Supply Excellence
← Round Three: When it Comes to Fans, Size Matters… Supply vs. Spend Management: Cease Fire (For Now) →

…Counter Punch: Why a Myopic Focus on Spend Will Leave You Reeling

May 12th, 2006 · by Tim Minahan · 8 Comments · supply management

In the second point of his rebuttal, Jason Busch attempts to turn the tables and paint Supply Management as a tactical function for incremental improvement and Spend Management as a strategic “mindset” that “transforms business processes into economics.”

There is where I need to throw a yellow flag.

First, as Jason pointed out in an attempt to help rebrand his former employer from an auction services provider as a more holistic and strategic solution, he embraced Supply Management. I was present at the rollout when Jason’s company said “Global Supply Management aligns global sourcing and supply management strategies for optimal performance, reduced risks, and lowest total cost of ownership.” So to hear Jason now deem supply management as anything less than a strategic, game-changing discipline is akin to listening to a senior Senator justify to his constituents why he’s swapping political parties.

It is true that I ascribed to Jason’s former employer’s global supply management vision. And I still do. My 16-years of interacting with senior business executives led me to conclude that, with more than half of every revenue dollar spent on external supply and, with suppliers assuming more and more responsibility for product development, manufacture, and services; truly managing supply (not just reducing spend) is vital to competitive advantage. (Heck, I even named my former research practice Global Supply Management Research. Guess I’m a true yellow-dog supply sider.)

As further evidence of the strategic nature of supply management, two research projects I headed last year found that CPOs and CFOs cited supply management’s chief role as assuring supply and mitigating risks. These executives also reported that supply management was taking an active role (and in many cases, a leading role) in strategic value creation for the enterprise in the form of market expansion, innovation, compliance, and, even, corporate branding.

It is well known in industry circles that I never ascribed to the Spend Management moniker. It was a constant point of debate in every meeting I held with the software vendor that invented the term — as well as with other vendors considering adopting the phrase. The reason: Spend Management’s myopic focus on reducing spend not only overlooks the vital importance (i.e., cost and value) of supplier performance, but it can also expose enterprises to undo risks.

Spend Management fails to address the supplier development, governance, and relationship management attributes that make Supply Management strategic. If your only focus is reducing and managing spend, you are missing the forest for the trees. It may be easier for your CFO to understand the “economics” of spend reductions on the balance sheet, but it is your duty to educate them on the impact of the non-spend but definitely cost relate attributes of your supply relationships. If you can’t develop relationships that assure supply, deliver innovation, and drive continuous improvement, you will never make the type of transformation that will drive competitive advantage.

In an apt but simplistic analogy, reducing spend is like reducing inventory. It’s seems like a good idea until you don’t have the materials or resources you need to serve the end customer. For their own sake, I would hope that readers of both Supply Excellence and Spend Matters don’t lose sight of the forest for the trees.

Email Forward & Bookmarks
[del.icio.us] [Digg] [Facebook] [Google] [Reddit] [StumbleUpon] [Technorati] [Email] More »

Tags:

8 responses so far ↓

  • 1 Kevin Brooks // May 12, 2006 at 3:09 pm

    Nice rebuttal, Tim. I think you take the point this time around, but I wonder if you’re minimizing the fact that procurement/supply people are, by and large, constantly struggling with getting enough support and buy-in at the CFO level. Just telling them it is their responsibility to educate sr. management doesn’t change the culture except in extraordinary situations. If it takes speaking in “spend” language to accomplish “supply” goals, does that make it spend- or supply management?

  • 2 Tim // May 12, 2006 at 4:17 pm

    I agree that getting on the C-level agenda requires new talents and different dialogues. (In fact, this was the point I was making in my earlier blog — The Skills Challenge — before I got sideways on this debate.) But it is a disservice to the company — and outright dangerous — to only dialogue about spend. The new breed of supply manager must have financial acumen but must also be capble of assessing risks and managing relationships. Just consider reports from both Toyota and Honda this week that insufficient supply was hurting sales of new, high-in-demand hybrid vehicles. Reducing spend won’t fix that issue. Only diligent supplier development and risk mitigation will.
    Supply managers need to educate the C-suite on this part of the equation too.

  • 3 Charles Dominick, SPSM // May 14, 2006 at 11:03 am

    I think it can be simplified by saying something that I teach in our “14 Purchasing Best Practices” online class: managing spend is just one of several “Main Functions” of a purchasing and supply management department.

  • 4 Tim // May 15, 2006 at 7:35 am

    Point goes to Mr. Dominick: “spend IS just one of SEVERAL main functions” of a purchasing and supply management department.I think that is a precise point we can all agree on.

  • 5 Procurement Central » Blog Archive » Just For Laughs on Tim and Jason’s Phrase-War // May 15, 2006 at 11:13 am

    [...] To recap, Jason is outraged that Tim believes "spend management" is just a marketing slogan with no discernable, well-accepted definition. Worse yet, Tim has brazenly accused the Ariba-invented term as having a dangerously narrow scope. He says it discounts value and innovation focusing instead on cost alone. [...]

  • 6 Charles Dominick, SPSM // May 18, 2006 at 1:07 pm

    I’ve posted some stats on the popularity of the various names for the profession at http://www.NextLevelPurchasing.com/blog

    Enjoy!

  • 7 Nikolas // Jan 30, 2007 at 10:30 am

    Sweet :)

  • 8 Outsourcing trends according to Google - New tool « Vendor Management // Aug 7, 2008 at 11:36 am

    [...] weigh-in on a spend terminology bun-fight between the two blogging heavy-weights, Jason Busch and Tim Minahan (This was in the days before the Doctor was in the [...]

Leave a Comment