In 2004, just days after Greece unexpectedly won the European Championship in soccer, Adidas delivered more than 145,000 Greece team jerseys across markets in Europe. Smart marketing, right? Without a doubt.
But perhaps even more impressive was its global procurement effort: Thanks to the creation of a centralized supply chain which coordinated with its country-based sales subsidiaries, Adidas developed a just-in-time product not only for the championship team, but also a repeatable formula for sales triumphs in every other winning country as their national teams advanced through the series. To round off the success, Adidas’ flexible supply chain strategy delivered these sales at a very low risk, avoiding any significant investment in materials or finished product.
Procurement coups such as this are helping to elevate supply management from an operational function into an integral part of company strategy. Indeed, in a recent survey of 156 procurement executives that we conducted with our colleague Heidi Deringer, more than 90% said their job responsibilities had expanded in the pastthree years.
These new duties include shortening cycle times, leading in product innovation, enhancing the quality of products or business outcomes and even, as in the case of Adidas, generating incremental revenuevia close collaboration with sales.
Consider how strategic supply management has become at Boeing.
In developing its 787 “Dreamliner”, Boeing has expanded the role of procurement from outsourcing parts to outsourcing entire subsections. Nearly all of the new jet’s design and fabrication, along with some 40% of the estimated $8 billion (about Rs32,800 crore) in development costs, is being outsourced to subcontractors. Mitsubishi is making the 787’s wings, Messier-Dowty of France is making the landing gear and Latecoere is creating the doors.
Says James Renaud, Boeing’s director of development operations, “The subcontractors are responsible for end-to-end design, and what we provide is integration” in project management and eventual assembly.
As little as five years ago, such a pivotal role for procurement seemed remote. In fact, Sloan Management Review (SMR) published an article in 2001, titled Strategic Purchasing Remains an Oxymoron. Today, however, supply management functions are becoming a core component of strategy.
At The Clorox Co., for instance, a large percentage of new products are developed in conjunction with supplier partners. When the company wanted to develop a line of surface-protecting cleaning products, it partnered with speciality chemical companies to develop products that coulddeliver a Teflon-like protective effect.
Clorox is a leader in a movement by manufacturers to expand their supplier universe in search of innovation. They are asking savvy procurement organizations to identify suppliers with new or different capabilities which, in turn, can spur initiatives for innovation in a variety of forms. For example, when the division of one health product maker sought a different way to market a new sweetener, the procurement organization went out and found the right marketing agencies to help expand the product’s reach beyond an initial target of diabetics to include an expanding market of food and beverage makers, and even?fast-food restaurants.
Indeed, strategic supply management is turning suppliers into innovation agents. Germany’s Henkel Group runs units that provide adhesives, gaskets and other bonding material for manufacturers of autos and appliances.
Among the latter, procurement teams frequently use Henkel engineers to tear down new appliances in search of cost savings in assembly.
In one such recent 12-hour session, Henkel found 14 ways to save time and money in manufacturing a refrigerator by, among other things, using adhesives to replace screwed-on gaskets and taped-on shipping foam.
Beyond innovating processes and products, supply management is helping the balance sheet by shifting not just material and packaging inventories, but even non-core R&D capabilities and assets to more focused, productive and capable suppliers, and thereby freeing up resources to focus on higher margin products, sales marketing and distribution.
In the electronics industry, where supply management has perhaps longest served strategy, Hewlett-Packard today uses supply partners to co-design items ranging from servers to printers and speed products out of the door. Dick Conrad, HP’s senior vice-president for global operations supply chain, told BusinessWeek magazine that it now takes 60% less time to get a new HP product to the market. Moreover, the firm can “redeploy our assets and resources to higher value-added products,” he says.
The demand for such supply skills will only increase. Last year, an article in SMR put a new stake in the ground: “Making the Transition to Strategic Purchasing”. Today, supply management executives are doing it.
More than 75% in our recent survey said procurement has become a value-added partner both in innovation and business development.
Indeed, as more companies discover the scarcity and growing importance of supply management talent, they’re making supply strategists the managers to watch.
Sri Rajan is a partner with Bain & Company in New Delhi and leads the firm’s Private Equity Practice in India. Karan Singh is a Bain partner in the firm’s New Delhi office. Pratap Mukharji is a Bain partner in the firm’s Atlanta office
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