Why so many cost-obsessed CEOs will fail if they ignore their supplier management capabilities

Recessions are good times for business leaders who love to focus on containing costs.  Saving money is the name of the game, and executives who achieve this for their organizations become heroes.

Struggling to manage your extended enterprise? Then click here to course correct

However, times of recovery are markedly different. The onus shifts from cost to value; from defense to attack; from conservative to bold; from tactical to strategic; from efficiency to innovation. And, with the current recovery, perhaps most significantly, the very nature of a company’s cost base is shifting from inside to outside of the organization.

For decades, enterprise executives focused on reducing costs as the key to unlocking an organization’s profitability. This often began with an emphasis on reducing expenditures around SG&A. Activities that fell under this area received derogatory descriptions such as “back-office” and “non-core.” In time, the application of these terms spread across the entire business and any function tagged as such was prime for outsourcing. As a result, many parts of the enterprise were increasingly outsourced.

At the same time, forward-looking businesses began to adopt new organizational structures that were developed to foster lean operations. Rather than build out functional areas across the value chain, companies picked a few key areas to focus on and used partners to deliver the rest. Car manufacturers stopped building components and focused on design and assembly. Hotel chains stopped owning and operating buildings and focused on building and maintaining a brand. Businesses in nearly every industry adopted models that moved significant functional elements to a third party.

Consequently, many of today’s companies look like shells of their former behemoth selves. Marketers now rely on outside agencies and analytics providers to improve their own customer insight and advertising spend, operations teams rely on outsourcing and technology to eliminate labor costs, and IT teams rely on cloud-enabled SaaS platforms instead of an army of programmers occupying the lower floors. For any area of an enterprise’s P&L, a range of suppliers are ready and willing to perform the same tasks faster, cheaper, and better. Yesterday’s pay slips have become today’s supplier invoices.

Want to learn more?  Then download our new report “Why so many cost-obsessed CEOs will fail if they ignore their supplier management capabilities”, where we hone in on the following:

  • The shell game: today’s successful enterprises are leaner versions of their former selves
  • The goal: leverage external relationships for broader business value
  • How to shift from tactical sourcing and procurement to a capable strategic team
  • The bottom line: the business models of the future require better leverage of your supply base’s assets and operational flexibility

Feel free to drop me a line with any questions on the topic,

PF

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