How Mature Is your Supply Chain? (Adobe Acrobat)

Speed to market is one of the most critical dimensions of competition in today’s markets. As more organizations seek to focus on their key core competencies, the outsourcing of critical business processes such as product design and development, manufacturing, sales, marketing, and even distribution, is becoming an increasing trend. As outsourcing occurs, the role of procurement will escalate, and management of information flows, physical flows, and relationships will become more important. In order to effectively assess the requirements for deploying outsourcing strategies, companies will need to understand the relative maturity of their supply management function using assessment tools (such as the Supply Chain Capability Maturity Model.) Use of a maturity model is critical in establishing baseline performance of current sourcing processes, as well as defining the requirements for future outsourcing of business processes. The model can also be used to assess the maturity of other processes in the integrated supply chain, including design, make, deliver, sell, and service processes. The Role of Outsourcing in New Product Development No one would disagree that new products are the lifeblood of the many industries. Almost every company is focused on developing new products, growing revenues, and reducing the cost of doing so, which together will add up to a positive return on assets, which in turn will help drive the company’s stock price up and satisfy stockholders, all during a very challenging economic environment. However, every business strategy, no matter how visionary, ultimately boils down to hard work. In most cases, this means specific team-based projects focused on improving existing processes to achieve these goals. The sum of these project results is ultimately how we measure the success of a strategy. One of the strategies that many companies are investigating today is to outsource many of the traditional “non-core” elements of their business. Outsourcing is certainly an attractive option – so long as you remain world class in the process of outsourcing, and can devote resources to doing so. Many executives forget that outsourcing isn’t something that eliminates current deficiencies in your business processes. In fact, outsourcing bring with it a whole set of new challenges, and requires a mature supply chain organization to manage the outsourcing arrangement. Outsourcing can provide benefits when an outsourcer is able to control the product, the process, the documentation, and the quality systems. However, this cannot occur without the sponsor actively “managing” the service provider as well, through detailed metrics and audits as required before, during, and after a project. If the technology is well defined and the service provider has significant experience with it, these audits may be less intense in nature. However, in a not fully mature technology or one that the service provider is not familiar with, the rate of audits and measurement should be intensified. One of the greatest predicted success factors discovered in an NSF sponsored research study of supplier integration in new product development is that a prior experience with a service provider is likely to be a high predictor of future success (Monczka et al., 2000). In response to this trend towards outsourcing, a whole new generation of contract companies is filling the void. This includes companies that can design, manufacture, distribute, or sell products for their customers. Contracted companies are increasingly becoming responsible for a broader breadth of services and creating a whole new industry. For example, Magellan, a contract clinical trials provider for the pharmaceutical industry, was recently acquired by Cardinal Health to create a comprehensive pharmaceutical development service provider to the pharmaceutical and biotechnology industries, from early stage drug development to commercial manufacturing and distribution for virtually every dosage form. As companies move into co-development, co-promotion, and co-marketing arrangements, the degree of invasiveness reaches epic proportions. These agreements are often structured based on complete and total joint government, implying consensus building at every level. Unfortunately, the mechanics of making this happen are difficult to operationalize at a detailed functional level. Moreover, both parties require extensive relationship management skills, particularly in the area of procurement, contracting, and strategic alliances. Is Your Procurement Organization Ready for Outsourcing? It is notable that the success of an outsourced project is not only dependent on technological capability, but is more dependent on the service organization to effectively communicate with its client and to stimulate open channels of communication – greater information will in every situation result in a higher likelihood of success – again, there is volumnious research conducted by our research and that of others that clearly indicates this relationship (Handfield and Nichols, 2002). In most cases, this task falls upon procurement. In many companies today, procurement is suddenly finding itself tasked with managing a highly complex relationship, without the required resources required to do so. Ineffective outsourcing management is further perpetuated by a high turnover, a new set of faces, and changes/shifts in the organizational chart----as people are re-assigned to new locations, downsized, or outsourced relationships are moved around based on supposed “cost savings initiatives” – the results are always likely to lead to significant market revenue losses due to delays, errors, and other problems arising from lack of communication, as shown in Figure 1. 5 Figure 1 – Effect of Supply Chain Glitches on Shareholder Value -12 -10 -8 -6 -4 -2 0 Average Shareholder Value Loss (%) Parts Shortage