Less With Less

Spend management is the latest supply-chain buzz - for good reason. But has the pendulum swung too far?

Bucking The Trend

Faced with the economic downturn, lagging sales, and excess inventory, some corporations invited their supply-chain partners to collaborate on generating ideas on how to survive the tough times. Surprisingly, these corporations found that suppliers were able to identify process improvements that reduced costs across the supply chain. In some instances, process improvements supported by technology were able to immediately generate tangible benefits.

Still, when these measures weren't enough, cost-cutting targets for suppliers were arrived at jointly through negotiation, as opposed to OEM or dominant partner mandates. The "enlightened" corporations made the effort to ensure that all supply-chain partners felt the "pain" of cost cutting equitably. Whether the cost-cutting measures were equitable is debatable, but the more important result from this exercise was that the supply-chain partners didn't lose the collaborative spirit with the dominant partner. This factor will be critical for successful SCM implementations as the economy rebounds. Corporations and their supporting supply chains that cut costs too deeply may have lost precious subject matter experts and knowledge necessary to implement SCM initiatives that seek to achieve goals beyond "spend management."

Losing Knowledge

To successfully implement and realize tangible benefits from SCM technology initiatives, a corporation needs employees who have detailed knowledge on how raw materials are sourced, manufactured, and distributed, and how the end customer is serviced (industrial, retail, or consumer). These employees in turn need to be complemented with supervisors and managers who understand how the specific supply-chain processes interact between departments within the firm and across the supply chain.

My personal experience in the automotive sector has been that this knowledge takes years to develop. Given the huge amount of raw materials and service inputs that go into making a car, understanding the supply-chain processes that produce a car is a complex, multiyear endeavor. Similar parallels exist in the service and retail sector supply chains.

The recent cost-cutting measures unfortunately have decimated the middle management and supervisory ranks across many corporations. Although layoffs may have been necessary for short-term survival, these corporations have lost valuable supply chain knowledge that they need in order to prosper during the economic recovery. It seems logical that corporations that kept the collaborative spirit alive during the economic downturn would be positioned to get a head start on their competition during the growth phase.

Outsourcing various functions within a corporation may have further eroded institutional knowledge required for SCM reengineering. Admittedly, purely technical functions that have no business process content can and should be outsourced. Technical personnel supporting legacy SCM systems aren't valuable for their technical skills, but for their intimate SCM business process knowledge. And it's cause for alarm when functions with a high degree of business process knowledge are outsourced.

Getting a single corporation's employees to collaborate for an SCM reengineering effort is challenging. (See Resources.) Imagine how difficult it will be to get them to cooperate with outsourced partner participation — if they will at all.

A Head Start

Doing "more with less" and "faster, better, and cheaper" seem to be the mandates of the past few years. But contrary to the prevailing trend of indiscriminate cost cutting, these goals are realizable only if a company first spends resources to re-engineer the supply chain and money to implement technologies in pursuit of those re-engineering goals. The experience of the past few years, however, has been that companies want the benefits without investments and a commitment to a collaborative supply chain.

I invite you to let me know what you think about the assertions in this column. Is my experience isolated to the automotive sector, or is this a general trend across other industries as well? The gains made in the last decade in creating collaborative supply chains in different industries seem to have come unglued during the recent economic downturn.

The prevailing wisdom for SCM technology initiatives seems to be to spend during growth and cut during economic downturns. A contrarian approach — keeping a collaborative mindset toward cost cutting during the downturn — offers a significant competitive advantage.

RAM REDDY is the author of Supply Chain to Virtual Integration (McGraw-Hill, 2001). He is also the president of Tactica Consulting Group, a technology and business strategy consulting company.

Related Articles at
Herding Cats Across the Supply Chain, Sept. 8, 2000