Plan To Manage Your Vendors And Suppliers

The thought process among forward-thinking business leaders is that one of the few

remaining strategies with a high potential for growing profits is in supply management.

Today, however, leaders trained and skilled in the methods of supply chain management, as opposed to purchasing, are rare and can be difficult to find. It is this scarcity of knowledge and experience in a field with massive economic pressures that constitutes the business opportunity. Isn't Supplier Relationship Management the same as Purchasing? I already have purchasing!

The processes and techniques of the procurement function have evolved developing a means of assuring that materials are continuously available in the most cost effective manner. Basic Purchasing techniques remain substantially unchanged today, founded on a "three bids and the lowest wins" approach to assuring that goods and services remain available.

Back in the 1960's, the U.S. economy shifted from manufacturing to services-based, and now is changing again to knowledge-based, leaving manufacturing to account for only about 16% of the economy today. This change has enormously enlarged the scope of products and services that organizations buy in the course of doing business, but an ever smaller portion of those purchases pass through the purchasing function.

The rest are handled with varying degrees of discipline by various organizational units and individuals, one consequence being that economies of scale are lost and costs increase.

Since 50-80% of revenue in modern organizations typically is spent on supplies, services, and materials, the impact of this "diffused" buying on the bottom line can be financially material. If, for example, 10% of otherwise achievable savings are lost, the effect is the same as a 5-8% gross margin loss to the organization. For many for-profit and not-for-profit organizations, this could mean the difference between survival and failure in tough times.

The emerging discipline of supply management takes a much broader view of the organization and its finances, and suppliers and their finances, than purchasing does. Since organizations in an information economy function quite differently than in a manufacturing economy, the goal of supply management is to lower costs and improve financial performance not just for the purchasing organization, but for suppliers and customers as well by deploying modern management techniques, information technology, and a strategic rather than a tactical approach to acquiring goods and services.

At ABC, we believe that organizations that are currently unsophisticated in their understanding of modern supply management as well as those that are moderately to highly sophisticated but lack experienced leadership will continue to miss savings opportunities so significant that one day it could make the difference between surviving tough economic times and bankruptcy.

The evolution from tactical purchasing to strategic supply management that is now under way is designed for each stage of what we believe to be a substantial competitive advantage that will produce superior financial results for clients.

by: Tom Mann

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