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Optimizing the Supply Chain

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Purchasing people don’t get a whole lot of attention in this industry except when John Henke comes out with his annual Planning Perspectives (ppi1.com) OEM-supplier study, and he generally doesn’t have a whole lot of nice things to say about the prevailing relationships. When he released last year’s results, he said, “To say this year’s results are disappointing would be an understatement.”

And if that isn’t enough, he went on to observe, “It’s apparent that while the automakers’ top purchasing executives generally understand and support positive working relations, this support has not been translated into a consistent action plan for improvement. The lack of improvement among these automaker’s purchasing areas over the past several years suggests that none of them has implemented a well-defined, focused plan to improve their supplier working relations. Or, if they have such a plan, it is not being implemented at the level of day-to-day contact with suppliers. Either way, this is not good for the OEMs or the suppliers.” Yes, it’s like that. And in a month or so, when the new results come out, there probably won’t be a whole lot of choruses of “Happy Days Are Here Again.”

So imagine my surprise when I read in Procurement 20/20: Supply Entrepreneurship in a Changing World (wiley.com/business) by four members of McKinsey’s staff, Peter Spiller, Nicholas Reinecke, Drew Ungerman, and Henrique Teixeira, “Even in the automotive and assembly industry, long con-sidered a model of advanced procurement performance . . .” What?! Auto’s practices are a model for other industries? Yikes! But to be fair to the authors, they go on to finish that sentence, “only 51 percent were ranked as procurement leaders.” It’s better than half, but not by much.

Procurement 20/20 is actually a solid look at the outsourcing and value-chain practices that can help companies make the most out of practices that are part and parcel of what it takes to get products out the door. The book is sufficiently up to date so that they’re able to talk about re-shoring and in-sourcing, as they point out, “For many Western manufacturers, the question of where to source once had a simple answer: China. The primary driver was lowering the cost of the supplied goods. The days when a company could use product cost as the principle factor in defining a sourcing footprint are long gone, however. Over the past decade, additional factors—including logistics, currency, lead time, and export and import duties—have become more important than ever, meaning that product cost, though still a primary factor, is no longer the principal factor.”—GSV