By Pierre Mitchell, Vice President of Research, AMR Research

As mid-market companies look for ways to ruthlessly reduce costs, especially as their large customers are mandating price reductions from them, procurement and supply chain departments are front-and-center in terms of delivering the savings and the operational improvements to support these increasingly stringent customer requirements. Unfortunately, the lack of skills, systems and real organizational support for improving supply processes has these groups caught between a rock and a hard place. While there are hundreds of possible interventions to address the root causes of these operational challenges, here's a top ten list of actions that mid-market manufacturers can take to improve their business:

1. Have a clear performance measurement system to make sure everyone is on the same page. Make sure you have some type of Program Management Office or other organizational process to see all your improvement projects, allowing everyone to be on the same page. Springfield Re-Manufacturing Corp. is a great example of this. Buy Jack Stack's book The Great Game of Business and adopt some of its key principles for open-book management.

2. Organize yourself around supply. Strategic sourcing is about organizing yourself to take best advantage of key supply markets that are critical to your customers. Supply Management is not about renaming the Purchasing department and seeking margin erosion from your suppliers, but about getting your internal departments and suppliers aligned around key commodities and then shaping demand and supply to take down total costs. Set up at least a few cross-functional teams in your most strategic spending categories to prove the concept and follow point 1 above to make sure you're changing performance measures—you won't get anywhere if it's viewed that Purchasing effort and Purchase Price Variance (PPV) is your key measure.

3. Re-write your job descriptions to align with points 1 and 2. The old role of buyer-planner working as expeditor is dead. As Theresa Metty, the CPO from Motorola says, the most important thing you can do is separate the strategic function of supply from the tactical buying process. You will never realize impactful change by functional buyers doing process improvement as a bottoms-up, after-hours exercise. Becoming a real commodity manager is what buyers need to aspire to; you may have to bring in external staff from supply chain leaders to do so.

4. Have a formal process and toolbox for continuous improvement. Use Lean, Six Sigma, Theory-of-Constraints, and appropriate strategic sourcing techniques to empower your employees to drive out waste. Use this competency as a strategic weapon like plastics firm Nypro has.

5. Have your CEO unite the Purchasing and Supply Chain organizations. If your VP of Purchasing is reporting to the CFO and not working jointly with the VP of Supply Chain who reports to the COO, you're in trouble. If you can't influence the CEO, have an external firm introduce him or her to a peer who has done so successfully (or show other benchmarking data that can incite the organization into meaningful change).

6. Get visibility of your spending. This is just like Statistical Process Control 101—you can't control and improve what you can't see and measure. If you want an immediate, no-risk ROI, bring in an A/P audit firm to mine your A/P data for savings owed to you as well as other savings opportunities. While PRG/Shultz is the gorilla here, APEX Analytix does this in conjunction with a software tool so you can do strategic sourcing analysis.

7. Clean up your master data to make your analyses meaningful. If your supplier master and item master data is less than clean, so will your analysis results. Don't boil the ocean here. Use a provider like Austin-Tetra to help with your supplier master data and have your commodity teams roll up their sleeves with pragmatic item master clean-up efforts. Keep in mind that this clean-up is vital to many improvement efforts, including not just supplier re-sourcing, but also inventory consolidation and part reduction efforts.

8. Automate opportunistically with procurement cards, e-procurement applications, and supplier connectivity services. Focusing on higher-value activities includes automating lower-value-added tasks, and using procurement cards is a great way to start reducing order/payment costs for low value transactions. As you get more advanced though, you'll want to transition and/or integrate the p-card to an e-procurement system (including support for travel and expense processing) which will provide you with the line item details you need for ongoing analysis and to eliminate the 1-3% charges that get placed on the suppliers.

9. Automate your sourcing processes, too. Even if you don't have massive spending leverage, automate your sourcing process to find better supply and to free yourself to do process improvement efforts. If you want to get started, there are many vendors to choose from all the way from competitive bidding services firms oriented toward the mid-market to hosted e-sourcing tools and services. If you've never done it before, MfgQuote.com is a great place to start.

10. Join a buying consortium. A Group Purchasing Organization (GPO) is by no means a core supply strategy, but it is a useful tool in the toolbox, and companies are saving money here. If you want leverage where you have little, take a look here.

In summary, improving procurement means not just buying cheaper, but also buying smarter (specification improvement, demand management, strategic supply market analysis, etc.) and more efficiently. Every pathway to supply management excellence varies, but the above tactics should provide some good places to get started.

If you have some thoughts about doing supply management, sourcing or procurement well in your organization, I'd love to hear from you at pmitchell@amrresearch.com.

About the Author:

Pierre Mitchell is vice president of research at AMR Research, located in Boston, Massachusetts. Pierre focuses on supplier-facing technologies that support strategic sourcing, procurement, supplier collaboration and the inbound supply chain. He has 15 years of industry and consulting experience in operations strategy, process redesign, and systems selection and implementation. His implementation experience has been primarily in processes such as strategic sourcing, procurement, strategic network redesign, distribution & inventory planning, master scheduling, warehouse management, and production & inventory control.
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