Focusing Procurement on Supply Management/Making the Case for Finance to Own Supply Risk (Part 1)

Earlier this week, I shared the stage with John Campi at ProcureCon in Atlanta for a debate. For the few who don't know John -- or his booming and opinionated voice -- he is former procurement head for Home Depot and Chrysler, among other companies. John is a forced to be reckoned with when it comes to making persuasive arguments, but that did not stop me from taking him head on an argument about which function should own supply risk. I even gave John the choice of which side he wanted to argue. Of course he picked the easy one (procurement) but that did not stop me from putting up a good fight. In the end, I believe John won the debate fair and square (even though he did deviate from the agreed-upon structure, but given the fact he got away with this, I can't fault him for it).

During the debate, John hit on all the right points about lower tier supply risk, natural disasters and their cascading impact on the supply chain. In this regard, he noted that we see over 200 earthquakes per decade in excess of 7.0 on the Richter Scale and that if the earthquake that occurred at the New Madrid fault in the 1800s in the US occurred now, it would cause $250 billion in damage and would be far more disruptive to our supply chains that Hurricane Katrina. A good argument: yes (and it was just one of many, including the FCPA, that he cited in favor of procurement stepping up to the supply risk plate). But that didn't stop me from trying to plead my side of the debate. In today's post (as well as a follow-up next week), I'll feature my side of the scripted argument, before I went off-script and straight for Campi's jugular (e.g., how his work indirectly led to return of the infamously super reliable Fiats back the US).

At the very least, I hope that the following notes can help some of you to identify who is best suited to take on what risk responsibilities in your organization. So here goes!

ProcureCon Debate Notes (12 September 2011)

These days in procurement, we've taken on more responsibility than ever and we often have our hands tied at the same time. In addition to the cost cutting and sourcing programs that have become the ante for acceptable levels of performance, we also have a range of incremental items that must now also command our attention.

Ten years ago, we rarely had to consider such areas as managing commodity volatility and true supply management (as opposed to just strategic sourcing) as core to our focus. But now we must. Let's consider commodity management for a moment and the volatility we've seen in certain areas:

Cotton: up over 300% in < 18 months before coming back to earth
Rhodium: from $10K to $2K to $3K -- Time frame: 2008-2011
Crude oil: 40% increase between January 2010 to May 2011
Corn: 65% increase during same period

Many of you are living through commodity volatility every day. But what about basic supplier monitoring and development? We've had to focus extensively on what I term "Supply Management 101" in the past decade, including such areas as supplier compliance from contracts to a range of business practices (including labor and CSR practices) as well as supplier development and joint cost take out (e.g., demand aggregation programs for raw materials) just to keep doing our jobs effectively. And we've had to think about sourcing in a global world, paying close attention to total cost management, substitute materials, and a range of decisions that consider what I call "make, buy and beyond" in global and regional markets.

As our responsibilities have increased, it's unlikely that many of us have gotten additional resources to handle the burden. Yet it's our responsibility to deliver what the business expects.

Stay tuned for Part 2 of my debate notes next week.

Jason Busch

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