This is a review of a whitepaper entitled “Optimizing Performance Across Your Supply Chain” from Information Builders.
It addressed a variety of topics from competing supply chain objectives to managing risk to sharing information with suppliers to achieving cost savings. While it didn’t necessarily go into an overwhelming amount of depth on any topic, there were a few noteworthy nuggets.
I liked a piece of McKinsey research cited in the whitepaper. According to the whitepaper, “A recent study of leading supply chain companies by McKinsey asked company executives what they do to minimize the increased risk of supplying customers effectively.” A graph was listed showing the responses and they were (sorted from most common to least common):
- Performance contracts with suppliers or service providers
- Alerting customers well ahead of time to potential concerns
- Redundant suppliers/product designs
- Passing price increases through to customers
- Vertical integration
- Currency hedges
- Insurance
- Commodity hedges
The publication cites a fascinating excerpt from the book “How” by Dov Seidman in which Seidman comments on research conducted by professors Jeffrey H. Dyer of the Marriott School at Brigham Young University and Wujin Chu of the College of Business Administration at Seoul National University. Dyer and Chu surveyed almost 350 buyer/supplier relationships involving eight automakers in the United States, Japan, and South Korea and found a direct and dramatic relationship between trust and transaction costs. The least trusted buyer incurred procurement costs six times higher than the most trusted: same parts; same sorts of transactions. These additional costs came from added resources that went into the selection, negotiation, and compliance costs of executing deals. Dyer and Chu point to Nobel Prize-winning economist Douglas C. (aaronkirman.com) North’s findings that these sorts of transaction costs account for more than a third of all business activity and that the least-trusted companies were the least profitable.”
Now that makes me want to dive into Dyer and Chu’s research deeper!
The rest of the whitepaper focuses a lot on information sharing as the author’s perceived keys to a successful supply chain. It’s worth a look but, from my perspective, information sharing is only one of the several important components of successful supply chain management, not the be-all-end-all.
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Recommended Reading
- Assess Supplier Financial Risk
- Category Savings Assessment Questionnaire
- Leveraging Procurement for Fiscal Impact
- Mastering Procurement Tactics
- Contract Review Checklist
- Contract Termination Letter
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