| Supply chain management
(SCM), the science and art of gathering and aligning
inputs required to produce goods and services that another
entity values, is a relatively young concept, and even
younger discipline, though it has been practiced in
varying forms ever since commerce began. This lecture
described four phases of SCM in order of maturity.
The first stage is simple buying. This phase is characterized
by transactional based acquisition of goods, expedience,
and a lack of strategy. It is generally not triggered
by any pre-planning, it simply happens when a need arises,
and is generally carried out by the person who identified
the need. In many cases, it is as simple as a team member
using a company credit card to purchase paper for a
copier.
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A step above buying
lies what we call systemic purchasing. In this phase,
someone in the organization has recognized a need for
controls and rudimentary procedures for acquiring supply.
Here you will generally find the use of basic tools
such as requisitions with some approval levels, purchase
orders, packing slips, receipt acknowledgements, and
invoice matching. Certain team members may have responsibilities
in this area, with titles such as “Buyer”
or “Purchasing Agent”, with responsibilities
for making the system work. However there still is little
centralization of purchasing, analysis of data, or leverage
of spend.
When an organization realizes
the need and opportunity for greater leverage of its
buying power, it generally enters a third phase. Procurement
departments are created at this time, and certain basic
strategies for purchasing emerge. Centralization of
the function, led by managers, and identification of
spend categories occurs. Competition is created through
the use of RFPs (requests for proposal) and RFQs (requests
for quote) and in some cases basic technology such as
procure to pay systems are implemented. In this phase
greater attention is paid to spend analysis, so that
the organization understands better where its committed
dollars are going. Enforcement of spending policies
allows greater control over discretionary spend. Tactical
buying is made easier and more efficient by technology,
freeing time to create strategic approaches to procurement.
The fourth and highest level of maturity
is often called supply chain management. In this phase
the organization has enjoyed the savings and procedural
improvements generated by procurement, and is committed
to the strategic and competitive differentiation created
by world class supply chain management. In this phase
many supply chain divisions are deeply embedded in the
operation of the company and led by a C-level executive
(Chief Procurement Officer). Buyers graduate to more
strategic supply chain management roles, in which RFQ’s
lessen in importance compared to key supplier relationships.
These firms attempt to “extend the enterprise”,
studying the processes of the key suppliers and aligning
them with their own, thereby driving significant cost
out of the transactional nature of the commerce. Firms
that aggressively pursue supply chain management in
this phase are able to practice demand management, better
align all internal workings of the organization, and
eventually attract the top suppliers in any category.
Any organization, large or small, can practice better
supply chain management. The sooner the business leaders
recognize the competitive advantages it brings, the
better positioned the business will be to compete. |
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