[Editor’s Note: We continue our “Throwback Thursday” series with another look at a past entry on the skills needed for today’s procurement leaders.]
It’s a great and worthwhile pursuit for Chief Procurement Officers to invest in their people, so, in that vein, over the next few weeks we will be analyzing the key skills and capabilities (or higher-level competencies) that a procurement professional (and department) should have in place in order to execute successfully. We will be using Ardent Partners’ Procurement Staff Competency Matrix that we developed with our CPO audience. This competency matrix established industry-wide capability measures for the average procurement organization.
We hope this series will help professionals and their managers to better understand and communicate what the required capabilities are for specific job roles within the procurement department and thereby help identify, develop, and deploy the people with the right skills into the most suitable positions. Professionals can also use this series to better identify where current gaps exist in their organization or within their own skill sets so that they can take action to improve or move into roles with greater responsibility (and pay).
Today’s Competency: Supplier Market Knowledge
What is Supply Market Knowledge?
The speed of business continues to accelerate and shows no sign of slowing down. Innovation and competition have helped improve operations, products and services, and supply chains, but they’ve also helped increase business volatility and the complexity of trading partner relationships. One major implication of these trends for sourcing and category teams is that the highest-value supplier(s) at the start of a multi-year contract may not be the highest-value supplier(s) in the market at the end of the contract just a few years later. In this environment, it becomes more critical than ever to have current knowledge of key supply markets and a way to access this information when gaps exist.
Generally speaking, SMK concerns a purchasing or sourcing team’s category management, and knowledge of commodity prices, supplier financial standing, and supply/supplier risk. It means taking a holistic view of your sourcing needs and pipeline, and knowing where you and your partners stand at all times.
Importance to the Procurement Department
Having supplier market knowledge of all aspects of your supply chain and sourcing pipeline allows you to mitigate legal, reputational, and supply risk, and to ensure that your company is getting the best possible price for the commodity or service out there.
To give you an example of how important it is to have solid SMK vis-à-vis a global crisis, consider this: a CPO we spoke with recently told us how, the global disruption caused by the 2011 Tōhoku earthquake and tsunami in Japan that wiped out an entire segment of their suppliers. His team was prepared with a list of secondary suppliers of critical sub-components to their products, allowing the company to move quickly to mitigate disruptions to their supply chain. Delays were suffered, but no shutdowns occurred. Without understanding their longer-term inventory needs, supply chain vulnerabilities, and alternative sources vis-à-vis the crisis, the company would have suffered from the widely publicized supply chain disruptions endured by major automobile companies.
Additionally, we see more and more third-party services providing value in this area and a few solution providers are starting to take real-time SMK and embed it within their Spend/Sourcing dashboards. Companies without these solutions – particularly those with anything other than a local supply chain – should strongly consider exploring these options as part of their long term supply/supplier risk management strategy. After all, forewarned is forearmed.
Importance to Career Advancement
There are many supply markets, one aspect of this competency is the ability to analyze a supply market, any supply market. The ability to understand supply market is critical to the success of driving large global sourcing projects and most direct materials projects. To be honest, most teams invest minimally in this area on the indirect and/or small sourcing project sides. But, the reality is that too many teams use the sourcing process simply to press their incumbent supplier for some predetermined reduction instead of aggressively trying to determine if another supplier can offer better value.
When it gets to specific supply markets (of specific categories), there is nothing like being a “true expert” is something. It can advance your career and keep you relevant and if the expertise is relatively scarce, it can enable you to charge a premium.
Keeping tabs on the state of the market or conditions on the ground is important not just for your company but also for your career. While no one can predict the future, providing indications or early warning of unfolding events on the ground can help those above, below, and beside you manage or mitigate risks. Whether it’s part of your job or not, if you do it enough and your information is good, you develop a reputation for being a trusted source of information that helps keep your company out of hot water. Pretty soon, it’s a marketable bullet point on your resume, your next job, or perhaps even your career.
The CPO’s Grade
The “Supplier Market Knowledge” competency received a slightly higher than average score, a C+, from Chief Procurement Officers, meaning that CPOs believe that their staffs have a decent grasp on their supply market knowledge. Currently, the way SMK is performed in most companies is as a form of CYA (“cover your – – -“), not as a progressive, game-changing tool that can be used to drive wholesale changes across a supply base. With so many sourcing projects failing to identify new suppliers and simply using the same bid panel from the last sourcing project three years ago, supply market knowledge tends to take a back seat to other sourcing tools and processes, like collaboration.
How to Advance Your Skills
Globalization and the birth of the commercial Internet have made the world a lot smaller and a lot more interconnected. Supply Market Knowledge has been bolstered by the Internet where tons of great information is free or at the very least, quite affordable. The wide availability of information has made it easy for procurement professionals to develop a basic level of SMK competency, much less ensure that suppliers aren’t in the headlines for any dubious, unethical, or illegal activity.
One Chief Procurement Officer that I interviewed a few years ago once told me that “high volatility and general uncertainty pervade our supply chain.” His instinct at the time was to avoid locking in long-term pricing and contracts in most supply markets. In another year or so, we will be able to determine if this was the right strategy. Who is thinking about this in your organization and at what level and for what categories? Can you join the group that is doing this if it exists or start it if it does not?
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