Friday Rant: Our Powers Combined — Procurement, Supply Chain, IT, Finance

In many companies that are large enough to have separate procurement and supply chain functions -- a good hint is when you begin to see titles such as "buyer" and "materials manager" with less frequency -- there's often a fundamental tension and even distrust between both parties. Procurement-minded leaders have a hard time understanding the obsession over planning, scheduling, forecasting and inventory levels at the expense of such areas as general cost reduction, strategic sourcing, commodity management and indirect/services spend reduction and oversight. And supply chain and manufacturing types tend to look with disdain at any promise procurement makes to reduce costs around direct materials. Interestingly, as a side note, "direct materials" is a phrase sourcing people like to talk about, but you rarely hear it from supply chain types, perhaps because what is indirect or non-core to them should simply never be a priority for the business. Materials are materials, thank you very much.

Sure, there are some folks who can cross over between both groups. Two exceptions I know in the analyst world -- Bob Ferrari is a card-carrying APICS supply chain guy who gets and knows procurement inside and out; my wife, Lisa Reisman, comes from a metals sourcing/trading background but is also a Six Sigma black belt who can walk a shop floor and detect unnecessary movement or waste just as quickly as she can walk into Nordstrom and intuitively sense a shoe sale. Bob and Lisa are the general exception today, yet I believe that going forward, things may change. The fallout of the Japanese earthquake and tsunami may actually be just what we need to bring procurement and supply chain experts closer together while at the same time helping bridge the operational, technical and financial barriers that all too often shunt IT and finance off to the side of core sourcing, supplier management, risk, inventory and working capital issues.

Consider, as one example, how it's impossible to separate the inventory and supply planning function for supplier and commodity management in the wake of the tragedy. Given fluctuating supply availability for everything from base- and part-level inputs (e.g., circuits, semi-finished metal products, LCDs) to parts/components (e.g., assemblies, castings, forgings, entertainment systems, etc.) in the automotive supply chain, it's essential for procurement and supply chain teams to work together. Even on the inbound logistics side of the house -- something historically most procurement people don't touch or fully understand -- the tragedy is proving the criticality of coordinating airfreight and expediting to keep production lines open. After all, it's not just what suppliers are capable of producing under ideal circumstances (e.g., lot size, order quantity, etc.). It's also how quickly they can produce and ship in smaller quantities to avoid supply chain breakdowns -- and how all of the logistics providers, partners and service providers (e.g., 3PLs) can help support immediate requirements in times of crisis.

We also need to consider the financial side of the supply chain in addition to the physical one involving the production and movement of goods. Consider how by bringing finance and A/P in the loop to help balance the need to manage internal working capital with the ability of suppliers to quickly buy inventory and bring production back online through early payment financing or other arrangements, a combined finance/procurement/supply chain team may help avert further disruptions that competitors are likely to face.

Commodity management is yet another area that companies can use as a bridge between procurement and supply chain, especially in the areas of inventory planning, demand management and even multi-tier demand aggregation (both for supply assurance as well as potential supply leverage resulting in rebates for both buyers and suppliers participating in such programs). In today's climate of high commodity prices -- and even higher volatility, in certain cases -- getting the inventory part of the commodity equation and figuring out the ideal party to assume pricing risk (from the end-customer to the buying organization to a supplier to a third-party) absolutely requires coordination between procurement and supply chain experts inside a company. Not to mention a trading organization within finance (or procurement), if one exists.

In all of these areas, IT can play a critical enabling role rather than -- as it so often has -- serving as a stumbling block for rapid solution enablement and cost-effective solutions implementation and management. In such areas as supplier and item master data management -- whether it takes place in an ERP, catalog management, spend visibility or supplier information management context -- IT organizations can prove their worth and then some by serving as a critical partner to both procurement and supply chain, enabling the two to work closely together. Moreover, when it comes to the nuances of systems integration in areas like contract management, P2P, direct procurement (ERP) and third-party feeds (e.g., commodity price indexes) ensuring that only approved order pricing, terms, conditions, etc. are the only ones ever to go through a system, significant IT involvement with procurement and supply is not only an enabler -- it's essential.

In the wake of the Japanese disaster, now is the time for procurement and supply chain practitioners to unite while also leveraging the collective input, skills, talent, oversight and budgets of IT and finance teams. It's time to get past the silly ravines that divide procurement and supply chain once and for all and join together for the greater total cost and supply assurance good. APICS and ISM, are you listening...?? 🙂

Jason Busch

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