Why do sourcing professionals overlook factors other than cost despite enormous consequences of potential failures in supply chain?
The current economic environment with looming bankruptcies in the automotive supply chain requires buyers to consider all elements of supplier performance in their sourcing decisions more than they ever did. The recent shutdown of Chrysler’s Jeep Wrangler plant due to parts shortage is an example of how supply chain failure can cause disastrous consequences. The evaluation parameters must include traditional factors like cost; often overlooked quality and delivery; and now the critical parameter of financial risk.
Having worked in the US automotive supplier industry for the last 15 years, I have seen several sub-optimal sourcing decisions made solely on the basis of piece price without even considering the total landed cost. In fact total landed cost - to my surprise - was a novel idea for many. These sub-optimal decisions often lead to unwanted consequences later like line stoppages, expedited freight, etc.
So why do sourcing professionals overlook factors other than cost although they agree in principle that quality and delivery are as important?
It is well understood that one of the fundamental causes for this behavior in the industry is the relentless focus on cost alone, starting at the OEMs. While one has to bring about a sustaining cultural shift across the industry to eliminate this fundamental cause and that will take its own time, the sourcing process can still be improved if supply chain executives had easy and timely access to relevant information.
Most of the automotive suppliers grew through mergers & acquisitions but their operations never became fully integrated, which led to disconnected processes and disparate systems across business units. Even when the procurement and supply management processes were made common and automated over the years, it was done without a consistent “information management strategy” thus resulting in proliferation of isolated systems. A sourcing professional who is focused on cost reductions and constrained with time is not motivated in navigating through these different systems to get the necessary information.
So what can automotive suppliers with now even fewer resources do to bring changes in the way they make sourcing decisions? How can organizations ensure that all elements of supplier performance and risk are factored into sourcing decisions?
