Value-Focused Supply: Linking Supply to Business Strategies

This is an excerpt of the original article. It was written for the March-April 2011 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2011

Leadership is one of the most popular topics we write about in SCMR. We all seem to be fascinated by individuals who can rally a company, a sports team, a country toward a shared goal. Yet when asked just what makes a good leader, most of us struggle with a precise answer. It's kind of: "Well I know what real leadership is when I see it." Reflecting our leadership theme this issue, we're pleased to introduce a new section of the magazine called "Talent Strategies." It's written by the experts at MIT's Center for Transportation & Logistics, which has both a depth of research and hands-on experience in…

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Over the past two decades, companies worldwide have saved hundreds of billions of dollars by aggressively applying competitive sourcing techniques to their spend base. Companies gained control over 50, 60 or even 70 percent of their revenue that flowed to suppliers. Information technology enabled companies to gain visibility into what they were spending, where and with which suppliers.

By spend aggregation across business units and geographies and concentrating spend with fewer suppliers, companies established leverage they never realized they had. Standardized approaches to sourcing brought rigor and discipline to both fact-finding and analysis. E-tools enhanced competition, improved decision-making, and sped up sourcing processes.

Looking back over the past 20 years, it is clear that competitive sourcing created significant value for companies by driving major cost savings directly to the bottom line. However, A.T. Kearney’s 2008 Assessment of Excellence in Procurement (AEP) global research found that the savings gap between “leader” and “follower” companies had shrunk by half just since 2004. Continued attention to competitive sourcing will remain necessary just to keep up…

In this environment, just saving money on external expenditures will not be enough to survive, let alone thrive, in the years to come. Companies must find and obtain additional value from their supply relationships. The supply network needs to contribute holistically to the company via innovation and growth, asset utilization, sustainability, risk management and overall competitiveness as well as cost.

These new, more advanced Value Focused Supply (VFS) strategies are the target of this article.

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