Bridging the Procurement and Supply Chain Gap — Avoiding GM's Past Mistakes

If I could point to one column I've ever read that highlights the gap between procurement and supply chain groups within old-school industries, it would be this one I recently discovered over on Logistics Viewpoint. In it, the author, Steve Banker, who confesses to being a supply chain guy, describes being inspired to investigate the functional disconnect after learning about a course for sales teams at Quest that teaches "Combating Aggressive Supply Chain Management: Strategies and Tactics for Leveling the Playing Field". After this discovery, which in itself is a fascinating read from the perspective of the sales side, Banker goes off and does further research and traces the origins of this "aggressive behavior" to GM's former "Purchased Input Concept Optimization with Suppliers (PICOS)" program from 1987.

According to Banker, "The idea was to combine teamwork, super aggressive procurement tactics, and lean programs. In one early procurement engagement, GM found an English supplier that produced a stabilizer bar for Opel cars that was 30 percent cheaper than the incumbent supplier in Germany. When GM engineers tested it, however, the part's quality was not good enough. Instead of calling it quits there, however, GM sent in a crack team of lean manufacturing engineers to help this English supplier improve its quality. The fix worked and [GM] got its 30 percent cost reduction."

Banker’s whole point is that this type of behavior is anathema to supply chain professionals that would never sub-optimize aspects of a relationship or a plan to achieve a greater goal not to mention potentially damaging relationships in the process. Is he right? Yes and no. More advanced procurement organizations today -- and those that have helped redefine industries in their entirety such as those at Wal-mart, Honda and Toyota -- embrace both supply chain and sourcing concepts together. You'd never find a supplier to these companies, for example, claiming that a category manager went easier on them. But in contrast to the strong-arming or "push-through-savings-at-all-cost" tactics of GM, you'd never find suppliers crying foul at questionable tactics -- at least for long.

I agree with Banker that perhaps the best way of attempting to bridge the procurement and supply chain gap at companies is to embrace "Balanced Scorecards, cross training, and cross functional deployments". But I would not stop there. To this list, I'd also add the importance of prioritizing total cost management and supply risk management as top priorities, forcing both groups to work together to hit individually defined goals that combine to lead to a desired overall corporate objective. After all, if incentives for cost, quality, performance and risk are aligned -- and an organization can incent individual contributors from all sides of the table to work together -- then all things become possible. Including making procurement and supply chain one.

Jason Busch

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