Leading companies
understand that creating
significant value requires
tapping into the energy of
their supply base. For example, Procter & Gamble
expects more than half
of its innovation to come
from outside its own R&D
group. Executing this philosophy means putting the
CPO in a pivotal position:
The CPO must shepherd
the company on a quest
for value.
Procurement was once
a transactional function
focused on supply continuity. Strategic sourcing transformed CPOs
into credible business
contributors. Now, CPOs
have the chance to transform again—to use strategic supplier relationship
management (SSRM) to deliver something more than cost
reduction, something that drives competitive advantage—
strategic value. Yet delivering strategic value across the
supply chain will require a change in mindset: from confrontational, one-on-one negotiations on cost reduction to
collaboration—both internally and externally.
Figure 1: Unlocking the next level of value: complement a category focus with a supplier focus
What and Where Is Strategic Value?
Many CPOs have rightly concluded that the key to unlocking the next level of value is to complement their
category-focused strategic sourcing efforts with a supplier-focused approach. Figure 1 illustrates models of supplier
interaction that form a pyramid because they rely on a
solid base in category-driven transactions. With some suppliers, it’s also possible to use strategic sourcing projects
to optimize total cost of ownership. An even smaller subset of suppliers deserves strategic supplier relationship
management value projects that use more intense supplier
cooperation to gain more substantial advantages for a specific business unit or product.
In pursuing more value, companies often start out on the
wrong foot. They engage in well engineered, often multi-year segmentation processes to identify “key” suppliers,
the ones worthy of collaboration. Their CPOs keep refining
the process in hopes of finding the magic formula that can
turn historical procurement data into an index of supplier
importance. But these segmentation efforts take precious
time away from the more vital tasks of generating value, and
they often fail to identify those few suppliers strategically
critical to the company’s success. Because supplier importance is determined by strategic value—which is forward-looking—attempting to quantify it with historical data is
like trying to drive using only the rearview mirror.
Instead of segmenting suppliers, CPOs should identify
strategic suppliers and value by segmenting business units
and product or service offerings. The first step is to pri-
oritize business units or offerings based on their strategic
importance, then analyze the value chains in each to deter-
mine where value could be created or improved. That will
generally point a great big arrow at your strategic suppliers.
