Procurement’s Role in S&OP (Part 1)

Over the years, I've always found it fascinating that there are so few pundits/analysts who get both the procurement and supply chain sides of the inbound equation. Procurement-types gravitate towards one corner of the room, while logistics, operations and inventory types make a beeline to the other. This is ludicrous when you think of it because so many of the types of decisions we need to make today to improve our supply chains, reduce costs, lower risk and drive working capital improvements need to more closely integrated sourcing and supply chain decisions together. There is hope for greater discussion of topics like this if more Bob Ferrari (Supply Chain Matters) and Lisa Reisman (MetalMiner) types emerge who get both disciplines, but the honest truth is that I know only one industry expert at a major analyst firm with a grounding in both the procurement and supply chain disciplines and the ability to integrate both into her research and work.

A recent story that Bob Ferrari wrote over on Supply Chain Matters got me thinking about the importance of bringing greater procurement influences into supply chain disciplines like S&OP. Bob writes that, "we often hear goals of S&OP articulated as either facilitating increased sales, enhancing the overall agility of the business to respond faster to changing business conditions, or in insuring strategic business and operational performance goals are accomplished ... [But] is it really sales and operations, or a sales, operations and inventory planning process? Is the end goal operations excellence, or is it integrated financial planning and performance?"

I'd argue that it's all of this -- and I agree with Bob that the emphasis should be in the financial planning and performance areas -- but not without greater sourcing and procurement collaboration. In tackling this subject further in the next post in this series, I plan to explore how such areas as spend analysis, sourcing optimization/advanced sourcing, lead-times, order-size are absolutely integral to the broader S&OP function -- and can't be done to maximum effect without giving procurement a seat at the supply chain table. For when it comes to looking at S&OP sub-disciplines and plan outputs like sales planning, production planning, inventory planning, lead times, NPI and working capital strategies, the information and strategies procurement-types are increasingly bringing to the table are absolutely core to the broader total cost, profit, stock-out, risk and related equations central to effective S&OP.

Editors note: Yes, when it comes to Lisa, I'm biased (she's my wife and business partner). But she's one of the only sourcing-focused people I know who also has a global trade background, Six Sigma blackbelt, and can talk total cost, inventory and other areas with those in the weeds. To see her in action on how to build global total landed cost models tied to sourcing strategies, register for the live simulcast for the Spend Matters/MetalMiner global trade, sourcing and risk event on March 1: 2011 International Trade Policy Breaking Point.

- Jason Busch