Henry Hwong, VP of Product Marketing and Allison Jeannotte, Director of Corporate Communications for Reardon Commerce called Supply Chain Matters attention to a recent “pulse survey” conducted among attendees at the recent Institute of Supply Management (ISM) annual conference.  The survey is rather timely, in that it uncovers the need for sourcing and procurement professionals, in light of current global supply chain developments, to possibly modify some of their current thinking. The context is for both indirect and direct procurement activities.

As noted in the press release, the survey points to where procurement will look for the next layer of cost savings:

• Nearly half (44 percent) believe more spending should be under the control of procurement and that controlling off-contract purchasing will make the biggest dent in purchasing.
• A smaller segment, 28 percent, indicated that enterprise-wide visibility into spending is the key to keeping costs down.
• A general consensus (60 percent) believed that consolidating the supply base was at the top of the procurement agenda.

Unstated and hopefully implied, is that in these current times of broadly extended global-wide supply chains, the ability for differentiating strategic, tactical and indirect material spending is more important than ever.  While procurement can’t control what it cannot see, control comes with other broader responsibilities that include the balancing of cost control with other business needs such as risk avoidance.

The recent tragic earthquake and tsunami that struck Japan has been a clear wake-up call among senior executive and supply chain communities.  Companies and suppliers, who initially thought that their supply chains would not be impacted, came to discover later that the visibility to the lowest tiers of supply were lacking, and these organizations were indeed impacted.  Companies that felt assured that key parts were not at risk because of single-sourcing discovered that their context of key parts did not extend far enough down the supply chain.  The headlines of supply disruptions involving Japan included epoxies, low-cost but required electronic components, resins, paint chips, and other components.  And as companies scrambled to find alternative sources of supply, the concept of reserving capacity for loyal and existing customers played out as usual.

In the past, procurement teams were very successful in mining cost reduction opportunities by operating on a principle that the tighter the control and oversight, the more leverage that could be gained in extracting cost savings.  That made the CFO very happy, but might have caused some business units to be a bit more innovative in rogue sourcing and hiding spend.  Today however, supply chain management is taking on a more strategic and risk-aware perspective, where agility, the ability to deal with constant variability and respond to events and opportunities in the market are the new table stakes for competitiveness.

Supply Chain Matters advises procurement teams to turn their energies towards more internally-focused collaboration among product development, sales and operations planning teams.  Strategies for direct and indirect procurement need to remain differentiated, with different sets of goals.  Every component or part that makes-up your finished products need to be analyzed for supplier coverage, capabilities and risk potential.

Rather than a broad swath of compliance and consolidation, the message of these times is keen analysis, intelligence and internal collaboration for achieving  broader business goals along with spend reduction.

Bob Ferrari

Today’s Marketplace section of the print edition of the Wall Street Journal features a commentary piece penned by John Bussey, Measuring the Human Cost of an iPad Made in China (paid subscription or preview account required). Supply Chain Matters extends a tip-of-the hat to Bussey for a very well written and timely commentary and we highly recommend our readers take a view of this piece.  It is especially timely after this week’s announcement by AMR Research/Gartner of the 2011 Top 25 Supply Chains designees, where Apple again made the number one designation, while Dell made number two.

In a synopsis, Bussey makes the observation that A-list electronics companies such as Apple, Hewlett Packard, Dell, Sony and others, all, in some form, operate at an arm’s length relationship from the high volume assembly of many of their products in China.  He especially contrasts the recent explosion at a Foxconn factory in China, and states: “Customers (of Foxconn)  like Apple can’t afford the hit to their reputation that dust explosions and worker suicides tend to produce. Hon Hai (Foxconn) can’t afford to alienate customers as big as Apple.”  This is rather obvious observation the convenient buying relationship with contract manufacturers in China.

Noted later in the commentary is that in the U.S., nearly 150 people have been killed in dust-related explosions since 1980, and businesses have been shutdown for such violations, which is not the case in China where national standard-setting for worker safety is rare. We take liberty to quote the last two powerful sentences in the commentary. “If the body count had been 103 instead of three, global public opinion would have been more mightily stirred. And in that instance, an arm’s length relationship would have proved little protection for the company and its brand.”