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Dangerous Supply Chain Myths (Part 6)

Written by: Jon Hansen

Article Overview: Segment 6 – Enablement of the Supply Management Organization: Balancing Capability with Control Enablement of the Supply Management Organization Although center-led organizations will continue to dominate for the next decade, as global operations become more complex, hybrid center-led models will begin to emerge to maximize value based upon the right mix of responsiveness and centralized control. Successful organizations will need to adopt and utilize appropriate supply chain technologies that integrate functional management and track appropriate metrics.

Dangerous Supply Chain Myths (Part 6)

Segment 6 – Enablement of the Supply Management Organization: Balancing Capability with Control

Enablement of the Supply Management Organization
Although center-led organizations will continue to dominate for the next decade, as global operations become more complex, hybrid center-led models will begin to emerge to maximize value based upon the right mix of responsiveness and centralized control. Successful organizations will need to adopt and utilize appropriate supply chain technologies that integrate functional management and track appropriate metrics.
In my fall 2004 analyses of a study on the use of web-based applications I made the following observation:

It is my position that a true centralization of procurement objectives requires a decentralized architecture that is based on the real-world operating attributes of all transactional stakeholders starting at the local or regional level. In other words, your organization gains control of it’s spend environment by relinquishing centralized functional control in favor of operational efficiencies originating on the front lines. This is the cornerstone of agent-based modeling.

So while the ISM, CAPS and AT Kearney report is just now beginning to acknowledge the emergence of this dramatic shift, their ability to look beyond the conceptual level is significantly hindered by their respective technological blinders. This is reflected in their assertation that the next decade will be dominated by center-led organizations.

Specifically, the 10 year forecast is more than likely linked to the length of time it will take incumbent (tier one) vendors such as Oracle and SAP to re-tool both their approaches and application platforms to accommodate a real-world, real-time procurement practice. What is the old saying about big ships turning slowly? This is especially true when a vendor is so heavily invested in a particular strategy or product offering today.

Notwithstanding the June 27th, 2007 TEC News article heralding Service Oriented Architecture (SOA) as a “revolutionary technology,” it is ironic that the actual software you use has very little to do with the success of your procurement initiative. In reality, the greatest hindrance to mainstream adoption of innovative procurement practice is the direct result of what I refer to as the hierarchical implementation mechanism that is still firmly entrenched in the marketplace today.


Are you in the software business or the procurement business?

In a recent conversation I had with a senior level executive, the individual lamented the fact that they currently have 2 full-time staff dedicated to making a PeopleSoft application work within their procurement organization. This of course limited or confined their efforts to focusing on the application itself instead of looking for ways to better understand and refine their core practice.

Based on my extensive experience this is not an unusual scenario. As a result, the vast majority of purchasing organizations are now in the software business as they attempt to adapt their practice to an application they would not have chosen to use in the first place. In this situation the software errantly becomes the focal point.

This brings to mind the proprietary mindset that dominated the early PC industry. In short, lock in the client to your particular product so that they become dependent upon you for ongoing maintenance and innovation. This approach didn’t work for the hardware industry (anyone remember the Apple III), nor will it work in the enterprise software industry.

Don’t misunderstand me I am not saying that technology will not have an important role to play in the successful implementation of an e-procurement strategy. For a number of years I headed an R&D team who with funding from the Government of Canada’s Scientific Research & Experimental Development (SR&ED) program created production environment tools which utilized advanced algorithms to drive an effective procurement practice within a decentralized or Metaprise platform. (I will go into this in more detail in the 7th installment of this series - Enabling Technology: The Emergence of the Metaprise.)

However, as innovative as the technology was or is, its ultimate benefits could only be realized in an environment where the unique operating requirements of key stakeholders were fully recognized and incorporated into the core strategy.

Unfortunately, most purchasing departments “inherit” their software as an adjunct downstream byproduct of either an original finance or IT-centric initiative. This has usually meant that their input had been relegated to the realm of the afterthought versus providing decisive and proactive input when it matters the most – prior to a decision being made. Unless this hierarchical practice is changed, the majority of organizations will end up banking on the SOA train linking disparate and inefficient applications to deliver results in the emerging decentralized world of procurement.

The Real Center-led Approach to a Decentralized Procurement Practice

Procurement practices can certainly be complex especially when you take into account the methods for assessing the risk versus return questions surrounding the decentralized versus centralized procurement strategies. This perhaps explains the somewhat equal distribution of proponents both for and against either approach. What is interesting however is the more recent emergence of those organizations (especially within the public sector) that are advocating a “balance” between a centralized and decentralized platform. The States of Washington and North Carolina come to mind.

The theory behind the balanced approach is that self-sufficient (usually larger) departments while independent will be a collaborative partner with the central purchasing group. Specifically there will be a cross sharing of critical data which will result in the best result for the broader organization as a whole. The November 2004 MOU between the State of North Carolina and its Higher Education institutions laid the early groundwork for their approach to a decentralized procurement practice. Conversely the State of Washington recognized that smaller departments and agencies, whose resources and therefore capabilities are more limited, would be more inclined to “coordinate” their purchasing activity through the central procurement office.

In both of the above examples, the hierarchy within each State clearly demonstrated a “desire” (remember Part 4 of this series – Internal & External Collaboration: A Desire versus Skill?) to communicate with a diverse group of key stakeholders to develop a strategy that adapted to the way they operated in the real-world. In these as well as other examples, while a consideration, the software that was in place was of little consequence.

It is at this very point when a foundational understanding exists and a consensus has been reached between stakeholders that technology (whether existing or proposed) can be introduced as a means of driving greater efficiency in the supply chain.

To sum it up in a simple sentence, and regardless of the application you currently use, you do not have to wait 10 years to effect immediate and beneficial change in your procurement practice!

Next Installment: Dangerous Supply Chain Myths (Part 7) - Enabling Technology: The Emergence of the Metaprise

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Article Tags: application platforms, assertation, blinders, centralization, conceptual level, decentralized architecture, dramatic shift, enablement, functional control, functional management, global operations, length of time, management organization, operational efficiencies, procurement practice, product offering, regional level, responsiveness, supply management, tier one



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