Fulfillment, which provides a micro fulfillment service out of a network for small distribution centers across the United States.
Best Overall Startup Award
Flying Ship was awarded the Best Overall Startup Award. The company has designed an unmanned flying ground-effect maritime vessel. Although the Flying Ship looks like a small aircraft or large drone, it is classified as a maritime vessel because it does not leave the air cushion over the waves, similar to a hovercraft.
According to Flying Ship CEO Bill Peterson, the craft is 75% less expensive than a traditional aircraft and “faster than anything on water.” The prototype has a wingspan of 6.5 feet and can be scaled up to deliver 10,000 pounds of freight to “anywhere with a coastline” using autonomous systems.
The other startup finalist included Arkestro, a predictive procurement orchestration solution, and Provision AI, an optimized replenishment and transportation scheduling solution.