Lawrence Willson of Atos Consulting discusses the challenges of collaborative supplier management in a production environment
UK and multinational manufacturing companies are facing tougher challenges than ever before. The fight for the customers’ budget is becoming more difficult in the current economic climate, both for consumers and government buyers. Consumers continue to demand more complex solutions to meet their needs, and governments are under pressure to ease the tax burden through tighter budgeting and managed borrowing, all leading to spend reductions with Tier 1 suppliers and OEMs. Likewise, rapidly rising raw material costs, wave after wave of outsourcing, contracting-out, and increasingly fragmented and more international supply chains create ever growing supply-side pressures.
In this environment, best-in-class organisations sustain flexible business models to anticipate and meet changing customer demand through strong management of their supplier relationship network. Collaborative supplier management sustains this position through jointly managing capability, capacity and product innovation needs. Supplier management can address challenges in revenue, cost and balance sheet considerations.
Since the 1980s, procurement disciplines have become more mature and embedded within a wide range of industry sectors including manufacturing. Effective strategic sourcing is now recognised as a core business competence which can deliver business advantage.
However, many organisations are struggling to capitalise on their full strategic sourcing capabilities because:
– They have not realised business level savings and performance improvements
– Current sourcing strategies are not yielding expected results
– Buyer and supplier strategies are not aligned at a corporate level
– KPIs and customer values are not cascaded through to strategic supplier in a transparent way to deliver flexibility
– Contract costs rising due to business level factors ie capacity/overheads
– There is great emphasis by CEOs and shareholders on the value delivered by the sourcing and procurement areas, consequently there is a great drive for cost reduction and cost avoidance activities
The trends for services to be provided through outsourced arrangements rather than in-house are increasing the proportion of non-salary related spends. The need to manage external spends and suppliers effectively are therefore becoming increasingly important and complex. Collaborative supplier management is a key discipline to address this challenge.
This article will explore the role of collaborative supplier management as an essential lever to drive customer value as business pressures mount in the challenging times ahead.
Setting the scene – an example of change The Royal Fleet Auxiliary (RFA) was established in 1905 as part of the UK Ministry of Defence (MoD). It is responsible for the provision of supplies and support at sea to the Royal Navy and other defence forces. It operates a fleet of vessels on a worldwide basis and the maintenance and upkeep of the vessels is the responsibility of the MoD itself.
The RFA spends in the region of £80 million per annum on the maintenance and support of its vessels. Before the current reform programme, suppliers were routinely selected through competition. The majority of expenditure was controlled by the engineering function with clerical support provided by the commercial section responsible for running competitions. Typically, several hundred competitions and contracts were transacted annually; selection was based on lowest priced tender and armslength supplier relationships were the norm. There was no professional procurement representation.
