A new report suggests value in the supply chain is derived from more than just cost-saving techniques, and that successful supply chain managers understand value in a more holistic sense, including relationship building, co-creation, and end-to-end collaboration.
APICS, a professional association for supply chain management, and Michigan State University announced the findings from their latest report, “Creating Value through Procurement and Sourcing Efforts in Integrated Supply Chains,” which outlines five insights to assist procurement and supply chain management professionals in optimizing supply chain value. This is the fourth report stemming from the Beyond the Horizon research project, which investigates the current business practices of more than 50 supply chain firms to identify the future of supply chain management.
“One remarkable result of this research was the extent to which supplier relationships affect supply chain value,” said Daniel Stanton, vice president of strategy for APICS. “While we were aware suppliers influenced value at some level, the degree to which they are now seen as essential partners in everything from product development to after-service support was surprising.”
Increasing value by merely reducing materials cost is outdated, Stanton added.
“In order to understand how to create and maintain value, it’s necessary to think of in terms of trade-offs, rather than just reducing costs,” he said. “Changing this perspective can still be a barrier for some supply chain executives.”
Another barrier can be organizational. When departments are working in silos without visibility into other teams, for example, it’s much harder to create a strategic impact that aligns with what customers value.
Collected from in-depth interviews with more than 50 supply chain management firms around the world, the five fundamental strategies identified in the report are:
1. Understanding value – Most individuals recognized that low costs do not equate to the highest value, emphasizing that while cost reduction strategies are important, they are not the only approach for generating value. Respondents shared that there are many opportunities for supply chain professionals to impact revenue. For example, they can increase collaboration with suppliers, implement innovative technologies, improve product quality and enhance service offerings.
2. Creating strategic impact – Connecting supplier capabilities to customer requirements and developing value propositions that are unique and compelling is critical. Four components – procurement process discipline, leveraging buying power, strategic sourcing and engaging strategic suppliers – are required for procurement and sourcing professionals to create a competitive advantage.
3. Expanding relevant scope – The interviews illustrated that when procurement and sourcing professionals transcend traditional functional boundaries, value creation can occur – creating unlimited potential, increasing visibility and enhancing an end-to-end integrative process.
4. Facilitating co-creation – Many executives supported the idea that value is derived from the ability to combine knowledge and capabilities in new and compelling ways. Involving procurement and sourcing professionals in the early stages of the innovation activities extracts more value and allows both parties to jointly meet business goals, which provides vast opportunities for enhanced outcomes in cost, quality, delivery, design, etc.
5. Earning preferential treatment – In order to attract the best suppliers – those that have capacity and capability to co-create and drive higher levels of value, those that have the best talent, and those that have the best ideas – firms must learn how to become preferred customers. It is important to shift the relationships with key suppliers toward becoming your partners, rather than vendors.
“As an association serving today’s most talented and innovative supply chain management professionals, APICS aims to equip our community with the latest information about how supply chains are evolving,” said APICS CEO Abe Eshkenazi, CSCP, CPA, CAE. “The latest Beyond the Horizon report provides insights into the creation of value through procurement and sourcing efforts in integrated supply chains, including key practices and implementation recommendations.”
“Creating Value Through Procurement and Sourcing Efforts in Integrated Supply Chains” is part of Supply Chain Management: Beyond the Horizon, a multi-year research project conducted by MSU’s Eli Broad School of Business and supported by the APICS Supply Chain Council and the John H. McConnell Chair in Business Administration at MSU. In tandem with the whitepapers, APICS is offering the Supply Chain Management: Beyond the Horizon webinar series. The series covers topics such as capabilities, costing, and global talent development, purchasing, sustainability, omni-channel and complexity. Click here to learn more about the webinars and to view additional whitepapers from the project.