Competitive Advantage and Supplier Value Mapping

You can now download our new briefing paper titled Putting Suppliers at the Centre of Your Organisation.  You can access it here  on the BravoSolution website, free on registration - it is based on the first session in this year’s Real World Procurement Series, also with BravoSolution.

It covers issues such as the way the focus of procurement has developed over the years, supplier lifecycle management, and the ways in which organisations can capture competitive advantage from their supply base. And do remember that the next Real World Procurement event is on April 27th London, 10am. Guy Allen will talk about “Driving Value from your Sourcing Process” – you can book here.

Here is another short extract from the paper, looking at competitive advantage and something we have called supplier value mapping.

Putting Suppliers at the Centre of Your Organisation

Competitive Advantage and Supplier Value Mapping

Competitive advantage has been widely discussed by academics and practitioners, and we do not intend to explore the issue fully here. Our interest is in linking the benefits of effective supplier management with competitive advantage, a process we call supplier value management.

One broad set of advantages can arise from the firm developing a low-cost strategy. That is perhaps where a naïve executive might assume suppliers have the greatest role to play – by cutting their prices and so reducing the cost base for the buyer. However, the research report[i], “Three Rules – How Exceptional Companies Think,” published by Deloitte in 2013, suggests that very few firms manage to compete successfully on price, and that successful firms prioritise revenue over cost reduction. But that is not to say we should not look at minimising total cost of ownership for certain spend categories, products or services.

A further set of competitive advantages may come from operational excellence. That might mean producing goods or services with a high degree of effectiveness and efficiency, producing the best quality product in the market, or in offering truly exceptional customer service (in any environment, from a call centre operation to running a hotel chain). It is clear that managing suppliers well is critical to achieving operational excellence for many firms and many business areas.

Then we have innovation, a core competitive advantage according to many thinkers, including Michael Porter. Indeed, the author of the classic business book “Competitive Advantage” now believes that innovation is the chief source of advantage for businesses. Coming up with new products, services and ideas, staying ahead of the market and your competitors; this is the most effective way of achieving and sustaining a strong market position.

A small number of organisations see innovation as something that can be driven purely internally, but most leading firms for example now realise that their supply base provides a far greater resource for that purpose than they can rely on internally. One leading consumer goods firm now has an objective that 70% of new product ideas should come from the supply chain – that is an explicit target for the CPO and procurement function.

Some firms combine different elements; Ikea for instance combines both a relentless focus on cost leadership and an innovative approach to product creation and design. But in all of these cases, we can consider how suppliers can contribute to the organisation’s achievement of competitive advantage and of its core goals. We would add risk to the picture here; arguably it may not be so clearly linked to competitive advantage, but it is fundamental and today much business risk is driven by and through the supply chain.

Supplier value mapping considers how a supplier contributes – or could contribute – to those aspects of value. Going through this exercise for key suppliers can identify where further opportunities might lie, and is also a very effective way of highlighting internally in the organisation what contribution the supply base can make ...

[i]  Three Rules - How Exceptional Companies Think, Michael Raynor and Mumtaz Ahmed, Deloitte

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