Continuing our earlier discussion of Lesson 6 (Reduce trade-offs altogether):
For companies like P&G, GE, J&J, etc., there will always be a tension and trade-off between opportunities at the business unit level versus the corporate level. Functions like procurement will need to walk the fine line between both rather than swinging wildly from one to the other. Procurement must help the business units and functional partners get more value from their supplier spending individually, and also look for cross-BU opportunities not just by spend category, but also by risk type, opportunity type (e.g., supply chain financing), region, corporate-wide program, etc.
The April 2013 P&G supplier letter reinforces the above balanced approach:
• “We have also established deliberate and intentional work on Supply Innovation – innovating how we source, manufacture and produce in the years ahead.”
• “Each GBU has robust pipelines of new materials, products and ideas to meet consumer needs now and in the future.”
• “The New Business Creation group is working on 20 new businesses/product lines for P&G, and these will help shape the future product and services platform for the next decade.”
• “We have also significantly improved operational efficiency in our sites, enabling us to open 20 new sites across the globe.”
• "The reductionist Invisible Hand in a silo will lose to hands being held across an integrated value chain."
So, what we have is a fundamental change in the Invisible Hand philosophy. Rather than individuals (or even departments) seeking profit maximization to create social benefit, it’s cross-enterprise teams working to create product/service lifecycles that maximize profit through a balanced approach that combines customer intimacy, innovation and operational excellence – rather than sub-optimizing on only one dimension as espoused in the book The Discipline of Market Leaders.
This balance is not some abstract concept applied at the enterprise level. It applies all the way down to a specific procurement project. Read the last bullet above, which ties the P&G supply chain finance program to transactional improvements, working capital improvement, and building new capabilities (and supporting tools). This is an important point for any P2P program in terms of building a multi-pronged business case with top leadership support. For example, successful e-Invoicing projects are built on much more than laying off a few AP clerks.
This post is based on content contained within the following Spend Matters paper: P&G: A Case Study of Supply Management’s “Non-Invisible Hand” in 10 Easy Lessons. The paper is free to download in the Spend Matters Research Library.