Article contributed by Robert Handfield, Ph.D., Bank of America University Distinguished Professor of Supply Chain Management
Featured in the CU Quarterly, September 2008
In the Tom Cruise film, Minority Report, the Department of Crime Prevention collected data in various fashions about crimes and murders that were going to happen. They pieced this together, and then sent a special squad of experts to capture the villain before the crime had been committed. I think supply management is going to be a bit like that. We'll put together pieces of the jigsaw puzzle to determine what sort of special squad - suppliers, vendors - you need in order to plan a solution before it happens or as it actually happens. - Senior supply management executive
Although cost reduction may be achieved, this approach to strategic sourcing has several limitations. First, this method is a one time “hit” rather than a planned endeavor to leverage spending opportunities from diverse business units, which are especially prevalent after a merger. Second, the savings may not continue and, in fact, may discourage a supplier from offering additional improvements in quality, technology, or cost savings in the future. As one executive noted, “The greatest savings take place after the ink has dried – but it requires a collaborative approach to savings, and a whole different set of processes.” Third, the strategic sourcing process described above often takes place in a vacuum, without a thorough assessment of internal customer requirements, changes in the business environment, and events or changes in the supply market.
The notion of business and supply intelligence is not new. Indeed, no one knows better the importance of intelligence than the Central Intelligence Agency. White House experts have posited that the events of 9/11 could have been avoided if there had been more field agents on the ground identifying trends, discussions, and triggers that might have clued in authorities to the possibility of the disastrous events that took place that day.
In other cases, business and market intelligence is available with key people, but is not well disseminated to the users. There is tremendous value in sharing across a whole company proprietary insights into competitors, customers, products, supply market conditions, mergers, research, and the like. As Lowell Bryan, an expert in this area notes, “An individual’s knowledge is self-contained, always available. But in companies, including small ones, it can be hard to exploit the valuable knowledge in the heads of even a few hundred employees, particularly if they are scattered in different directions.”1 It is even more difficult to collect information across a supply chain network when the individuals are not located within the confines of the organization! Bryan notes that the typical approaches used to disseminate knowledge involve a) big investments in document management services, b) pushing knowledge to workers using large web sites, or c) letting organizational units solve their knowledge problems in a decentralized manner by allowing clusters of workers to share information using whatever technology solutions they prefer. Unfortunately, all three of these approaches have major downsides that make them ineffective.
Even organizations that succeed in developing supply market intelligence systems face a strategic sourcing problem: getting decision-makers to apply the knowledge and use it in an effective manner. For example, in a recent book, Secrets – A Memoir of Vietnam and the Pentagon Papers by Daniel Ellsberg, the author notes that knowledge accrued through field agents in Vietnam was not applied in a suitable manner. Field agents were aware of the unrest in Vietnam through discussions with villagers in hamlets, ARVN units, and bureaucrats. These agents knew early on that increasing the forces in Vietnam was not the solution, and that the war was in effect un-winnable. The author also demonstrates evidence that senior White House officials, including Lyndon B. Johnson, were made aware of this information through detailed reports and meetings, but failed to apply the knowledge to revert to other strategies, including negotiations with Hanoi. The same rationale applies to businesses – even though the information is available, there is no guarantee that executives and managers will put it to good use.
To enable effective sourcing strategies, supply management professionals are dedicating teams of individuals to build insights into supply market trends, price models, “should-cost” models, and power shifts in the marketplace. These groups are often enabled by third party providers of market intelligence such as Beroe (www.beroe.com) who develop custom desktops (much like a Bloomberg) that provide sourcing managers with a dashboard for managing their category long-term, and on a day-to-day basis. As one executive we interviewed noted, “supply market intelligence is the only true form of competitive advantage in a global marketplace.” Those who keep themselves informed will always be in a better position to act ahead of the market and achieve an advantage of those who are dozing at the wheel!
These challenges form the basis for my book, Supply Market Intelligence that can assist managers in developing a supply market intelligence network and teach them to apply the collected information to successful strategic sourcing processes. This book is intended to help supply managers and company executives in any industrial section (whether it be in services, manufacturing, logistics and distribution, or others) transition from a processing approach to company spending decisions to a strategic approach. This strategic approach is largely grounded in market intelligence, and encompasses spending decisions that are both traditional and novel to the purchasing function.
The book provides a step-by-step model for a strategic, market-intelligence based sourcing project. While some sourcing strategy projects are initiated as a triage mechanism to reactively treat an identified spending problem, the model outlined in this book is predicated upon a sourcing strategy project that is implemented proactively as a means to reduce risk and drive value. This is consistent with the new roles that supply management is being asked to deliver.
1 “Making a Market in Knowledge”, Lowell L. Bryan, The McKinsey Quarterly, 2004 Number 3.
Dr. Robert Handfield, Director of the Supply Chain Resource Cooperative at North Carolina State University and Principal of Supply Chain Redesign, LLC is a valued member of the Corporate United network. He led a very informative breakout session at SYNERGY 2008, and we are pleased to provide more of his compelling supply chain insight in the CU Quarterly. Handfield’s book, Supply Market Intelligence: A Managerial Handbook for Building Sourcing Strategies was published in 2006 by Auerbach Publications.