Value Generation

Value Generation

2

Learning outcomes 3Introduction 3Definition 4How P&SM adds value 5CIPS position 8Positive impacts 9Enablers and barriers 10Conclusion 13Further training and websites 14

Learning Outcomes“Procurement and Supply Management(P&SM) isn’t what it used to be.”

“Does talent and creativity matter inP&SM”?

These propositions raised in recentstudies by Bain and McKinseyrespectively, argue that savvy supplymanagement can increase shareholdervalue, but only if you reinvent the P&SMconcept in this, the 21st century. At thesame time, recruiting better people inP&SM, with clearer performanceaspirations and strong sourcing cultures,enables purchasing to be extremelybeneficial to an organisation, in ways farremoved from the traditional role andview of P&SM.

The purpose of this practice guide is toensure that people working in P&SMrecognise, and then demonstrate, thatthey can deliver to shareholder value bydelivering value-adding activities, as wellas savings; also that CEO’s and FD’s inorganisations accept and understand thetrue and changing evolution of the roleand skill sets of their P&SM function.

Change is constant and P&SMprofessionals need the agility and speedto operate in this complex environment,as this will often dictate the fine linebetween success and failure. As abusiness function, P&SM managementhas never been better placed to play itspart in business success.

This paper will provide an easy-to-readperspective on the area of valuegeneration; provide definitions of value

and value add; explore the enablers andbarriers and provide hints and tips onhow to implement in your organisation.

IntroductionAs a business discipline, P&SM is and inmany cases has shifted in focus fromtactical and reactive to strategic andproactive. As technology has automatedmany of the more procedural aspects ofthe P&SM function and as supply-sidemanagement has evolved, the higherlevels of value generation and addedvalue have opened up. John Sunderland,Chairman of Cadbury Schweppes andpresident of the Confederation of BritishIndustry contends:

“Procurement departments have been aneglected source of added value for toolong – and their impact is along thewhole spectrum from revenue to capitalexpenditure”. (Walking a tightrope, CPOAgenda, Autumn 2005).

It is now well known that the potentialfor innovative and proactive ideas in theworld of P&SM are vital to businesssuccess. In the same way, growth and,therefore, the significance of strategicprocurement and a fully optimisedsupply chain for driving real added valuefor the business has increased too. ManyCEO’s are faced with decreasing marginsdue to the pressures of globalisation, andaccelerating pressures to deliver top linesavings, because companies are beingmerged and acquired on a daily basis.

A well developed and well managedP&SM organisation should be thesuppliers’ ‘customer of choice’. Supplierswill want to work with them and

3

develop new products, and improvecurrent processes in order to maximiseany manufacturing efficiencies and, ofcourse, maximise the value from thesupply chain.

So what is the purpose of aPurchasing and Supply Managementfunction to an organisation?Historically, the purpose has beenfocused on delivering bottom linesavings, often reporting to the FinanceDirector, who wants the function to buywhat the company needs for the leastpossible cost. Yet in today’s complex andconsumer driven world, purchasing ischanging to Supply Management, and itsrole, as I have already mentioned, is todeliver increased shareholder value, aswell as ensuring that there is anuninterrupted flow of goods and servicesto the organisation. Add to this the factthat today’s Finance Director will have toreport on the intangible elements oftheir balance sheet; one can see whereand why organisations need a savvySupply Management team, not just apurchasing team.

In a similar way to the Operations andManufacturing functions, P&SM has thecapability to add value from a widerange of initiatives and processes, bothtactical and strategic, if managed and ledwell. The challenge here for the ChiefProcurement Officer (CPO) is to identifywhich activities will have the mostbeneficial impact taking in toconsideration the specific strategy of theorganisation, its size and sector. Thesepriorities must be built into the strategicplan, ensuring that P&SM has asignificant influence, as well as full

alignment with the overall businessstrategy. In managing risk, P&SM have tolook at the impact of the supplier base,so ask yourself these questions:• “If P&SM did not exist in an

organisation, who would manage thesupplier base?”

• “What is the impact of failure on thecompany’s operation?”

• “As well as the Supply – what sort ofmarket is it?”

• “How many suppliers are there andwhat is the cost of switching?”

Clearly these are not directly measurableactivities, but they demonstrate thecrucial role that P&SM has in managingthe supplier relationships that anorganisation has.

DefinitionValue Generation is intangible, it is notquantifiable, unlike money; cash savedcan be counted and touched!

Value means different things to differentpeople. However for the purpose of thisguide, we shall use the following.

The Oxford English Dictionary defines“Value” as:

‘The regard that something is held todeserve; importance or worth.’“Added Value” can be defined as:‘The difference between a particularproduct's final selling price and thedirect and indirect input used in makingthat particular product.’

Value can change. It can be based on time,or a place and/or people in relation to theirchanging environmental factors. It is a

4

creative energy exchange between peopleand organizations in our marketplace andthe commercial environment that we workin. There is an element of creativity neededto be more savvy than traditional in theway that P&SM needs to develop and grow.The areas that P&SM can help deliver onadditional value to the supply chain can be:• Improvement in the product quality,

for example, this could mean there areno product recalls for any of yourproducts;

• Improvement in the levels of customerservices provided, for example, theoutsourcing and management of callcentres to ensure that the highstandards to the customers are met bya specialised team/company;

• Reduction in time to market and cycletime, for example, managing a just intime process with your key suppliers;

• Assurance of supply so that there areno time delays for a manufacturingline;

• Management and audit of SuppliersCorporate Social Responsibilities;

• Management of Sustainability – a keyarea for CIPS in the future;

• Increased New Product Development.Allowing Suppliers and the P&SM towork in an environment that allowsthe development of a creative conceptfor the organisation or a client.

How P&SM adds valueJohn F Kennedy famously said “…asknot what your country can do for you;ask what you can do for your country.”This question might be put to thoseworking in P&SM – “…ask not what theorganisation can do for you; ask whatyou can do for the organisation.”

In contemplating Kennedy’s propositionand reflecting on our ability to ‘addvalue’ to the organisation, consider for amoment, where ’discretionary’ effortcomes from. It is those ideas put forwardin meetings, the person prepared to walkthe extra mile, who will add value totheir organisation!

The shift in the UK from amanufacturing to a service economy hasin most organisations changed the roleof purchasing. Traditionally, buyerswould source commodities, and spentmost of their time nailing down pricesand arguing about contracts. But now, aspurchasers become increasingly involvedin high-value services, from marketing,HR and Legal Services to IT, Facilitiesand Management Consultancy, the rolehas changed to include helping theirinternal customers buy more effectively.

In this exciting new world, manytraditional purchasing skills are not onlyredundant, but can also be careerlimiting. The rigid, uncompromising,hard-ball - even, sometimes, downrightabrupt - approach some purchasers haveemployed when dealing with externalsuppliers, achieves nothing whenapplied to heads of marketing, HR orlegal departments in their ownorganisations. This is particularly thecase when some of them are alreadyprejudiced against purchasers because oftheir association with cost cutting.

Two recent surveys conducted by Bain &Co and McKinsey illustrate the changingrole to savvy supply management.

5

In a survey of procurement practices at156 large companies, Bain & Company(Business Strategy Review Spring 2007)found that 22 per cent of organisationsstood out significantly from the rest.They had growth rates of over 20 percent per year and their supplymanagement functions seem to be in“hyper drive”. The P&SM team at thesecompanies were delivering significantlymore incremental revenue than theircounterparts at the lower performingcompanies. They were achieving greaterreductions in cycle lead times and theywere much more likely to bringinnovation to the company, be it inprocesses or products, either on theirown or working with their suppliers.

The Bain & Co study found that highperforming organisations had“reinvented” supply management alongthe following lines:

• The leaders of P&SM looked and acteddifferently from their moreconventional counterparts. They didthis by:• Still pursuing P&SM’s traditional

goal of cost reduction, but did so ina variety of innovative ways. Ratherthan simply offering higher-volume,lower-priced contracts to a selectgroup of suppliers, they fosterednew competition for existingsuppliers by continually searchingfor new suppliers and developingalternatives, including in sourcing.

• They performed independentanalysis of the market and ofsuppliers’ cost structures andreturns, simulating the impact thatgreater purchasing volumes can

have on per-unit costs. This helpedestablish sound target prices inadvance of any negotiations.

• Another characteristic was that theyforecast and demanded continuingcost reductions year after year.Analysis shows that cost per unit inmost industries declines between 20per cent and 25 per cent for everydoubling of accumulated experience,which charts as a downward-slopingcurve. The procurement leadersexpected that some of those savingswould flow through to them, year inand year out.

• They also put a premium on speed,quality, and flexibility and assuredsupply.

• The CPO’s would model supplier-industry dynamics in criticalcategories, along with the position ofthe various suppliers within theindustry. This would then enable themto see which suppliers wereexpanding or the most innovative, thusdeterring the suppliers that are themost likely to be the strongest horse ina supply chain race.

• The P&SM teams look different in theway that they are structured and intheir relationship with the rest of thecompany. They are no longer thediscrete function that they were; it ismore like a continuous, companywideexercise.

• There is a visible change on themanagement of supply-managementorganisations. The P&SM is no longera repository for “time servers” andothers on the slow track. It is morelikely to have fast-rising corporateleaders coming out of P&SM.

6

• The world-class supply-managementorganisations made a point of viewingtheir P&SM teams as a source ofinnovation. The study found that therewas a variety of different approachesto this:• Design products to cost – get

involved at the very start of a newconcept, because as much as 80 percent of the total cost of a product isdetermined during the designphase;

• Tap supplier knowledge for newand improved products;

• Expanding the supplier universe insearch of innovation. Invitingsuppliers to a meeting and askingthem for their innovative ideas onproducts and how to reduce costs inthe supply chain.

The study concluded that today’s supplymanagement at many companies is acomplex function that is critical tobusiness success, with responsibility fortotal costs, quality, delivery andinnovation throughout a company’sentire supply chain. A sign of the times:the strategic contribution of supplymanagement is measured not only interms of cost savings, the traditionalmetric, but also increased shareholdervalue by delivering added value.

Crucial to the success of the new savvyP&SM function are the people that workin supply management.

The second of these reports, a McKinseyglobal survey of purchasing executives atover 200 companies (The McKinseyQuarterly 2007) found that those settingthe pace in purchasing best practice

differ from ordinary companies alongthree different ‘talent’ dimensions:1. Hire better people in P&SM2. Set clearer performance targets for

them3. Create a strong sourcing culture that

allows the P&SM function to aligntheir purchasing activity with thecompany’s overall corporate strategy.

The pay-off for these companies was thatthey enjoyed annual cost savings fromtheir overall sourcing efforts that werenearly six times greater than the annualsavings of their competitors. As thepressure for increased globalisationintensifies, the winning P&SM teamswere already positioning themselves forbroader strategic gains as well. Therewas a 60 per cent difference between thefinancial performances of the two classesof companies.

The study assessed the performance ofthe respondents’ companies againstrecognised good practice in P&SM byanalysing responses along fourdimensions:1. The capabilities and cultures of

purchasing professionals and theirorganisations

2. The corporate structure and systemsthat support purchasing

3. The management techniques andbusiness processes supporting it

4. The contribution of purchasers to theircompanies and the extent of thealignment between purchasing andcorporate strategy.

What both the Bain & Co and McKinseystudies show is that by developing thepeople and the function, P&SM will

7

deliver better results, for both theindividuals involved and for theorganisation as a whole. It takes a levelof investment in training and time, butthe rewards were far higher than theinvestment required.

A further challenge for purchasersbuying services is that they have to earna mandate to do so. Traditionally, theywould buy goods and materials to anexact specification. “The stakeholderswere well defined - that is, buyer andseller - and the role of purchasing waswell understood. In the services arena,their role, though potentially far morevaluable, is more amorphous, theinternal customer base more diverse andthe value they add harder to define.”(Supply Management March 2006)

In response to a poll by SupplyManagement in October 2006, 81 percent of the 100 buyers polled said theyexpected their role to increase, while 14per cent said it would remain static and5 per cent expected a reduction inworkload.

Many said while cost reduction isimportant, there are many more ways inwhich they can and should help.Sustainability, demand management,examining the potential benefits ofshared services and finding moreopportunities to add value were cited.Some said they were being called on formore help and guidance at a strategiclevel as well as to train others withbuying responsibilities. “Procurementneeds to continue to develop from deal-makers to supply chain managers todeliver real added value”, said Paul

Hooft, manager of the materialsmanagement department at engineeringcompany ABB Lummus Global. "Anhistorical focus on cost reduction targetsis not sufficient. We will have to take fullresponsibility for developing supplychains that are strategically aligned withthe business objectives," added DominicJephcott, managing director ofprocurement organisation Vendigital.

Others expected procurement's role togrow because of its improved profile.One said buyers are now seen as "keyplayers in the commercial success of abusiness," while another stated that “forthe first time all spend over £50,000 inher firm must go through purchasing”.

In the 21st century, professionalprocurement teams have to and arestarting to lead the way in organisationsto deliver increased revenue andshareholder value. P&SM is recognisedas a complex function that is essential tothe success of the business, withresponsibility for total cost ownership,quality, delivery and innovationthroughout the entire supply chain.

CIPS Position• CIPS recognises that as a business

discipline, purchasing and supplymanagement (P&SM), has shifted infocus from tactical and reactive tostrategic and proactive

• In order to make the greatest impactand create value, the leaders of P&SMmust look and act differently. Theywill do this by:• Using a variety of innovative ways to

meet the traditional goal of costreduction such as fostering new

8

competition, collaborativerelationships and so on

• Providing independent analysis andadvice of markets

• Placing a premium on speed,quality, flexibility and assuredsupply

• Influencing behavioural changetowards the P&SM function toaccept it as an important part of thefabric of the organisation.

• P&SM teams should be structured in away which encompasses the wholeorganisation and provides flexibility tomeet organisational objectivesOrganisations should see P&SM as asource of “value generators” and“value protectors”1 rather than arepository for “time-servers” or“policeman”

• It is an imperative for the leaders ofP&SM to hire and develop betterpeople, give them clear performancetargets aligned to corporate goals, andgive them opportunities to grow anddevelop through experience, educationand responsibility.

Positive ImpactsFor Purchasing to be seen as SupplyManagement, it is imperative that anopen dialogue is held with both the CEOand the FD of an organisation about thechange in role. They have to accept andunderstand the changing environment,and one of the factors in the success orfailure of the P&SM will be the supportfrom the organisation’s seniormanagement.

When you are looking to sell to the CEOand FD, the concept of moving from thetraditional P&SM model to the supply

chain management model, the positiveimpacts of delivering against valuegeneration can be the following:• Strategic alignment of the

organisation’s corporate goals and thatof P&SM. Understand and ensure thatthe objectives of both the organisationand that of P&SM match each other;

• Security of supply of goods andservices to ensure that no delays arecaused to the manufacturing andrunning of the organisation;

• Innovative and new productscontinually being developed, so thatthere is a pipeline in place to aid thelong-term future of the company ;

• Increase in profit to show a return toshareholders and the City (if a listedcompany);

• Increased awareness of environmentalimpact by ensuring that everyoneinvolved in the supply chain knowsthe effect of their actions;

• Support of the development ofSustainability by managing thesupplier base to ensure compliancewith the sustainability framework thatis in place;

• Become the ‘customer of choice’ withthe ‘suppliers of choice’. This ensuresthat suppliers will want to workclosely with your organisation;

• Good and improved relationships withinternal stakeholders, as P&SM are“not just focused on saving money”,and the stakeholders can see thatP&SM play and add value across amultitude of different areas;

• Shared ownership and collaborativerelationships with preferred suppliers,therefore developing a co-destinyrelationship with them;

9

1 As commentedby Prof PaulCousins,ManchesterBusiness School.

• Increased speed to market forproducts, hopefully beating anycompetitors and therefore obtainingthe benefit – financial and from anadvertising/PR stance of being ‘first tomarket’;

• Supply chain analysis. By adoptingthis new way of working, theorganisation will now understandwhat is involved in the production ofits end deliverables, be they goods orservices;

• Warehouse management and stockmanagement efficiencies, by ensuringthat stock levels are low and that leanwarehouse processes can be put inplace;

• Competitive advantage by beingquicker, smarter and better than thecompetitors;

• Management of any potential risks andvulnerability in the supply chain,ensuring that no delays are caused bythe supplier base;

• Increased reputation in the companyand its brands and this in turn affectsareas, such as market valuation andbrand reputation;

• Increased cash flow to the bottom lineand the increase in cash can be usedto invest in the future, or staff trainingand development, or as a dividend toinvestors;

• Reduction in operating costs and,therefore, the overhead costs ofrunning the organisation, which inturn increases profitability;

• Enhances and supports theorganisation’s Corporate SocialResponsibility targets by workingclosely with suppliers to ensure thateveryone is aware of their actions, andhow activities can be improved to

ensure that the organisation and itspartners keep any governanceguidelines and support the communityand the world at large;

• Supports potential global sourcing bymaximising and leveraging therelationships with suppliers, to ensurethat both parties benefit fromincreased activity;

• Enables the analysis of Whole LifeCosting and Total Cost Ownership bybreaking down the component costsof goods and services, which allowsdetailed analysis and opportunityanalysis to take place and

• Supports any Merger & Acquisitionsactivity by placing P&SM at the heartof delivering real added value to thenew company going forward, andworking with the Senior Managementteam on any due diligence before amerger or acquisition, and in activitiesto capture the value after the mergeror acquisition.

As can be seen, from the foregoing, it’snot just about cost! P&SM professionalsare at the heart of developing addedvalue for their organisations; and the twokey areas that they need to concentrateon initially are the dialogue with SeniorManagement and ensuring that the short-and long-terms goals of P&SM arealigned with the corporate strategy.

Enablers and BarriersThe McKinsey study detailed abovehighlighted the fact that the highperforming P&SM teams were the onesthat had the strongest sourcing cultureand aligned their activities with thecorporate strategy.

10

8 Essentials ofShared Services– BryanBergeron

There are a number of Enablers thatneed to be in place, for a P&SM functionto implement a Value Generating mode:• Existing P&SM skill sets. It would be

useful to conduct a Skills Analysis toestablish what expertise and knowledgethe existing P&SM team may have;

• Experience of delivering added valueideas, whether this be gained fromworking in another organisation or ina different function of theorganisation, where generating addedvalue was actively encouraged;

• Definition and agreed measures ofvalue, and ensure that everyone buysin these (from the top down), andprogress is measured against them andcommunicated on a regular basis, forexample quarterly;

• Market and category knowledge in theP&SM team. The McKinsey studyfound that one of the attributes of thehigh P&SM performers was a deepknowledge of a particular category,such as marketing;

• Excellent supplier relationships,especially when looking at the area ofNew Product Development and clearand personable communication withthe supplier base;

• The ability to manage markets, usingthe skills and the knowledge of anexperienced P&SM professional. It isimperative that the P&SM teams knowtheir categories and the markets thatthey trade in;

• Thinking and utilising creative skillswhen looking at traditional procurementprocesses and ways of working. Thinkoutside the box, don’t worry that theP&SM are getting creative. Encourage arelaxed environment for P&SM teams towork in.

• Ability to manage change andtransition with suppliers and within anorganisation. This may be havingproject management skills, or theability to manage change on a regularbasis;

• Being able to be objective whenthinking about value generation, asopposed to subjective and “that won’twork here”. Thinking about valuegeneration brings a whole newperspective to the world of P&SM,encourage the adoption of it;

• Understanding risk management byclosely working with the supply chain,the P&SM function is able to identifypotential risks and implementstrategies to mitigate vulnerabilities inthe supply chain;

• Talent Development of the P&SMteam. Ensuring that the training theteam receives is tailored, for example,functional rotations through theorganisation ensure that the P&SMteam get broad business experience.Encourage, promote and provideregular appraisals and feedback to theteam;

• Analytical and problem savingenvironment by providing the toolsand the support to allow the P&SM towork on and develop value generatingideas;

• Continuous development of P&SMpractice by staying abreast of bestpractices in the market place;

• Utilisation and possible flexibility ofany e-sourcing systems used. Be awareof technological changes and any newsystems launched that could help theP&SM in delivering addedvalue;

11

• Strong internal client relationship, toensure that they buy in to anyproposed changes in ways of working.This is key and should be amongst thetop five actions to rolling out valuegeneration;

• P&SM Managers must participate andoften lead the cross-functional teamsneeded to deliver added value.Supplier’s representatives may even beincluded in these teams, as well as theR&D, Finance, Marketing and otherdepartments and

• Development and in-depth knowledgeof the supply chain, by workingclosely with the internal clients tounderstand how the manufacture andthe delivery of the goods and servicesworks.

Conversely, there are barriers to a P&SMfunction implementing a Value Generationway of working. These could be:• The culture of the company. The

organisation could be a solutionsprovider and not a manufacturingoperation and areas such as supplychain may not totally be applicable;

• The ethos and direction of the P&SMsenior management team. The seniormanagement team need to understandand lead the rest of the P&SM functionthrough these changes. They need towork together and provide a unitedfront;

• The ethos and direction of theorganisation’s senior management team.Too often this is where P&SM falldown, as the senior management wantP&SM to deliver on something different.They also need educating as to thebenefits of looking at value generation;otherwise they will be a major barrier.

The McKinsey study found that in thelow performing organisations, theirCEO’s viewed purchasing as a limitedsupport function;

• Reporting lines. If P&SM report into aFinance Department, are theyinterested in P&SM getting involved inareas that do not generate immediatecash savings? The FD needs to beinvolved in the change of direction;

• Who is running P&SM? The oneperson in charge needs to provide thedirection and the support for the newways of working;

• Structure of the P&SM team. Is theteam set up in the best way to deliveradded value? This could be bycategory, such as FacilitiesManagement or a group of categories,for example Services;

• Scope and autonomy of the P&SMteam. Creating a high performingP&SM team starts with managingpeople and giving them the powerthat they need to deliver for theorganisation;

• Level of existing P&SM skill set. Dothey need any training? Companiesthat begin by focusing on the skills ofthe purchasers and the collaborationwith other functions will reap thebenefits;

• Time. The organisation has to makesure that P&SM have time to negotiateon added value areas, and not spendall their time on buying urgent reactiveitems and

• Using e-sourcing technology oftenencourages a price focus; can thesystem also evaluate added valueareas? The team should work with thesoftware supplier to ensure that theirsystem delivers.

12

This section has explored both theactivities that can assist or slow downthe change required in P&SM... AsMickey Rooney said “You always passfailure on the way to success”.Everything should be seen as a learningexercise, with the reward being broaderstrategic gains for the organisation andultimately the shareholders.

Hints and TipsThere are a number of hints and tips thatwill allow your procurement departmentto start moving down the added valuepath:• Get sponsorship and support from

your CEO and FD. It is imperative thatnow they can expect more from theirP&SM than to cut costs;

• Alignment of the P&SM plan to thecorporate plan;

• Agree the definitions andmeasurement of Value Generationcategories up front;

• Create the right environment fordelivery by developing the skill set ofthe P&SM function. Help them todevelop as procurement professionals;

• Reward excellence – both with P&SMprofessionals and suppliers. You couldorganise an annual Supplier of theYear dinner or take an advertisementout in the FT showing your top threesuppliers;

• Communicate to the internal clientbase about the different ways thatP&SM will be working. Keep themupdated on a regular basis as to theprogress being made. Involve them asmuch as possible;

• Win over your key stakeholders beforeyou start working with the supplierbase to ensure that P&SM are involved

in the business planning stage asmuch as possible;

• Market the more strategicdevelopment and direction of theP&SM function;

• Consider and articulate the negativeconsequences of P&SM not beinginvolved in the organisation. How willthe P&SM team feel? It is not verymotivating if highly skilled P&SMprofessionals are seen as anadministrative or support function;

• Review your team’s skill sets. A topflight P&SM team will need thefollowing:• Interpersonal skills, including

empathy, listening, persuasion,communication, facilitation andnetworking

• Ability to pick up new conceptsquickly

• Problem solving and innovation• A broad business understanding• Deep category knowledge• Financial acumen• International exposure• An appreciation of value as well as

costs• Courtesy and professionalism• A customer-focused attitude• Languages• Full CIPS membership

ConclusionSavvy supply management is the futureand this paper has illustrated that P&SMisn’t what it used to be. Supplymanagement has and will continue toevolve into a more complex activity, as itmeets the challenges of the modernbusiness environment.

13

The key areas that a CEO, FD and CPOneed to review and understand are:• Knowledge – acquiring it and

informing the P&SM team, as well asstakeholders and suppliers, that thereis a new environment – one thatrewards proactive, strategic thinkingand creativity.

• Mindsets – a change in the way thatP&SM is managed and perceived, aswell as implemented is crucial. Thinkinclusive, collaborative and long term.

• Strategic and critical thinking.Enabling the P&SM team, keystakeholders and suppliers to thinkacross different levels, be creative. “It’snot just about cost: talent, knowledgeand mindsets are the future of P&SM.”(Gerard Chick. CIPS. August 2007)

• Structure – deciding on the rightorganisational structure for the P&SMteam that will bring maximum addedvalue delivery, as well as stakeholderbuy in and involvement. World-classsupply management organisationslook different in their structure andtheir relationship with the rest of theorganisation.

• Self evaluation and reporting –measurement of the delivery of theadded value, both in terms ofqualitative and quantifiable measures.

• Communicating the work that P&SMhas done. This is essential for thecontinued growth and development ofthe organisation and for themotivation of the P&SM teams.

As recently as five years ago, the idea ofstrategic purchasing was regarded bymany as an oxymoron, unsupported byreal world data. But the world of supplymanagement has changed dramatically.

Today, supply management at manycompanies is a complex function whichis critical to business success, withresponsibility for total costs, quality,delivery, and innovation throughout acompany’s entire supply chain.

A sign of the time: the strategiccontribution of supply management ismeasured not only in terms of costsavings, the traditional metric, but alsoincreased shareholder value.

Further reading and websitesProf. Paul Cousins, Dr Benn Lawson(July 2006) “What you measure is notnecessarily what you get: The role ofsocialization in managing supplierrelationships” Manchester BusinessSchool, 18 October 2007,http://www.mbs.ac.uk/research/supplychain/briefings.aspx

Tom Alford, Prof. Paul Cousins (June2007)“…you can’t please all of thepeople all of the time.” ManchesterBusiness School, 18 October 2007,http://www.mbs.ac.uk/research/supplychain/briefings.aspx

14