Spend Matters: What is your view on innovative strategies for procurement in the BravoSolution customer base? What are you looking at beyond the basics?
Mickey North Rizza: Understanding whether a company has the right source of supply will be so critical. Coming up with innovative options, such as changing the point of supply to different areas/regions/locales based on creating flexible, localized supply chains will become the ante for many companies. We'll see huge shifts around managing margin pressures for more commoditized products, for sure, including localized raw materials sourcing strategies (but thinking globally around aggregate cost, risk exposure, etc.)
Another area we'll look at closely with clients is how best to think about managing domestic supply chains. The WSJ had a good story recently about how manufacturing is coming back into the states. Where manufacturing is coming back, I see two critical thoughts for procurement and sourcing. First, you have to have the right set of local suppliers to support local business on the indirect side. You also need to set up multiple options and contingencies -- including local and global sourcing across multiple tiers so the business is supported completely; ie no exposure.
When you start thinking about rebuilding local supply bases (and to what tier you want to rebuild them), you need to think about broader supply chain strategy, demographics, regional economies, etc. The WSJ mentioned Whirlpool and what they're dong overseas and back at home, plus the history behind it. When Whirlpool originally moved offshore, they focused on lower wage levels. Price pressure and commoditization drove them to low cost sources originally.
But now these types of strategies are evolving. Companies need to make fewer product configurations because of price pressure on margins -- becoming really good at building fewer SKUs on a total cost basis. Or you'll need to build very high-end ticket items that can penetrate enough shares to drive both top and bottom line impact. In some cases, companies will need to sell hundreds or thousands of lower-end items to equate to a top-end ticket on a margin basis, even in the same product category, such as Whirlpool and others that have kitchen goods (toasters, espresso machines, etc.)
The ultimate returns will equate to how you manage transactions globally and locally. You will need the right talent to manage supplier networks and turn on/off different regions based on a wide range of criteria -- material costs, labor costs, market access (sales), tariffs, duties, shipping costs, etc. In this post LCCS world, the mindset has to shift away from arbitrage to exploration and understanding of what value is required and what businesses well. It's not easy.
Spend Matters: What's on your mind that others are not thinking of yet?
Mickey North Rizza: I don't think there is enough focus on the broader topic of procurement value. Procurement and supply management have always been looked at as areas to reduce costs. But it hasn't been seen as a strategic value-add to the business -- year over year cost reduction, cost out, and cost avoidance have always been the primary focal points, but the real value is not being tapped. Part of this is certainly the wrong leadership. It also comes down to successfully addressing top-level management challenges. Sometimes it's procurement leadership, which is looking to get more value out of procurement based on the current rules, rather than educating the business on what procurement could really be doing.
I really think if I step back that most organizations are missing the mark. There's an organizational mismatch. Part of this is the lingering (or starting again, based on your view) recession. But cost reduction, especially in a volatile commodity world, should not be the only goal. On that topic, there are far too many organizations that do not manage their raw materials/commodities. There is a gap there. Margins can be won and lost by the right raw material strategy.
More broadly, there are top and bottom-line areas that procurement should be addressing. When you manage procurement right, you can gain leverage on the topline. But connections are not being made. Moreover, procurement can create bottom and top line approaches by going beyond the current charter, such as Delta Airlines buying a refinery to ensure their supply. Another are the auto companies who bought tire companies. This is the type of day-to-day procurement value that when done right magnifies itself by becoming part of the strategy to solve the business problems and ensure success.
In addition, far too many organizations still put emphasis on going after revenue and top line/sales and marketing without thinking about how procurement and supply chain should be playing into a revenue growth strategy. Think about where companies would be if they put as much emphasis on strategically managing the supply side of the business, including the hooks it has into potential top-line plays, as they do on sales and marketing. That's where business needs to go for pure success, evangelism inside companies will be key .
I'm looking forward to playing a more active role, not just as a distant adviser, but as a hands-on player in the transformation of procurement going forward inside companies. In many ways, this is the full-circle move that I've been wanting all of these years and it builds on everything I've learned to date.
Spend Matters would like to thank Mickey North Rizza. We've invited Mickey to contribute to Spend Matters from time-to-time as her schedule permits. Once she is ramped with her clients, we're sure that she'll have some great, grounded advice for our readers.