Design network resilience. By engaging suppliers, procurement can increase network resilience by ensuring greater flexibility in times of discontinuity. Lower-cost supplier networks and longer supply chains are often less resilient by nature. Resilience needs to be inherent in the design and, with the help of colleagues, can be appropriately weighed against cost. When they get involved at the supply chain design stage, procurement can work with other functions to balance the needs of low cost and resilience in the supply network. This is particularly important now that global sourcing is becoming commonplace and supply chains are lengthening.
Such engagement proved crucial for Toyota when a major fire at a supplier’s factory in February 1997 halted the supply of a critical valve. Toyota plants, which build more than 14,000 cars a day, had only four hours’ supply of this valve as a result of its just-in-time operation. Not being able to replace the part would have resulted in huge losses and damage to the brand. Fortunately, Toyota’s procurement department had designed its supplier base as a network, so that if one node went down, other pathways were in place to secure the necessary components. Toyota had its production lines up and running in four days when experts had predicted it would take weeks. Procurement worked successfully with other functions to keep costs low without sacrificing resilience.
Procurement is at a crossroads. Its increasingly common inclination to focus on reducing the price it pays for goods and the cost of its own operations has certainly benefited organizations, but the returns on these efforts are diminishing. When procurement has moved beyond its traditional role, fulfilling the promise of its earlier reinvention, companies have prospered. Keeping the attention of colleagues is the CPO’s responsibility, and it will not be easy. Procurement leaders must constantly strive for the kind of breakthrough thinking that benefits their colleagues’ functional and strategic agendas. They must avoid the temptation to look only inward, and instead broaden their reach and take a seat at the strategy table.
Hugh Baker ([email protected]) is a principal with Booz Allen Hamilton in London. He has worked with a variety of clients in banking, media, retail, and technology to refine their approaches to procurement. He now focuses primarily on transformative changes in efficiency and effectiveness of operations for financial institutions.
Fabrice Saporito ([email protected]) is a principal with Booz Allen in Dubai. He focuses on operations strategy and major transformational efforts, and has specific expertise in strategic sourcing, complexity reduction, and supply chain management in the energy, chemicals, heavy industrial, and consumer goods sectors.