Corporate Boards - Wake Up To Streamline Chaotic Supply Bases
This post should benefit corporate boards in general and CPOs, CFOs, CROs in particular. Is it on your agenda to avert loss of investor wealth and supply risks proliferation due to the sheer number of suppliers you have? Whether yes or no, stay invested. Here are some facts. I did some research on the topic "do the large number of suppliers appear as a topic on your corporate boards' discussion agenda?" and almost all the answers were in the negative. This just goes to justify what a recent Harvard Business Review article titled "Stop Wasting Valuable Time" cited "Our findings support what many executives have long suspected--namely, that they spend too much time discussing issues that have little or no direct impact on company value".
So do these findings provide reason enough for inclusion of this topic into board agendas? Look closely on the number of suppliers any firm has by spend categories. Most likely what you will find is a higgledy-piggledy supplier distribution across spend categories fitting the theory of chaos postulates. Results? Boards start expecting the unexpected e.g. suddenly getting into media spotlight for the poor social practices of some supplier, or finding that their company purchasing costs are higher than that of their competitors, or they keep hearing that their employees spend a disproportionate amount of time to transact with so many suppliers rather than focus on business etc.
That leads us to another question. How many suppliers are enough? Hackett, CAPS studies have reported "best in class" firms having ~4,000 suppliers for $1 Billion indirect spend. I think that's too high. If UNSPSC (The United Nations Standard Products and Services Code®) has 100 odd segments (spend categories) and any typical firm (except resellers) spends across not more than 20 categories, should a maximum 100 suppliers or 5 per category not be enough? Don't firms target such ratios for direct spend categories? A few large suppliers do exist who can supply everything that a firm needs but still setting such standards get missed out.
One CPO indicated the root cause of this situation to me through a seminal quote - "First, we let anyone and everyone become our supplier and then we keep complaining that we are losing our sleeps working with so many of them".
What are your thoughts? Join the conversation!