IDC Study: Procurement is Supply Chain’s Top Initiative to Reduce Costs…

...but we have more questions than commentary.

Supply Chain Digest recently featured a number of highlights from a recent (July, 2012) IDC Manufacturing Insights report that considered the responses of 355 participations about the primary focus for their supply chain. The results, especially for those that have historically read AMR/Gartner reports focused on supply chain issues historically centered on inventory turns, sales and operations planning (S&OP), supplier collaboration/product innovation and the like might be surprising: procurement is the top issue and area to reduce costs.

Specifically, as SCD summarizes, "Perhaps somewhat surprisingly, 'reducing procurement costs' dominated the results, with some 35% of respondents citing it as the top opportunity, versus just 18% or so for the number 2 response, which was 'establish or expand Lean/Six Sigma' type improvement methodologies. Just behind was reducing transportation and logistics costs..." This ties to one of the broader themes that the authors surfaced in the study: "Increasingly volatile and generally rising direct input costs, especially as many manufacturers lack the ability to make price increases stick."

There could be many reasons that procurement scored so highly compared with similar analyses by other supply chain analyst firms in the past. We haven't spoken to the authors yet, but we suspect that compared with the historic AMR/Gartner survey base, that this respondent base skewed more towards procurement/sourcing in role/function than similar surveys that focused more on the APICS crowd. Still, the results provide great fodder for the pole position that procurement is taking within the broader supply chain and finance areas in reducing costs and managing risk.

We find it somewhat curious that there is still a lot of emphasis on collaborative forecasting/planning in working with suppliers around inventory, yet forecasting and planning has not yet combined with commodity management looking at base/raw materials on a multi-tier level to consider a broader range of factors in controlling costs: Who buys what? At what grade/specification? From whom? Off of what contract? What provider is optimal to provide value added-services to base materials? What do rebate schedules look like? How is material/pricing hedged -- or not? How do demand/planning forecasts tie into the purchasing/hedging of raw material inputs (and is demand aggregation information shared with suppy chain partners).

The list goes on. But no doubt, commodity planning/forecasting combined with traditional supply and demand planning and supply chain collaboration, will increasingly overlap in the future!

- Jason Busch

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