Supply Excellence
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Are You Paid True Market Value?

June 14th, 2006 · by Tim Minahan · 8 Comments · skills rectruitment and development

When it comes to supply management performance, there’s truth in the old adage, “You get what you pay for.” This point was driven home to me during recent meetings I had with separate supply management organizations.

Last week, an executive at a Massachusetts-based technology manufacturer was complaining about losing five of his key sourcing and commodity experts: three to another Mass.-based technology firm and two to the sales and marketing organization — of his own company. “They were offered a 130% increase over their current salary for basically doing the same amount of work. I just couldn’t come compete.”

The other shoe on this issue dropped just yesterday during a meeting with a Midwest-based defense and space systems company. When tasked with transforming her group into a best-in-class performing supply management operation, one of the first things the company’s VP of Supply Chain did was recruit top sourcing and commodity experts away from other firms. (As previous posts indicate, talent poaching has become more common in supply management circles.) No word on wages for the new recruits, but, knowing the companies they were wooed from, it was certainly an attractive offer. The firm has also devised a stock-incentive program for the group based on meeting clearly defined goals for supply cost reductions and performance improvements.

Backing up the link between pay and performance is a cross-industry benchmark by The Hackett Group, which uncovered a strong link between what a company invests in supply management salaries and technology and the performance and value returned from this function. The study found that companies with average supply management performance spend $69,000 per fully burdened full-time employee (FTE) and dedicate 12% of their operating budget on technology. By comparison, supply management organizations performing at “world-class” levels spend $98,557 per FTE and nearly 19% of operating budgets on technology.

If that delta seems absurd to you tightwad readers, consider the return on investment. According to Hackett, world-class performing supply management groups yielded a 612% ROI on their function’s operating costs, compared to a 259% return from its under-performing peers. World-class supply management groups also outperformed peers in operating efficiencies and effectiveness and supply cost reductions.

Trying getting that type of return from your 401K. Or your sales force for that matter.

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8 responses so far ↓

  • 1 » How to Assess Your Net Worth- Supply Excellence // Jun 15, 2006 at 8:26 am

    [...] Are You Paid True Market Value? June 15, 2006 How to Assess Your Net Worth by Tim Minahan at 8:26am [...]

  • 2 » Take it From George: Balance All-Stars With A Good Farm System- Supply Excellence // Jun 16, 2006 at 8:24 am

    [...] I want to correct any misconceptions that may have been raised by my previous posts linking supply management performance to pay scales. [...]

  • 3 Supply Excellence » New Supply Risk: Losing Your Top Talent // Jul 20, 2006 at 8:35 am

    [...] Recognizing that new market challenges are forcing supply management executives to upskill their teams, Supply Excellence has proffered advice on recruiting and developing talent. A new study from Denali Consulting and SupplyStaff examines an even greater labor challenge: how to retain your best people. [...]

  • 4 Supply Excellence » Jack Welch on Attracting Great Talent // Sep 21, 2006 at 11:43 am

    [...] Previous Supply Excellence posts have highlighted the challenges of hiring and retaining skilled supply management professionals and the increase in talent poaching as a result of these issues. Last week, former General Electric chief Jack Welch and his wife, Suzy, former editor at Harvard Business Review (HBR), chimed in with simple, straightforward advice: the best way to attract great talent is to be a preferred employer. [...]

  • 5 Supply Excellence » Aberdeen Reveals CPO’s Secret Fears and Strategies // Dec 7, 2006 at 12:44 pm

    [...] My own experience finds that this risk transcends geography, industry, and company size. Consider the VP of Supply Chain at a multi-billion aerospace and defense company tha launched a supply management transformation initiative by poaching sourcing and commodity experts from other companies. Or the CPO of a high-tech manufacturer who complained about losing five of his key sourcing and commodity experts: three to a rival company and two to the sales and marketing organization — of his own company. Or Volkswagen’s CPO who earlier this month said, “The single biggest challenge we face is finding highly qualified purchasing people. It is very difficult to keep them trained and up to speed.” [...]

  • 6 Supply Excellence » Is it Time to Negotiate a Raise? // Dec 29, 2006 at 11:04 am

    [...] Studies from The Hackett Group and comments from CPOs draw a clear link between pay levels and the ability to attract and retain top talent. [...]

  • 7 Supply Excellence » Purchasing is a Dead End Job. (And Other Conspiracies.) // Jul 25, 2007 at 10:57 am

    [...] And certainly keep it a secret from the hordes of CPOs that have sounded the alarm on talent poaching occurring in their ranks. [...]

  • 8 Are You Paid True Market Value? | Career Blog // Aug 22, 2007 at 9:23 am

    [...] Read More at Supply Excellence [...]

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