Supply Chain Mgmt. Review
This piece originally published in Supply Chain Management Review.
When financial performance tumbled well below the expectations of shareholders at a US-based manufacturer of industrial parts, the new head of supply chain saw ways to make the supply chain part of the solution.
The firm was struggling to manage costs and still meet commitments on multiyear contracts with customers. It did business with thousands of suppliers, even though only a handful accounted for the vast majority of spending. Decision making to award new work to suppliers was fragmented among individual product lines, undercutting the firm’s scale advantages.
With the backing of the leadership team, the new head of supply chain took action quickly. The company pared back the base of suppliers chosen by each product line to create a small number of strategic relationships. That action reduced the overhead of managing a long tail of smaller suppliers. The leadership team aggregated spending from product lines, and the higher volumes of purchasing led to immediate savings in direct costs. The team integrated functions that formerly worked in silos—procurement, quality, logistics and so on—to work closely together and to provide a single contact for each of the product lines served.