Our CPOs on the Rise in 2011 series takes a detour to Houston, where earlier this week, I delivered, for the first time, a detailed discussion of my recet research report Sourcing in the 2010s: The Formula for Success at a dinner hosted by BravoSolution [Note: Bravo is also a sponsor of this site]. Today’s article is not about that report which can be accessed here (registration required), but about a few observations made during this intimate event. [Sidebar: For those of you based in the Philadelphia/Wilmington/NJ area, I’ll be reprising the discussion over dinner in Philly next Wednesday, March 9 and would love to see you. If you are interested, you can register here]
It has been some time since a true CPO Shop Talk article; so as a reminder, from time to time I will attempt to share some of the less-formal conversations that I have with Chief Procurement Officers and CPO-types through the course of my research, travels, and Ardent’s analyst/advisory business on the pages of CPO Rising. CPO Shop Talk is not intended to be the final word on a given topic. Ideally, I hope these articles can serve as a quick way to share issues that procurement leaders are focused on and draw out (in the comments section) insights and views from our collective experiences to help them.
Supply Risk… in the Ts & Cs
As my presentation turned to category management, one of the attendees, a very experienced VP of Supply Chain, raised the issue of supply risk and wanted to discuss best practices in how to mitigate it. As I began discussing what I believed are some of the traditional strategies to identify, understand, and mitigate supply risk, I realized that like beauty, supply risk is in the eye of the beholder. For this procurement executive, who works for a company with a concentrated group of suppliers in a few key segments, the issue of supply risk was not in the supply base of these strategic categories, but rather, it was related to the management of contractors (which comprise ~70% of the onsite personnel on any given day at the company). The challenge this executive faced was in the management of SLAs (Service Level Agreement) for such a large group of contractors across a very large scope of services. This executive viewed the potential gaps in understanding that his team may have of industry standards for SLAs as risky from a management and liability standpoint, but also risky from a price standpoint. If the contractual requirements are significantly greater than what the company actually needs, they may be paying too much for certain contracts. At this point I was reminded of the strategy that many CPOs introduced in 2008 and 2009 with many of their largest supplier, in lieu of re-sourcing: a specification rationalization project – where procurement and the supplier have a meeting or series of meetings to review the current contracts and work collaboratively to identify savings opportunities by redefining current Terms & Conditions and/or SLAs. While the discussions are basically looking at ways to reduce price, these are not just reductions for reductions sake. By working with the suppliers who understand their cost structures, opportunities to reduce contract specifications may result in lower prices and potentially higher margins for the supplier (not that that is the goal, mind you); and, along the way, category managers may gain a better insight into how to approach category the next time it is sourced. It seems that this strategy is worth applying on some rotational basis across major categories.
Ph.D in Supply Management?
I was very pleased to see that several of the procurement professionals in attendance were recent college graduates with Supply Chain/Supply Management degrees. An area of study that existed in very few US universities ten to fifteen years ago, is finally gaining significant traction (Michigan State, MIT, Penn State, and Arizona State have had longstanding programs). It is really exciting to see freshly-minted college grads ready, willing, and able to hit the ground running in their first job in procurement. Beyond that, it is exciting to see young graduates looking at all of their career options and choosing a career in supply management. We’ll come back to this topic in the future; but I wonder, can a Ph.D Program in Supply Management be far off? Professor Simchi-Levi, I’m looking at you!
