The Institute of Supply Management — which represents purchasing professionals across all major industries — surveyed about 500 of its members. The No. 1 concern among buyers isn’t building resilience — it’s cutting costs. Moreover, buyers say that they didn’t meet their cost-cutting goals for 2013.
I know the economy is still dragging and competition is fierce. I also know one of procurement’s main responsibilities is to get the best possible pricing on components. But I have to wonder where the 2014 cuts are going to come from: hasn’t the industry been in self-improvement mode for more than a decade now? Haven’t we implemented LEAN, JIT, BTO, MRP, ERP, TQM and dozens of other acronyms? Aren’t we already doing job of two-plus people?
Sure, there are still inefficiencies in the supply chain and LEAN, TQM etc. are ongoing practices that never really end. They are also supposed to cut costs. So if we are doing a good job with our acronyms, how come costs aren’t going down? The ISM reports only 20 percent of companies substantially cut costs in 2013. In fact, most procurement executives are expecting that the total amount they saved in 2013 won’t meet business expectations:
- 60 percent expect to deliver 10 percent or less in savings.
- 20 percent estimate 11-20 percent in reductions.
“Delivering marginal savings should be a trigger for procurement teams to take a step back and assess what’s working well, what isn’t and how the function can improve,” said Mickey North Rizza, VP of strategic services at BravoSolution (which conducted the survey with ISM.) “If savings aren’t driving the business forward, procurement needs to find new and more meaningful ways of impacting the business.”
Wow. Good luck with that. Suppliers and distributors already feel that prices have been hammered down as far as they can go. Automation has replaced human tasks and software can place an order for replenishment. Moving this stuff to the cloud is the next order of business and companies that have done that have cut costs. But algorithms don’t form relationships and they don’t negotiate very well. Short of eliminating humans altogether, you have to ask the supply chain: How low can it go?
Actually, the ISM report is a good read and has lots of good data. It also provides solutions to some of the supply chain’s problems. I recommend you read it — and then get back to work.