Spend Challenges — Today and Tomorrow (Part 1)

Michael Lamoureux (AKA, the Doctor of Sourcing Innovation) recently challenged all bloggers in the sector to come up with their Seven Grand Challenges for the Future of Supply and Spend Management. I've got approximately three on my mind today so we'll leave the remaining four for a post sometime next week. Without further adieu, I’ll suggest that the following three challenges will be with us for the next decade or longer: 1) Fully integrating procurement with the rest of the organization; 2) Becoming risk managers as much as supply managers; and 3) Using supply to drive innovation throughout the business. Let's now tackle each of these in order.

When it comes to integrating procurement with the rest of the organization, many procurement executives would probably give themselves passing marks. Sure, one might argue, we've reached out to our colleagues in other areas to build bridges, bringing new spend under management, not to mention providing new tools that drive policy and contract compliance. But when it comes to true integration with the business such as enterprise level involvement in budgeting and planning (a favorite Hackett Group KPI), most procurement organizations are still coming up woefully short. This is hurting our ability to not only fully implement the savings we identify but to engineer out unnecessary cost in the first place (e.g., through better demand management). Because of this, I believe that fully integrating procurement with the rest of the organization will continue to be a grand challenge for us all in the coming years.

Second, if you're a regular reader of Spend Matters, you know how much space I dedicate on these pages to risk management. One of my main reasons for this is that I feel strongly that procurement and sourcing managers must also be risk managers for their organizations. Now, risk management is not just about insuring continuity of supply or basic quality levels. In my view, risk management is something much broader. It's about managing total costs by looking at all of the pricing elements that go into a contract -- at conception and throughout the contract lifecycle. This is about managing global risk elements that transcend a single supplier -- currency, political and credit risk to name just a few. And it's about advocating for a broader view of procurement that measure results with more accurate metrics such as ROI and cost avoidance rather than just identifying savings.

Third, I believe that another grand challenge of Spend Management is to sustain and expand the role of supply to drive innovation throughout the business. Need proof about how suppliers can help drive innovation? Consider the automotive case of how Honda and Toyota helped redefine the basis of innovation through working more collaboratively with their supply base to engineer out cost (e.g., through buying assemblies rather than piece parts) relative to their peers. Or look at how Boeing has brought a revolutionary new platform to market in record time by working hand-in-hand with its most strategic suppliers to drive innovation across all aspects of the new platform. And most recently, consider the case of Apple, HP and Compaq, that upset Dell's integrated manufacturing model by relying on contract manufacturers and suppliers not only for final/component assembly, but also for innovation in the underlying products.

- Jason Busch

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