Supply Strategy Implementation:

Current and Future

Opportunities 2011

Robert M. Monczka, Ph.D.

Director, Strategic Sourcing and
Supply Chain Research
CAPS Research
and
Distinguished Research Professor of
Supply Chain Management
W. P. Carey School of Business
Arizona State University

Kenneth J. Petersen, Ph.D.

John H. Dove Professor of Logistics
Department of Marketing and Logistics
University of Tennessee

CAPS Research

October, 2011
Supply Strategy Implementation: Current and Future
Opportunities 2011

Robert M. Monczka, Ph.D.

Director, Strategic Sourcing and
Supply Chain Research
CAPS Research
and
Distinguished Research Professor of
Supply Chain Management
W. P. Carey School of Business
Arizona State University

Kenneth J. Petersen, Ph.D.

John H. Dove Professor of Logistics
Department of Marketing and Logistics
University of Tennessee

CAPS Research

October, 2011

Copyright © 2011 Institute for Supply Management™

and W. P. Carey School of Business at Arizona State University.
All rights reserved.
Contents may not be reproduced in whole or in part without the express permission of CAPS Research.
 Acknowledgements

The lead researchers for this study would like to acknowledge and thank the
following individuals for their contributions to this effort.

• Kathleen A. Chester of the Institute for Supply Management™ (ISM) provided

general administrative support and draft report development to the research
team.

• Debbie Maciejewski, Research/Marketing Manager at CAPS Research, managed

the solicitation process for the Web survey and administered the ongoing
communications with survey respondents.

• Steve Koch, Director of Information Technology Services at CAPS Research,

developed the database and web-based assessment application and provided
data analysis and reporting tools.

• Tammy Schwerman, IS Administrator and Web Master at CAPS Research,

supported the design and testing of the web-based assessment application and
reporting tools.

• Steve Gozdecki of Expressive Editorial Services provided editorial guidance for

the final report.

ISBN 0-945968-86-8

2 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Author Biographies

Robert M. Monczka, Ph.D., is Director of Strategic Sourcing and Supply Chain

Strategy Research at CAPS Research. He is also Distinguished Research Professor of
Supply Chain Management at Arizona State University’s W. P. Carey School of
Business. Dr. Monczka focuses on sourcing and supply strategy development and
implementation and provides leadership for major supply strategy research
initiatives at CAPS Research. He has authored more than 100 articles and books and
has consulted with numerous Fortune 500 firms. He is also Professor Emeritus, Eli
Broad College of Business at Michigan State University and was awarded the
J. Shipman Gold Medal Award in 2008, the Institute for Supply Management™’s
highest recognition.

Kenneth J. Petersen, Ph.D., is the John H. Dove Professor of Logistics in the

Department of Marketing and Logistics at the University of Tennessee and Visiting
Senior Fellow at Manchester Business School in Manchester, England. He has
authored more than 50 articles, reports, and book chapters and has consulted with
numerous firms in strategic sourcing and supply management. Dr. Petersen also
serves as an associate editor for the Journal of Operations Management, Journal of
Supply Chain Management and Journal of Business Logistics.

CAPS Research 3
 Table of Contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Author Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Index of Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Research Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Changes: 2011 vs. 2009 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Guidance for Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Chapter 1: Introduction and Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transforming Purchasing/Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
What Will the Next 10 Years Look Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CAPS Executive Assessment of Supply (EAS): Development and Objectives . . 13
Supply Strategies Included in EAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EAS and Value-Add to Company Competitiveness . . . . . . . . . . . . . . . . . . . . . . 13
Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Respondent Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Overall Research Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Report Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Chapter 2: Supply Strategies: Importance, Implementation, and Gaps. . . . . . . . . . 18
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Example Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Overall EAS Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Supply Strategy Importance Ratings and Rankings . . . . . . . . . . . . . . . . . . . . . . 22
Supply Strategy Implementation Ratings and Rankings . . . . . . . . . . . . . . . . . . 20
Supply Strategy Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Overall Importance/Implementation Gap Analysis . . . . . . . . . . . . . . . . . . . . . . 23
Comparison Between High and Low Implementation Firms . . . . . . . . . . . . . . 23
Observations: High and Low Implementation Firms . . . . . . . . . . . . . . . . . . . . 25
Conclusions: Current State of Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . 25
Chapter 3: Industry Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Industry Sector Difference Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Industry Difference Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Average Ratings by Industry Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Chapter 4: Strategy Implementation and Supply Performance . . . . . . . . . . . . . . . . 31
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Supply Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Industry Performance Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Chapter 5: What Has Changed? 2007 to 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Overall Changes: 2007, 2009, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Supply Strategy Changes: Firms Common among 2007, 2009, and 2011 . . . . 35
Chapter 6: Critical Supply Strategies: 2011 to 2015. . . . . . . . . . . . . . . . . . . . . . . . 40
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Emerging Supply Strategy Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Chapter 7: Summary and the Path Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Summary: Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
The Path Forward: Supply Transformation 2011 to 2015. . . . . . . . . . . . . . . . . 44
Clear Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Establish Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Resources and Capabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Supply Transformation Process and EAS Application. . . . . . . . . . . . . . . . . . 45
The “Decade Ahead”: Supply Strategy Imlementation. . . . . . . . . . . . . . . . . . . . 45
Strategy Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Supplier-Focused Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Supply/Value Chain Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Concluding Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Appendix A: Supply Strategy Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix B: Statistical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Appendix C: Supply Strategy Comparisons by Industry Sector . . . . . . . . . . . . . . . 57
Appendix D: Selected Emerging Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 69

CAPS Research 5
 Index of Figures and Tables

Figure 1.1 Sourcing and Supply Chain Maturity Table 2.1 Overall Importance Strategy
Model . . . . . . . . . . . . . . . . . . . . . . . 11 Ratings . . . . . . . . . . . . . . . . . . . . . 21

Figure 1.2 EAS Application . . . . . . . . . . . . . . 14 Table 2.2 Overall Implementation Strategy

Ratings . . . . . . . . . . . . . . . . . . . . . 22
Figure 1.3 Responding Company Profile . . . . 15
Table 2.3 Overall Strategy Ratings — Gaps. . 23
Figure 1.4 EAS Participating Industries . . . . . 15
Table 2.4 Implementation: Highest 25
Figure 1.5 Supply Leadership Model . . . . . . . 16 Companies versus Lowest 25
Companies . . . . . . . . . . . . . . . . . . 25
Figure 2.1 Assessment Example with Rating
Scales . . . . . . . . . . . . . . . . . . . . . . 19 Table 2.5 Overall Implementation Ratings
for Top/Bottom 25 Firms. . . . . . . . 26
Figure 2.2 Overall 2011 EAS Findings . . . . . . 20
Table 3.1 Strategy Importance Differences
Figure 2.3 Strategy Segmentation Analysis: by Industry . . . . . . . . . . . . . . . . . . 29
Importance/Gap . . . . . . . . . . . . . . 24
Table 3.2 Strategy Implementation
Figure 7.1 Improving Economic Value-Add Differences by Industry . . . . . . . . . 29
(EVA) . . . . . . . . . . . . . . . . . . . . . . 45
Table 3.3 Average Ratings by Industry
Figure 7.2 Building Blocks for Supply Sector . . . . . . . . . . . . . . . . . . . . . . 30
Transformation . . . . . . . . . . . . . . . 46
Table 3.4 Implementation Ratings for Top/
Figure 7.3 Strategic Supply Strategy Priorities Bottom Firms by Industry Sector
and Capabilities Assessment for 22 Strategies . . . . . . . . . . . . . . 30
Framework . . . . . . . . . . . . . . . . . . 47
Table 3.5 Top Six Strategy Gaps by Industry
Figure 7.4 Supply Strategy Transformation Sector . . . . . . . . . . . . . . . . . . . . . . 30
Process . . . . . . . . . . . . . . . . . . . . . 48
Table 4.1 Supply Performance Results
Figure 7.5 Critical Supply Strategies: 2011 (2007, 2009, and 2011) . . . . . . . . 31
and Beyond . . . . . . . . . . . . . . . . . . 49
Table 4.2 Performance Ratings (2007, 2009,
and 2011) . . . . . . . . . . . . . . . . . . . 32

6 Supply Strategy Implementation: Current State and Future Opportunities 2011

Table 4.3 Actual Performance: Overall and Table A3.9 Implementation: Highest 10 Process
by Industry Sector. . . . . . . . . . . . . 33 Manufacturing Companies versus
Lowest 10 Process Manufacturing
Table 4.4 Performance Improvement: Companies . . . . . . . . . . . . . . . . . . 64
Overall and by Industry Sector . . . 34
Table A3.10 Process Manufacturing
Table 5.1 Comparison of 2007, 2009, and Implementation Ranking/Ratings
2011 Implementation/Importance for Top/Bottom 10 Firms. . . . . . . . 64
Gaps . . . . . . . . . . . . . . . . . . . . . . . 36
Table A3.11 Service Importance Strategy
Table 5.2 Differences in Overall Ranking/Ratings . . . . . . . . . . . . . . 65
Implementation between 2007,
2009, and 2011. . . . . . . . . . . . . . . 37 Table A3.12 Service Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 66
Table 5.3 Differences in Overall Importance
between 2007, 2009, and 2011 . . 38 Table A3.13 Service Strategy Gap Ranking/
Ratings . . . . . . . . . . . . . . . . . . . . . 67
Table 5.4 Importance, Implementation, and
Gap Strategy Ratings for Companies Table A3.14 Implementation: Highest 10
Participating in 2007, 2009, and Service Companies vs. Lowest
2011 . . . . . . . . . . . . . . . . . . . . . . . 39 10 Service Companies . . . . . . . . . . 68

Table 6.1 Critical Supply Strategy Focus Table A3.15 Service Implementation
Areas . . . . . . . . . . . . . . . . . . . . . . . 41 Ranking/Ratings for Top/Bottom
10 Firms . . . . . . . . . . . . . . . . . . . . 68
Table A3.1 Discrete Manufacturing Importance
Strategy Rankings/Ratings . . . . . . . 57

Table A3.2 Discrete Manufacturing

Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 58

Table A3.3 Discrete Manufacturing Strategy

Gap Ranking/Ratings . . . . . . . . . . . 59

Table A3.4 Implementation: Highest 10

Discrete Manufacturing Companies
versus Lowest 10 Discrete
Manufacturing Companies . . . . . . 60

Table A3.5 Discrete Manufacturing:

Implementation Ratings for
Top/Bottom 10 Firms . . . . . . . . . . 60

Table A3.6 Process Manufacturing Importance

Strategy Ranking/Ratings . . . . . . . . 61

Table A3.7 Process Manufacturing

Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 62

Table A3.8 Process Manufacturing Strategy

Gap Ranking/Ratings . . . . . . . . . . . 63

CAPS Research 7
 Executive Summary

Research Background level of implementation, and the performance resulting

from these strategies. Data was collected from 119
Over the past 20 years, supply management has evolved supply organizations across 25 industries regarding 22
from an administrative function to become a strategic supply strategies and performance results in order to
contributor to organizational competitiveness. The further develop a baseline for current and future
success or failure of supply management to establish analyses. The 2011 EAS is the third in a series; prior
and lead a competitive supply base and work with other study results were published in 2007 and 2009.
functions can drastically impact a firm’s success. Supply
management positively or negatively affects cost, assets,
and revenue generation, all of which are critical to Key Findings
creating company value and to the financial
performance of the firm. The 2011 EAS shows that firms are still lagging in
implementing supply strategies considered important to
Currently, the strategic direction of many firms is being the competitive success of their firms. Firms rated the
supported by supply strategies. Consider, for example, importance of the 22 strategies from between
P&G’s “Connect and Develop” open innovation focus; “functionally required” to “an operational necessity to
the purchasing function’s savings contribution presented compete.” Implementation of the strategies was not
to Wall Street analysts by a number of companies; complete. For all organizations, the supply strategies
General Mills’ “Holistic Margin Management” program were implemented at a “limited number of supply
that requires significant contribution from supply; locations and were being accepted as best practice with
globalization of the supply base across industries; initial positive results.”
increasing collaboration with suppliers; and the
dramatic efforts undertaken by firms during and after In addition, there was a large gap between the reported
the recent economic downturn to reduce costs while importance of each strategy and its actual
further globalizing the supply base and reducing risk. implementation. There was also a large implementation
difference between those firms where supply strategies
To achieve supply transformations that provide overall were most and least implemented.
value creation, firms worldwide need to regularly assess
the degree of implementation of supply strategies they The 10 most important and implemented supply
consider most important to the success of their strategies were:
organization. With this in mind, and armed with the
experience we have gained over the past decade in ❑ Engagement by Corporate Executives and
developing, providing, and conducting supply Business Unit Leaders
assessments, CAPS Research executed the 2011 ❑ Vision, Mission and the Strategic Plan
Executive Assessment of Supply (EAS). ❑ Commodity & Supplier Strategy Process
❑ Strategic Cost Management
The primary objective of the 2011 EAS was to ❑ Procurement & Supply Organization Structure &
determine what importance organizations on a Governance
worldwide basis place on critical supply strategies, their ❑ Human Resource Development

8 Supply Strategy Implementation: Current State and Future Opportunities 2011

 ❑ Total Cost of Ownership • For strategy implementation overall,
❑ Structuring & Maintaining the Supply Base and implementation was slightly less in 2011 (5.50)
Cross-Functional/-Location Teaming than 2009 (5.68) but higher than in 2007 (5.27),
❑ Measurement & Evaluation possibly reflecting the recent economic distress.
❑ Establishing World-Class Supplier Quality
• Procurement & Supply Organization Structure &
These strategies focus on the building blocks required Governance; Cross-Functional/-Location Teaming;
to achieve an effective supply organization and strategy Structuring & Maintaining the Supply Base;
as well as the specific supply and supplier strategies Strategic Insourcing/Outsourcing; and E-Sourcing
critical to achieving year-over-year supply performance & Supply Chain Strategies all, at least minimally,
improvement. However, implementation of these saw increased implementation in 2011 from 2007
strategies also lags behind their strategic importance. and 2009.

Overall, the largest gaps between those strategies • The most significant decreases in strategy
considered to be most important, but least implementation between 2009 and 2011 were for
implemented, were: Accelerated Change Management;
Environmentally Sustainable Supply Chain
❑ Commodity & Supplier Strategy Process Management; Human Resource Development;
❑ Strategic Cost Management Measurement & Evaluation; and Standardization
❑ Human Resource Development of Products, Services, Components & Design
❑ Total Cost of Ownership Specifications — although increasing from 2007.
❑ Supplier Assessment, Measurement &
Communications • For firms participating in the 2007, 2009, and
❑ Establishing World-Class Supplier Quality 2011 iterations of the EAS, gap reductions
❑ Structuring & Maintaining the Supply Base between importance and implementation were
achieved for all strategies. Major gap reductions
These strategies should provide an implementation between 2009 and 2011 were for Procurement &
focus at most firms. Supply Organization Structure & Governance;
Total Cost of Ownership; Supplier Assessment,
In addition, analysis of the differences among industry Measurement & Communications; Engagement by
sectors showed that they were quite limited. However, Corporate Executives & Business Unit Leaders;
the discrete manufacturing industry sector had a Structuring & Maintaining the Supply Base; and
somewhat higher degree of implementation overall than Establishing World-Class Supplier Quality.
the process and service sectors.

Supply performance, on average, showed improvement Guidance for Senior Management

for key performance areas. Purchase prices were
reduced by 3.7 percent on average; transportation and Although supply is becoming more strategic at firms
logistics costs were reduced by 2.8 percent, and total worldwide, implementation of critical supply strategies
cost of ownership reduced by 3.6 percent. Compared to is still lagging. We also found that those supply
2009, price improvements were somewhat less (2009 strategies that have longer implementation timeframes
figures were 4.0 percent, 5.1 percent, and 4.3 percent, and require more resources and cross-functional
respectively). Supplier flexibility and responsiveness was support were not viewed as being most important, nor
also somewhat improved in 2009 and 2011. were they most implemented. However, these more
robust strategies, such as standardization of purchases
to reduce complexity and cross-functional and cross-
Changes: 2011 vs. 2009 and 2007 enterprise collaboration, will likely be very important to
the future success of many organizations.
• The overall “gap” between strategy importance
and implementation for 2011 and 2009 were Based on this research, we believe that firms should be
similar, -2.0 vs. -1.9, with both being less than working two “supply buckets” concurrently. First, there
the 2007 gap of -2.4, generally indicating an is a need to ensure a high level of implementation and
increased degree of supply strategy effectiveness for core strategies, such as purchase
implementation since 2007. category and supplier strategy development, including
risk management, structuring the supply base, total cost

CAPS Research 9
of ownership, strategic cost management, and people
acquisition and development. These strategies deliver
supply performance today and tomorrow. Second,
leading supply organizations and their supply and
business unit leaders need to invest in the their firms’
long-term success by accelerating the transformation of
e-systems for supply, integrating suppliers into both
new product development and customer order
fulfillment, standardizing specifications and purchases
to reduce complexity, attaining supplier innovation
through effective collaboration, and establishing
environmentally sustainable supply chains. These
strategies will be necessary to deliver future value and
performance improvements.

Overall, this suggests that increasing emphasis on cross-

functional and cross-enterprise will be required for
supply and supplier networks to become an integral
part of customer focused value chains. These value
chains will require improved integration between
company functions and external customers and
suppliers that will be achieved through a strategic value
chain vision and leadership, combined with metrics that
measure customer satisfaction with value provided and
supply and supplier contributions. Supply strategies
that can make major contributions to company
performance must be implemented worldwide.

10 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 1: Introduction and Research
Approach

What supply strategies are viewed as most important by function to become a critical part of a firm’s competitive
supply organizations? To what extent have these strategy. This transformation process began with Xerox
strategies been implemented? How do supply strategies gaining insight into “new” purchasing and supply
relate to supply performance? What supply strategies strategies from its Japanese counterpart, Canon,
are likely to be the focus of future transformation followed by transformations in the automotive,
efforts? This research provides answers to these appliance, electronics, computer, and other industry
questions. segments worldwide.

This transformation can be illustrated by the maturity

Transforming Purchasing/Supply model shown in Figure 1.1.

Beginning in the early to mid-1980s, purchasing began This multi-decade transformational journey has
to transform from a back-office, transaction-focused frequently been characterized as price-focused. Strategic

Figure 1.1
Sourcing and Supply Chain Maturity Model

CAPS Research 11
sourcing, low-cost-country sourcing, reverse e-auctions, include globalization, changes in worldwide
and supplier consolidation to gain scale advantage have consumption patterns, demographic changes, regulation
had price improvement as a major objective. It appears and activism across countries throughout the world,
that most firms are in Stage II or III of the maturity and increasing pressure to maintain natural resources
model, with a limited number of firms in Stage IV. and the environment. In addition, there will be
significant changes in technology and increasing
Firms are typically positioned at Stage II or III because requirements for innovation. “Wildcards” that cannot be
they were price focused; had only recently begun the generally predicted will also come into play. All of these
supply transformation journey; focused on shorter-term changes will drive business models and strategies to
improvement objectives that reflected company and change, and innovation will strongly impact a firm’s
functional executive directions; or failed to make the supply mission, goals, and performance expectations.
sizeable and challenging investment required to
transform supply strategies, practices, structures, and In addition, as firms look for ways to improve their
supplier working relationships across functions and the revenue streams, they will likely move up the value
extended supply chain. chain, enrich customer relationships, and embrace
emerging markets. From a cost perspective, the
In addition, there is anecdotal information that structural cost of conducting the business will have to
corporate purchasing and supply transformations may be addressed and optimized while firms pursue ongoing
have stalled due to the challenges of adjusting to the variable cost reduction. On the balance sheet, more
realities of a more complex environment. This reduced efficient and effective use of fixed assets will be
pace of transformation may again be caused by narrow required. There will also be a need to increase cash flow.
price-focused rather than value-driven supply These requirements will impact the business models
objectives, limited e-system integration, and difficulties and all functionally driven strategies, including supply.
in achieving cross-functional integration and company
reorganizations. Over the recent past, the severe These drivers have a cascading effect on the supply
worldwide economic recession has also slowed supply mission, goals, and performance expectations. The
transformation initiatives. However, firms are again above-mentioned research study concluded that more
focusing on developing world-class supply management innovation will be required from suppliers, there will be
as risk (e.g., typhoons, nuclear accidents, financial an increased need to contribute to revenue generation
distress, and geopolitical disruptions) and lack of through effective sourcing and supply, and supply
innovation have negatively affected supply chain and strategies will require further risk mitigation and an
firm performance. expanded cost management focus. Overall, the
strategies and processes that have worked in the past
will require significant transformation to be effective in
What Will the Next 10 Years Look Like? a changing world in the future.

For a firm to achieve progress toward attaining Stage IV Even though the ideas presented in the above
status, it must identify supply strategies that are critical paragraphs were written in 2007, they still ring true
to its success, understand the current state of today. Therefore, every supply organization worldwide
importance and implementation, and work toward must continually examine itself and the transformation
appropriate alignment. A transformation strategy must strategies being employed to ensure effective world-class
then be established, supported by required investments supply organizations over the next five, 10, and 15
and measurement of implementation progress and years. Continuous change and transformation is
results. required, although not necessarily natural to all
organizations. Therefore, supply organizations must
To position this report in terms of the future develop a mindset to embrace change and then develop
competitive environment and resulting desired state, we the processes to drive continuous — and sometimes
continue to draw on the 2007 CAPS Research report breakthrough — renewal.
Succeeding in a Dynamic World: Supply Management in the
Decade Ahead,1 which suggests that we will face
turbulent times in the future. Significant forces of
change will impact organizations. Some of these forces

Succeeding in a Dynamic World: Supply Management in the Decade Ahead, CAPS Research Report, 2007.
1

12 Supply Strategy Implementation: Current State and Future Opportunities 20011

CAPS Executive Assessment of Supply (EAS): ❑ Establishing World-Class Supplier Quality
❑ Global Sourcing & Supply Strategy
Development and Objectives
❑ Strategic Cost Management
❑ Total Cost of Ownership
The CAPS Executive Assessment of Supply (EAS) was
❑ Standardization of Products, Services,
developed to help firms address the changing world of
Components & Design Specifications
supply management. EAS builds on the knowledge
❑ Environmentally Sustainable Supply Chain
gained in deploying Project 10X at CAPS Research and
Management
follows the development of approximately 350 supply
❑ Procurement & Supply Organization Structure &
assessment questions based on experience with
Governance
worldwide firms over the past 10 years. These 350
❑ Cross-Functional/-Location Teaming
questions were modified and reduced so as to provide
❑ Measurement & Evaluation
22 strategically focused supply strategy questions and
❑ E-Sourcing & Supply Chain Strategies
two questions focused on performance. For each of the
❑ Human Resource Development
24 assessment questions, specific attributes were
❑ Engagement by Corporate Executives & Business
included that describe leading-edge practices. These
Unit Leaders
attributes provide the basis for rating the current state
❑ Accelerated Change Management
of the strategy for strategic importance to the firm and
degree of implementation. From these ratings, gaps can
In addition, data related to Competitive Performance
be determined between importance and
was also collected.
implementation.
Each strategy area includes a definition, all of which are
Transformation progress can also be measured over time
shown in Appendix A.
through comparison between past, current, and future
assessments. In addition, supply and firm performance
questions were also included. An assessment question
example is shown in Chapter 2, including rating scales. EAS and Value-Add to Company Competitiveness

This EAS report also provides respondents with a The value of the EAS is twofold. First, an industrywide
capability to compare themselves with other firms. In report (backed by more detailed data) is provided so
addition to the information provided in the report, each that an individual firm’s transformation progress can be
participating company receives additional EAS data, benchmarked. Second, a firm can determine its current
enabling comparative analysis across the 119 responding state through EAS deployment and establish the go-
companies organized by various industry segments. forward transformation plan to achieve an “ideal state.”
This “ideal state” should provide overall company value
creation through enhanced supply strategies. In
addition, by applying the EAS findings across strategic
Supply Strategies Included in EAS
business units and key facilities on a worldwide basis, a
firm can establish where change is taking place and
The following purchasing/supply strategies were
determine what may have led to improvements in
included in the 2011 CAPS Executive Assessment of
performance. Conducting an EAS may also be a key
Supply and were meant to be strategically, rather than
element in supply strategy development and
tactically, focused.
implementation, and help to “level-up” the entire
supply organization.
❑ Vision, Mission and the Strategic Plan
❑ Strategic Insourcing/Outsourcing
Figure 1.2 illustrates the application of EAS. The
❑ Commodity & Supplier Strategy Process
application can be both companywide (one response
❑ Structuring & Maintaining the Supply Base
per company) or tailor-made (conducted across multiple
❑ Supplier Assessment, Measurement &
business units and supply locations within a firm). This
Communications
report is based upon the worldwide assessment across
❑ Supplier Integration into New
firms, which includes only one response per firm (i.e.,
Product/Process/Service Development
where multiple responses were received, they were
❑ Supplier Integration into Customer Order
averaged into a single response for this report).
Fulfillment
❑ Strategic Supplier Alliances
❑ Collaborative Buyer/Supplier Development &
Continuous Improvement

CAPS Research 13
 Figure 1.2
EAS Application

Research Approach Respondent Profile

Approximately 1,100 companies were asked to Completed assessments were received from 119
participate in the 2011 EAS study. Companies solicited companies (approximately 11 percent of those that were
included CAPS Research sponsoring companies, selected originally asked to participate).
members of the Institute of Supply Management™, and
firms that have participated in prior CAPS Research The current state of supply strategy importance and
projects. The request to participate in EAS was generally implementation is based on the 119 companies
sent to supply management executives. Once a responding to the CAPS Executive Assessment of
company agreed to participate, information about Supply. Twenty-eight percent of respondents were from
accessing a web-based EAS tool was emailed to the discrete manufacturing industry, 35 percent of
participants. respondents were from the process manufacturing
industry, and 37 percent of respondents were from the
Data collection took place between February and May service industry.
2011.

14 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 1.3
Responding Company Profile

Figure 1.4
EAS Participating Industries

The respondent profile is also characterized by the • Fifty-five percent of the firms had sales over $5
following: billion. Thirty-seven percent had sales between $1
billion and $5 billion. The remaining 8 percent of
• Twenty-five industries were included, as shown in firms had sales less than $1 billion.
Figure 1.4. • The annual direct and indirect spend of these
firms were:

CAPS Research 15
 Annual Spend Direct Indirect Chapter 2 — Supply Strategies: Importance,
Greater than $5 billion 21% 16% Implementation, and Gaps
$1 billion to $5 billion 47% 35% • Introduction
Less than $1 billion 32% 49% • Example Question
• Overall EAS Findings
• Just over 71 percent of respondents represented a • Supply Strategy Importance Ratings and Rankings
companywide view, while slightly more than 21 • Supply Strategy Implementation Ratings and
percent represented a strategic business Rankings
unit/division view. Just under 7 percent of • Supply Strategy Gap Analysis
respondents represented a geographic view. • Overall Importance/Implementation Gap Analysis
• About 84 percent of the responses reflected • Comparison Between High and Low
responsibility for both direct and indirect purchases, Implementation Firms
with direct and indirect approximately equal. • Observations: High and Low Implementation
Firms
• Conclusions: Current State of Supply Strategies
Overall Research Framework
Chapter 3 — Industry Analysis
Figure 1.5 shows the overall Supply Leadership Model • Introduction
driving supply transformation and the critical strategy • Industry Sector Difference Findings
areas around which the EAS was developed. • Industry Difference Conclusions
• Average Ratings by Industry Sectors

Chapter 4 — Strategy Implementation and Supply

Report Organization Performance
• Introduction
The remainder of the report includes the following • Supply Performance
sections:

Figure 1.5
Supply Leadership Model

16 Supply Strategy Implementation: Current State and Future Opportunities 20011

 • Conclusions
• Industry Performance Differences

Chapter 5 — What Has Changed? 2007 to 2011

• Introduction
• Overall Changes: 2007, 2009, and 2011
• Supply Strategy Changes: Firms Common among
2007, 2009, and 2011

Chapter 6 — Critical Supply Strategies 2011 to 2015

• Introduction
• Emerging Supply Strategy Findings
• Conclusions

Chapter 7 — Summary and The Path Forward

• Introduction
• Summary: Key Findings
• The Path Forward: Supply Transformation 2011
to 2015
• Clear Goals
• Establish Priorities
• Resources & Capabilities
• Supply Transformation Process and EAS
Application
• The “Decade Ahead”: Supply Strategy
Implementation
• Strategy Enhancement
• Supplier-Focused Strategies
• Supply/Value Chain Integration
• Concluding Comments

Appendices
• Appendix A — Supply Strategy Definitions
• Appendix B — Statistical Analysis
• Appendix C — Supply Strategy Comparisons by
Industry Sector
• Appendix D — Selected Emerging Supply
Strategies

CAPS Research 17
 Chapter 2: Suppy Strategies:
Importance, Implementation, and Gaps

Introduction 3. Average importance, implementation, and gap

ratings were 7.53 (high importance), 5.50
Supply and other executives regularly raise the (moderate implementation), and 2.02 (major
question, “How are we doing compared to other leading gap), respectively.
firms?” This report provides answers. The data collected
from 119 worldwide firms provides insights into the When compared to the 2009 data, the following
current state of importance, implementation, and gaps observations are significant:
for 22 critical-to-success supply strategies. In addition,
this chapter includes discussion of the strategy ratings 1. Average importance in 2011 is similar to 2009.
and rankings for the highest and lowest rated firms. 2. Average implementation is slightly lower than
2009.
3. The average gap is larger than 2009 by 0.13.
Example Question
When 2011 data is compared to the 2007 data, the
following observations are especially notable:
An assessment question example and rating scale, with
definitions, is shown in Figure 2.1 to assist in the
1. Overall importance is somewhat less than in
interpretation of the findings. This examples is from the
2007.
supply strategy of: Commodity & Supplier Strategy
2. Overall implementation is somewhat higher than
Process.
in 2007.
3. Overall gap is smaller than 2007 by 0.4.

Overall EAS Findings A number of conclusions can be drawn from the overall
data. First, we are seeing a greater degree of supply
Figure 2.2 shows the range of average ratings across all strategy implementation in 2011 than in 2007, with a
companies for the 22 supply strategies for “importance,” small decrease when compared to 2009. There was a
“implementation,” and the resulting “gaps” between reduction in the gap between importance and
implementation and importance. A “gap” is the implementation from 2007 (both as a product of
difference in ratings between “importance” and decreasing importance of some strategies and increased
“implementation” for a specific strategy. implementation of the same or other strategies), but an
increase in the gap compared to 2009. This may be the
The following overall 2011 findings are most result of reduced resources available for strategy/practice
interesting: improvement and implementation due to the severe
economic recession. Second, even though the average
1. Importance ratings are at least 1.25 higher than gap has been reduced from 2007, overall implementation
implementation at both the high and low ends. is far lower than the corresponding importance change,
2. The gap range is large, from a low of -1.13 to a as can be seen by rating ranges and averages.
high of -2.63 between implementation and
importance.

18 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Figure 2.1
Assessment Example with Rating Scales

CAPS Research 19
 Figure 2.1
Assessment Example with Rating Scales (continued)

Figure 2.2
Overall 2011 EAS Findings

In addition, firms likely rated supply strategies more Supply Strategy Importance Ratings and
highly on importance, as many strategies can be
Rankings
strategically important to the success of the firm.
However, implementation may lag because a firm is just
Table 2.1 provides insight into the overall ratings and
beginning or is partially along its transformational
rankings for the 22 strategy areas by “importance.” In
journey; resources have been limited in support of the
addition, a difference in the average rating score of more
transformations, especially in difficult economic times;
than 0.47 between strategies is statistically significant.
some strategies are not the focus of the implementation;
For example, the group of six strategies most highly
and strategies that are being implemented have taken
rated is significantly different than the 11 lowest rated
considerable time and resources to complete.
strategies. (See Appendix B for a description of
methodology used to determine statistical significance.)

20 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Table 2.1
Overall Importance Strategy Ratings

Strategy Area Importance

Engagement by Corporate Executives & Business Unit Leaders 8.36
Vision, Mission and the Strategic Plan 8.29
Commodity & Supplier Strategy Process 8.27
Strategic Cost Management 8.25
Procurement & Supply Organization Structure & Governance 8.21
Human Resource Development 8.21
Total Cost of Ownership 7.88
Structuring & Maintaining the Supply Base 7.80
Measurement & Evaluation 7.76
Establishing World-Class Supplier Quality 7.72
Supplier Assessment, Measurement & Communications 7.61
Cross-Functional/-Location Teaming 7.58
Strategic Supplier Alliances 7.26
Collaborative Buyer/Supplier Development & Continuous Improvement 7.18
Accelerated Change Management 7.13
Supplier Integration into New Product/Process/Service Development 7.11
Strategic Insourcing/Outsourcing 7.10
Standardization of Products, Services, Components & Design Specifications 7.08
E-Sourcing & Supply Chain Strategies 6.99
Global Sourcing & Supply Strategy 6.98
Environmentally Sustainable Supply Chain Management 6.65
Supplier Integration into Customer Order Fulfillment 6.19
Average Importance 7.53

A number of observations can be drawn from the and building appropriate governance and strategy
“importance” ratings, including: to carry out the Vision, Mission and the Strategic
Plan, which is rated highest of all strategies.
• The overall average strategy ratings range around Clearly, having the best possible human resource
“high/critical” (operational necessity; required for talent is an enabler to success in all 22 supply
operational effectiveness; necessary to gain market strategy areas.
leadership; achieves competitive viability — a
necessary consideration to compete) • The seven lowest rated strategies require
engagement of executives and key persons
• The top six rated strategies all focus on the initial working collaboratively across functions, which is
building blocks of an effective supply function frequently more difficult to do as more functions
(enablers) and/or are critical to achieving cost need to be aligned to achieve measurable results.
improvement.
• Supplier Integration into Customer Order
• Engagement by Corporate Executives & Fulfillment
Business Unit Leaders • Environmentally Sustainable Supply Chain
• Vision, Mission and the Strategic Plan Management
• Commodity & Supplier Strategy Process • Global Sourcing & Supply Strategy
• Strategic Cost Management • E-Sourcing & Supply Chain Strategies
• Procurement & Supply Organization • Standardization of Products, Services,
Structure & Governance Components & Design Specifications
• Human Resource Development • Strategic Insourcing/Outsourcing
• Supplier Integration into New Product/
• In addition, these six most highly rated strategies Process/Service Development
all revolve around supply management leadership

CAPS Research 21
Supply Strategy Implementation Ratings and • The lower implemented strategies generally focus
around strategies requiring significant investment
Rankings
or those that require true cross-functional
implementation, and are similar to the strategies
Table 2.2 provides the overall ratings and rankings for
lowest rated in importance.
the 22 strategy areas by degree of “implementation.” A
difference in average rating greater than 0.47 means that
• Strategies associated with extended supply chains,
one strategy is significantly different than another. (See
aligning and linking organizations, and achieving
Appendix B for the description of methodology used to
collaboration with suppliers were “moderately”
determine statistical significance.) For example, the two
implemented. Other cross-functional and cross-
most commonly implemented strategies are significantly
enterprise strategies also lagged in
different than the two least implemented strategies.
implementation.
A number of observations can be drawn from the
• Environmentally Sustainable Supply Chain
“implementation” ratings:
Management was substantially less implemented,
probably due to the significant financial and cost
• The overall average strategy ratings range from
reduction pressures firms were under due to the
“moderate” to somewhat less than “extensive,”
economic downturn, as well as the fact that it is a
which suggests limited implementation.
relative newcomer to the set of available supply
strategies. Further, the linkage between
• The most frequently implemented strategies were
environmentally sustainable strategies and
primarily focused on establishing the foundation
organizational performance outcomes is still not
for effective supply strategies and commodity and
well understood.
supplier strategy development, and were
somewhat aligned with the importance rankings.

Table 2.2
Overall Implementation Strategy Ratings

Strategy Area Impementation

Procurement & Supply Organization Structure & Governance 7.08
Engagement by Corporate Executives & Business Unit Leaders 6.63
Vision, Mission and the Strategic Plan 6.49
Commodity & Supplier Strategy Process 6.18
Strategic Cost Management 6.09
Cross-Functional/-Location Teaming 6.09
Structuring & Maintaining the Supply Base 5.77
Total Cost of Ownership 5.76
Strategic Insourcing/Outsourcing 5.71
Measurement & Evaluation 5.64
Human Resource Development 5.58
Strategic Supplier Alliances 5.36
Establishing World-Class Supplier Quality 5.32
Global Sourcing & Supply Strategy 5.30
E-Sourcing & Supply Chain Strategies 5.09
Supplier Integration into New Product/Process/Service Development 5.04
Supplier Assessment, Measurement & Communications 5.01
Collaborative Buyer/Supplier Development & Continuous Improvement 4.83
Standardization of Products, Services, Components & Design Specifications 4.73
Accelerated Change Management 4.64
Environmentally Sustainable Supply Chain Management 4.40
Supplier Integration into Customer Order Fulfillment 4.29
Average Implementation 5.50

22 Supply Strategy Implementation: Current State and Future Opportunities 20011

Supply Strategy Gap Analysis ❑ Procurement & Supply Organization Structure &
Governance (8.21/7.08)
The ratings data was also analyzed to determine the ❑ Strategic Insourcing/Outsourcing (7.10/5.71)
“gaps” between strategy importance and implementation. ❑ Cross-Functional/-Location Teaming (7.58/6.09)
On average, the overall “gaps” across all 22 strategy ❑ Global Sourcing & Supply Strategy (6.98/5.30)
areas were between -1.13 and -2.63 (negative numbers ❑ Engagement by Corporate Executives & Business
reflect greater importance than implementation). The Unit Leaders (8.36/6.63)
rankings for all gaps are shown in Table 2.3.
The data suggest that the largest gaps were driven by
The largest gaps were for:2 ”high to critical” importance ratings with
implementation only being achieved to a moderate
❑ Human Resource Development (8.21/5.58) degree. The smallest gaps had ratings approaching
❑ Supplier Assessment, Measurement & “extensive” for implementation, with importance being
Communications (7.61/5.01) “high to more critical.”
❑ Accelerated Change Management (7.13/4.64)
❑ Establishing World-Class Supplier Quality
(7.72/5.32) Overall Importance/Implementation Gap
❑ Collaborative Buyer/Supplier Development &
Continuous Improvement (7.18/4.83)
Analysis
❑ Standardization of Products, Services,
Additional analysis was done to compare the “gaps”
Components & Design Specifications (7.08/4.73)
with importance and implementation to assist firms in
comparing themselves against all respondents and for
The smallest gaps were for:
priority setting.

Table 2.3
Overall Strategy Ratings — Gaps

Strategy Area Gap

Human Resource Development -2.63
Supplier Assessment, Measurement & Communications -2.60
Accelerated Change Management -2.49
Establishing World-Class Supplier Quality -2.40
Collaborative Buyer/Supplier Development & Continuous Improvement -2.35
Standardization of Products, Services, Components & Design Specifications -2.35
Environmentally Sustainable Supply Chain Management -2.24
Strategic Cost Management -2.16
Total Cost of Ownership -2.12
Measurement & Evaluation -2.12
Commodity & Supplier Strategy Process -2.08
Supplier Integration into New Product/Process/Service Development -2.07
Structuring & Maintaining the Supply Base -2.03
Supplier Integration into Customer Order Fulfillment -1.90
Strategic Supplier Alliances -1.90
E-Sourcing & Supply Chain Strategies -1.90
Vision, Mission and the Strategic Plan -1.81
Engagement by Corporate Executives & Business Unit Leaders -1.73
Global Sourcing & Supply Strategy -1.68
Cross-Functional/-Location Teaming -1.49
Strategic Insourcing/Outsourcing -1.39
Procurement & Supply Organization Structure & Governance -1.13
Average Gap -2.02

Numbers in parentheses show the importance and implementation ratings.

2

CAPS Research 23
Figure 2.3 establishes quadrants by taking the mean of ❑ Standardization of Products, Services,
“importance” ratings and mean of “gap” ratings and Components & Design Specifications
then plots where the strategies fall. From Figure 2.3, ❑ Accelerated Change Management
Strategic Cost Management, Human Resource
Development, Total Cost of Ownership, Measurement & These strategies require priority consideration by
Evaluation, and Establish World-Class Supplier Quality organizations, depending on their current
clearly fall in Quadrant 2 — higher importance and transformation focus and industry competitive
larger gaps. In addition, Supplier Assessment, requirements.
Measurement & Communications; Commodity &
Supplier Strategy Process; and Structuring & Quadrant 1 strategies in Figure 2.3 require a continuing
Maintaining the Supply Base fall on the margins of focus, looking for opportunities to enhance. Depending
Quadrant 2. These strategies are a potential on the firm’s focus and strategy implementation, the
transformation priority and can be characterized as a strategies in Quadrant 4 may be currently viewed as
Priority 1, with a “must do” focus. appropriate and a lower priority.

In addition, Quadrant 3 in Figure 2.3 shows a number Overall, establishing the supply strategy transformation
of strategies that are somewhat lower in importance but priority focus at a firm depends upon its position on the
still have larger gaps. They include: maturity curve and the anticipated and quantified
benefits from further implementation of a specific
❑ Environmentally Sustainable Supply Chain strategy(s) in a specific industry sector. Detailed analysis
Management of the potential return and the logic supporting
❑ Collaborative Buyer/Supplier Development & anticipated benefits is required to establish clear
Continuous Improvement priorities for each firm.

Figure 2.3
Strategy Segmentation Analysis: Importance/Gap

24 Supply Strategy Implementation: Current State and Future Opportunities 20011

A given firm’s supply strategies by quadrant may not be magnitude of the rating differences and relative ranking
the same as the overall set of respondents and should of each strategy between the two groups. The results are
reflect its actual current state. However, applying similar shown in Tables 2.4 and 2.5.
analyses, combined with anticipated benefits and
implementation complexity, can assist in developing a
firm’s supply strategy implementation path. Observations: High and Low Implementation
Firms
Comparison Between High and Low • The implementation range for the top 25
Implementation Firms companies was from a high of 8.8 for
Procurement & Supply Organization Structure &
A comparison was also done of the top and bottom 25 Governance to a low of 6.0 for Standardization of
firms based on implementation ratings to determine the Products, Services, Components & Design

Table 2.4
Implementation: Highest 25 Companies versus Lowest 25 Companies

CAPS Research 25
 Table 2.5
Overall Implementation Ratings for Top/Bottom 25 Firms

Highest 25 Lowest 25
Companies Companies
Rank Average Rank Average
1 9.6 1 1.6
2 9.1 2 2.2
3 8.5 3 2.3
4 8.0 4 2.3
5 7.8 5 2.6
6 7.6 6 2.6
7 7.5 7 2.8
8 7.5 8 3.1
9 7.4 9 3.2
10 7.3 10 3.4
11 7.3 11 3.5
12 7.3 12 3.6
13 7.2 13 3.8
14 7.0 14 3.8
15 7.0 15 3.8
16 7.0 16 3.9
17 7.0 17 4.0
18 6.9 18 4.0
19 6.9 19 4.1
20 6.9 20 4.1
21 6.9 21 4.1
22 6.8 22 4.1
23 6.8 23 4.2
24 6.8 24 4.3
25 6.7 25 4.3
Average 7.4 Average 3.4

Specifications. This was considerably higher than have achieved moderate implementation at best.
the overall range for all companies of 7.08 to 4.29 The overall strategy implementation differences
for implementation, as would be expected. The ranged from 4.9 to 2.8 across the 22 strategies.
bottom 25 company implementation range was
from 2.3 for Collaborative Buyer/Supplier • The largest implementation differences were
Development & Continuous Improvement to 4.7 between Global Sourcing & Supply Strategy; Total
for Vision, Mission and the Strategic Plan, Cost of Ownership; Establishing World-Class
substantially lower than the top 25. Supplier Quality; Collaborative Buyer/Supplier
Development & Continuous Improvement; and
• Substantial differences exist for all strategies Supplier Assessment, Measurement &
between the highest and lowest companies, Communications.
ranging from a difference of 4.9 to 2.8.
• For the top and bottom 25 firms, Procurement &
• The 25 highest ranked companies have most Supply Organization Structure & Governance;
typically implemented Procurement & Supply Engagement by Corporate Executives & Business
Organization Structure & Governance; Unit Leaders; and Vision, Mission & Strategic
Engagement by Corporate Executives & Business Plan were commonly among both groups’ top five
Unit Leaders; Vision, Mission and the Strategic most implemented strategies.
Plan; Strategic Cost Management; and Total Cost
of Ownership. In the highest implemented • In addition, further analysis was done comparing
companies, these strategies have been extensively the highest and lowest 25 firms based on average
implemented, while the lowest 25 companies implementation ratings for all 22 strategies. The

26 Supply Strategy Implementation: Current State and Future Opportunities 20011

 results are shown in Table 2.5. The highest All firms should also consider how they can accelerate
ranked firms have an average implementation their supply transformation efforts and goal
rating of 7.4, while the lowest ranked firms have achievements. By comparing the top and bottom 25
an average of 3.4, indicating significant differences firms based on implementation, we found large strategy
in strategy implementation. On average, the firms implementation differences between these two groups,
with the highest degree of supply strategy both overall and by strategy area. Lagging
implementation are far ahead of their implementation, lack of a transformation focus, and too
counterparts. few resources could prove costly to firms over time,
given the reported achievements of the various
organizations most implemented.
Conclusions: Current State of Supply Strategies
Finally, in our opinion, the strategies that are generally
The strategic importance of 22 critical supply strategies rated less important are relatively harder to implement
was, on average, rated as “High: Operational necessity; and companies may be focusing on easier to implement
required for operational effectiveness; necessary to gain strategies. On the other hand, for some companies the
market leadership; achieves competitive viability — a relative importance is lower because they have
necessary condition to complete.” Implementation, implemented these strategies and have now moved on
however, was on average scored between “Moderate: to implementing new higher priority strategies. In
Multiple attributes implemented and becoming addition, the least implemented strategies require the
accepted as effective means of doing business in at least longest view and generally require integration across
one business unit, site, or organization” and “Extensive: functions and cross-functional collaboration. These
Most attributes implemented across multiple business strategies may offer the greatest contribution to supply
units, sites, or organizations; attributes demonstrated as value creation during the next one to five years. For
the best way of doing business; results are beginning to example, a continuing focus on e-supply systems as a
show improvement in line with plans.” The maximum critical enabler will be required. Without e-systems to
rating for strategic importance is “critical”; for provide important data and a means to communicate
implementation, the maximum is “complete.” and collaborate within and across organizations, supply
value creation may be limited. Innovation and
It appears that there is considerable need for firms to accelerated change management also need to be an
further implement supply strategies critical to their integral part of supply transformation efforts, as does
overall competitiveness than has been achieved to date. enhancing talent.
However, the data also suggests that considerable
progress has been made in implementation of supply This analysis of more than 119 respondents provides
strategies since 2007 and 2009. insight into the current state of supply strategy
importance, implementation and gaps. The information
Additional analyses also indicated a number of key also provides the opportunity for firms to compare their
strategies that should be considered as priority areas supply strategy ratings against other firms and deploy
based on combining the magnitude of gaps and the EAS worldwide so as to measure change over time
strategic importance of the strategies. These include: resulting from supply transformation strategies being
implemented at their firm.
❑ Commodity & Supplier Strategy Process
❑ Strategic Cost Management
❑ Human Resource Development
❑ Structuring & Maintaining the Supply Base
❑ Measurement & Evaluation
❑ Supplier Assessment, Measurement &
Communications
❑ Total Cost of Ownership
❑ World-Class Quality
❑ Accelerated Change Management

Naturally, each firm will have to evaluate its own needs,

current state, and opportunities to establish priorities
and transformation strategies.

CAPS Research 27
 Chapter 3: Industry Analysis

Introduction shown. However, meaningful conclusions versus

hypothesis would only be conjecture.
This chapter provides findings that show differences
between three industry sectors: discrete manufacturing, • “Implementation” rated lower than “importance”
process manufacturing, and services. The results are across all industry sectors.
organized by industry sector and then by importance,
implementation, and gap. In addition, differences in • In addition, statistically significant differences
implementation by industry sector are also provided. between industry sectors were not found for any
of the supply strategy areas. Even though there
This chapter provides data in the following sequence: were absolute differences, they were not found to
be statistically significant. However, they may be
1. Industry differences for importance of practical interest when reviewing the industry
2. Industry differences for implementation tables in Appendix C.
3. Discrete, process, and service data for importance,
implementation, gaps, and top/bottom 10
company ratings Average Ratings by Industry Sectors
4. Conclusions
Following are the cross-industry sector comparisons for
average importance, implementation, and gap ratings
Industry Sector Difference Findings across the 22 supply strategy areas. Appendix C
provides more detailed tables regarding survey results as
A few differences in implementation and importance they pertain to specific industries. In that section,
were found between discrete, process, and service ratings are then provided by each strategy area. The
industry firms. Those differences by strategy area and tables are organized by industry sector to assist readers
by industry sector are shown in Tables 3.1 and 3.2. who are most interested in their own industry.

Tables 3.3 and 3.4 provide some interesting data:

Industry Difference Conclusions
• The discrete industry has an overall higher average
importance rating than either process or service.
• There is a high degree of similarity in strategy
• Implementation of supply strategies is lowest, on
importance ratings between the discrete, process,
average, in the service industry sector, which also
and service sectors.
has the largest gap.
• The implementation difference between the top
• Discrete manufacturing firms are further along the
and lowest 10 firms across industry sectors is
“implementation” transformation journey and
quite large, indicating there are truly leading and
have higher “importance” ratings.
lagging firms within all industries.
• The discrete industry appears to be further along
• Generally, discrete manufacturing had higher
in strategy implementation, at least compared to
importance (7 strategies) or implementation (10
service.
strategies) ratings than process or service as

28 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Table 3.1
Strategy Importance Differences by Industry

Strategy Area Significant Differences*

D > P & S** D>P D>S P>S S > D or P
❑ Supplier Integration into New
Product/Process/Service X X
Development
❑ Collaborative Buyer/Supplier
Development & Continuous X
Improvement
❑ Establishing World-Class
X X
Supplier Quality
❑ Global Sourcing & Supply
X X
Strategy
❑ Standardization of Products,
Services, Components & X
Design Specifications
* Differences significant at the 0.05 level (see Appendix B)
** D = Discrete industry; P = Process industry; S = Service industry

Table 3.2
Strategy Impementation Differences by Industry

Strategy Area Significant Differences*

D > P & S** D>P D>S P>S S > D or P
❑ Vision, Mission & the
X
Strategic Plan
❑ Commodity & Supplier
X X
Strategy Process
❑ Structuring and Maintaining
X
the Supply Base
❑ Supplier Assessment,
Measurement & X
Communications
❑ Supplier Integration into New
Product/Process/Service X
Development
❑ Collaborative Buyer/Supplier
Development & Continuous X
Improvement
❑ Establishing World-Class
X X
Supplier Quality
❑ Global Sourcing & Supply
X X
Strategy
❑ Measurement & Evaluation X X
❑ Accelerated Change
X
Management
* Differences significant at the 0.05 level (see Appendix B)
** D = Discrete industry; P = Process industry; S = Service industry

CAPS Research 29
 Table 3.3
Average Ratings by Industry Sector

Industry Sector Importance Implementation Gap

Discrete 7.84 5.91 -1.92
Process 7.48 5.73 -1.75
Service 7.34 4.98 -2.36
Overall 7.53 5.50 -2.02

Table 3.4
Implementation Ratings for Top/Bottom Firms by Industry Sector for 22 Strategies

Industry Sector Top 10 Bottom 10 Difference

Discrete 7.3 4.6 2.7
Process 7.7 3.6 4.1
Service 6.6 3.0 3.6

Table 3.5 shows the supply strategies with the biggest

gaps by industry sector. They were somewhat different
across the industries.

Table 3.5
Top Six Strategy Gaps by Industry Sector

Rank Discrete Process Service

1 Standardization of Products, Supplier Assessment, Human Resource
Services, Components & Measurement & Development
Design Specifications Communication (-3.23)
(-2.97) (-2.31)
2 Supplier Integration into Environmentally Sustainable Supplier Assessment,
Customer Order Fulfillment Supply Chain Management Measurement &
(-2.64) (-2.21) Communications
(-3.18))
3 Human Resource Accelerated Change Establishing World-Class
Development Management Supplier Quality
(-2.52) (-2.17) (-3.14)
4 Accelerated Change Human Resource Accelerated Change
Management Development Management
(-2.39) (-2.10) (-2.86)
5 Supplier Integration into Standardization of Products, Measurement & Evaluation
New Product/Process/ Services, Components & (-2.82)
Service Development Design Specifications
(-2.36) (-2.07)
6 Collaborative Buyer/Supplier Establishing World-Class Collaborative Buyer/Supplier
Development & Continuous Supplier Quality Development & Continuous
Improvement (-1.98) Improvement
(-2.21) (-2.77)

30 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 4: Strategy Implementation
and Supply Performance

Introduction The 11 performance areas and results are shown in

Table 4.1 and include 2007, 2009, and 2011.
What supply performance improvements have firms
been achieving? Are there apparent relationships
between supply strategy implementation and Conclusions
performance? These two questions are the focus of
Chapter 4. • Supply performance improvements in 2011 were
limited compared to 2009, likely due to the
severe economic recession and upward price
Supply Performance pressure on commodities.

Each respondent was asked to provide supply • Unit purchase price; transportation and logistics
performance information for 11 performance areas. costs; and total cost of ownership all improved by
Specifically, they were directed: 3.65 percent, 2.83 percent, and 3.55 percent
respectively over the “past 12 months.” However,
“For your most important purchases (80/20 rule) over purchase price improvement was less than that
the past twelve (12) months, indicate the magnitude of achieved in 2009 and 2007.
measurable performance improvements and/or
business unit contribution achieved through sourcing • Improvements were also achieved in all other
and supply chain strategies at your business unit.” performance areas, including supplier payment
terms, quality, order cycle times, on-time delivery,

Table 4.1
Supply Performance Results (2007, 2009, and 2011)*

CAPS Research 31
 responsiveness/flexibility, and achievement of Over the 22 performance areas, measured based on
supplier diversity. qualitative ratings, there was small slippage in the rate
of performance improvement. The largest improvements
• The ranges between maximum improvement and were with “executive satisfaction with supply” and
worsening were quite large, indicating significant “standardization or consistency in the sourcing process,”
variability between firms and industries. although this increase was less than those seen in 2007
and/or 2009. Smallest rates of improvement were for
• For 2011, the rate of improvement across all “processes to systematically obtain, evaluate, and
performance measures was similar or less than in respond to supplier ideas” and “inventory cost for
2007. purchase items.”

In addition, performance rating responses were Overall, significant performance improvements were not
requested for the 22 performance areas shown in Table evident.
4.2, which shows rating results for 2011, 2009, and
2007. The question asked whether performance stayed
the same, got better, or became worse. These Industry Performance Differences
performance areas are organized by three major
categories: overall sourcing and supply chain process Statistical analyses were performed to determine
improvements, overall supply value-add, and overall whether there were significant industry sector
relationships and satisfaction. These ratings were differences for both the objective and qualitative
respondent perceptions. performance measures. The results of the analyses
showed a number of differences between industry
sectors, including:

Table 4.2
Performance Results (2007, 2009, and 2011)*

32 Supply Strategy Implementation: Current State and Future Opportunities 20011

 • The service sector achieved the greatest purchase • For qualitative rating performance change,
price improvement (5.1 percent) with discrete discrete manufacturing had greater improvement
(4.1 percent) and process (1.8 percent) following. in transportation/logistics transaction efficiency,
performing to purchase price/cost objectives, and
• The discrete industry led the way for rate of payment terms with suppliers than did the
improvement for transportation and logistics cost, process and service sectors.
total cost of ownership, performing to purchase
price/ cost objectives, supplier Tables 4.3 and 4.4 show the actual reported
responsiveness/flexibility, and supplier quality. performance averages and performance improvement
ratings by each performance area overall and for the
• The service sector achieved the highest industry sectors.
improvement in supplier diversity.

Table 4.3
Actual Performance: Overall and by Industry Sector

Overall Discrete Process Service

Performance Area (N~85-107) (N~25-30) (N~34-39) (N~22-39)
Unit Purchase Price 3.7% 4.1% 1.8% 5.1%
Transportation & Logistics Costs 2.8% 4.3% 1.5% 3.2%
Total Cost of Ownership 3.6% 4.9% 2.5% 3.6%
Performing to Purchasing Price/Cost
2.9% 5.7% 0.6% 2.7%
Objectives
Inventory Investment Cost for Purchased
1.1% 1.3% 0.9% 1.0%
Goods
Payment Terms With Suppliers (# Days) 0.8 0.2 0.3 1.9
Supplier Quality 2.9% 5.6% 1.1% 2.7%
Supplier Technology Contribution 2.4% 2.9% 1.2% 3.3%
Supplier On-Time Delivery 0.8% 0.2% 0.3% 1.9%
Supplier Responsiveness/Flexibility 2.3% 4.4% 2.1% 1.2%
Supplier Diversity 4.6% 4.0% 3.2% 6.4%

CAPS Research 33
 Table 4.4
Performance Improvement: Overall and by Industry Sector

34 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 5: What Has Changed?
2007 to 2011

Introduction ❑ Innovation & Accelerated Change Management

(as it was labeled in 2007, 2009), Accelerated
This chapter highlights differences between 2007, 2009, Change Management (as it was labeled in 2011)
and 2011 EAS responses and includes: ❑ Environmentally Sustainable Supply Chain
Management
• Overall strategy importance, implementation, and ❑ Human Resource Development
resulting gap differences ❑ Measurement & Evaluation
• Differences in rank order for importance and ❑ Standardization of Products, Services,
implementation ratings Components & Design Specifications
• Differences in performance: actual and ❑ Global Sourcing & Supply Strategy
perceptions
• Differences in ratings by companies that Overall, it appears that supply strategy implementation
participated in the 2007, 2009, and 2011 generally lagged between 2009 and 2011, decreasing by
Executive Assessments of Supply 0.16, probably due to the start and continuation of the
severe economic recession. However, implementation
increased on average by 0.31 between 2007 and 2011.
Progress was made, but was ultimately slowed due to
Overall Changes: 2007, 2009, and 2011
the economy.
Tables 5.1, 5.2, and 5.3 provide insights about the
Tables 5.2 and 5.3 show difference rankings of ratings
supply strategy importance, implementation, and gap
for the 22 strategy areas by implementation and
changes that have occurred between 2007, 2009, and
importance. These tables may provide the reader
2011.
additional insights.
The overall gap reduction between 2007 and 2009 was
The decrease in importance ratings may be explained by
0.5, which is significant. However, between 2009 and
the relative transformation focus on selected strategies
2011, the average gap then increased by 0.1. Only six
and/or different responding companies between 2007,
gap reductions were achieved between 2009 and 2011:
2009, and 2011.
❑ Procurement & Supply Organization Structure &
Governance
❑ E-Sourcing & Supply Chain Strategies Supply Strategy Changes: Firms Common among
❑ Supplier Integration Into New Product/Process/ 2007, 2009, and 2011
Service Development
❑ Structuring & Maintaining the Supply Base Analysis was also conducted to determine supply
❑ Global Sourcing & Supply Strategy strategy changes for firms that participated in all three
❑ Cross-Functional/-Location Teaming assessments -the 2007, 2009, and 2011 EAS. Sixteen
companies participated in all three assessments. Results
The most significant decreases in strategy are shown in Table 5.4 and are ranked by the largest
implementation between 2009 and 2011 were for: gap between 2009 and 2011.

CAPS Research 35
 Table 5.1
Comparison of 2007, 2009, and 2011 Implementation/Importance Gaps

As can be seen, the top nine strategy gap reductions and Maintaining the Supply Base were the only
between 2011 and 2009 were for the following strategies that showed gap closure for both groups
strategies and undoubtedly were a focus of between 2009 and 2011.
improvement efforts over the past two years:
For 21 of the 22 supply strategies, there was a
❑ Procurement & Supply Organization Structure & consistent increase in implementation between 2007
Governance (1.21) and 2011, with some dips in 2009, presumably due to
❑ Total Cost of Ownership (0.82) the severe recession. Importance also increased, but less
❑ Supplier Assessment, Measurement & consistently. Supplier Integration into Customer Order
Communications (0.76) Fulfillment; Cross-Functional/-Location Teaming;
❑ Engagement by Corporate Executives & Business Standardization of Products, Services, Components &
Unit Leaders (0.65) Design Specifications; and E-Sourcing & Supply Chain
❑ Structuring & Maintaining the Supply Base (0.60) Strategies saw minor decreases in importance.
❑ Establishing World-Class Supplier Quality (0.57)
❑ Vision, Mission and the Strategic Plan (0.55) Overall, both strategy implementation and importance
❑ Strategic Supplier Alliances (0.54) increased between 2007 and 2011. On average,
❑ Supplier Integration into New Product/Process/ implementation increased by 0.93 and importance by
Service Development (0.51) 0.28. In addition, there was a reduction in the overall
gap between Supply Strategy Importance &
A number of the strategies with the most sizeable gap Implementation from 2.41 in 2007 to 1.66 in 2011, a
closure require significant company and supply significant improvement at these 16 companies.
leadership and cross-functional focus across the
extended supply or value chain. They are also generally These 16 firms, when compared to the overall sample
more complex to implement and require additional (Table 5.1) were markedly superior. Their
investment, but their implementation may result in implementation was 6.44 versus 5.5, their gap was 1.66
significant returns. Compared with the overall pool of versus 2.0, and gap closure for 2011 versus 2007 was
respondents, Procurement & Supply Organization 0.75, compared to the total sample 2007-2011 gap,
Structure & Governance, Supplier Integration into New which improved by 0.40 from 2.4 to 2.0.
Product/Process/Service Development, and Structuring

36 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Table 5.2
Differences in Overall Importance between 2007, 2009, and 2011

It appears that these 16 firms placed significant The largest increases in supply strategy implementation
emphasis on the transformational journey. These 16 between 2011 and 2009 for the 16 companies and the
firms also regularly and systematically participated in total sample were:
the CAPS Executive Assessment of Supply.

16 Companies Total Sample

• Procurement & Supply Organization Structure & Governance 2.40 0.53
• Engagement by Corporate Executives & Business Unit Leaders 1.56 -0.14
• Human Resource Development 1.43 -0.39
• Global Sourcing & Supply Strategy 1.35 -0.33
• Establishing World-Class Supplier Quality 1.32 -0.05
• Vision, Mission and the Strategic Plan 1.31 -0.30
• Total Cost of Ownership 1.12 -0.19

It appears that these firms continued to invest in supply It should be noted that the companies participating in
management, even in difficult economic times. The 2007, 2009, and 2011 likely had different individual
differences in implementation and gap improvement respondents to our research study. Individual differences
with the overall sample is marked. may therefore explain some of the rating differences. In
addition, implementation is “moderate,” indicating the
journey continues.

CAPS Research 37
 Table 5.3
Differences in Overall Importance between 2007, 2009, and 2011

38 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 5.4
Importance, Implementation, and Gap Strategy Ratings for Companies Participating in 2007, 2009, and 20113

Number of firms participating in 2007, 2009, and 2011 = 16.

3

CAPS Research 39
 Chapter 6: Critical Supply Strategies: 2011
to 2015

Introduction predominant and made up 84 percent of the

supply strategies identified.
This chapter provides findings resulting from responses
to the following question asked of respondents: • Strategic supply strategies made up 48 percent
(166/344) of the strategies submitted and
“Please identify three (3) emerging supply strategies included Supply Management, Commodity/
that will be most critical to improving your company’s Purchase Category Strategy Development,
competitive performance areas the next 3-5 years. In Strategic Cost Management, and Global Sourcing
addition, for each strategy, please identify and describe and Supply. Also, included in Supply
the major drivers (reasons why) for this strategy.” Management were numerous comments about
“risk,” indicating the growing importance of
More than 350 strategies were identified, with a few Supplier Risk Management.
eliminated from consideration because of limited clarity. • Critical Supply Strategy Enablers, making up 36
Major drivers of the strategies were not specifically percent (123/344) of the strategies, included:
identified. However, the supply strategies themselves E-Systems; Talent; Supplier and Customer
provide insight into the drivers. Integration; Organization, Governance and
Process; and Strategic Supplier Alliances.
• The “limited emphasis” strategies making up 16
percent (55/344) of responses consisted of the 10
Emerging Supply Strategy Findings
remaining strategies, with the top two being
Standardization and Complexity Reduction of
Each supply strategy was classified into one of 19
Products/Services and Environmental
strategy areas based on the authors’ judgment. In some
Sustainability.
cases, the strategies could be placed in more than one
• In addition, if Total Cost of Ownership strategies
category but were assigned to a particular category
were added to Strategic Cost Management, and
based on the primary emphasis of the strategy.
Strategic Supplier Alliances were added to
Supplier Management, 56 percent (194/344) of
Table 6.1 shows the overall results. Based on our
the strategies would be in the Strategic Supply
content analysis of the 19 strategy areas, we found that:
Strategy classification.
1. Supply strategies could be grouped into three
3. Critical strategy industry differences were
major groups.
minimal.
Analysis of the 19 strategy areas by the discrete,
• Strategic supply strategies
process, and service industries for critical strategy
• Critical supply strategy enablers
focus showed:
• Strategies with limited emphasis
• No major differences among industries for the top
2. The strategic supply strategies and critical
four strategic supply strategies, except that Global
supply strategy enablers categories were
Sourcing and Supply was far less frequently
mentioned in the service industry.

40 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Table 6.1
Critical Supply Strategy Focus Areas

• Major differences were not found in the enablers E-Systems and Talent. It appears that these
except for Supplier Integration, which was more strategies are focused on incremental
emphasized in the discrete industry. improvements compared to overall best-in-class
standards. However, these enhancement strategies
may be considered breakthrough at specific
Conclusions organizations.
2. E-Supply Systems and Talent are viewed as critical
The following conclusions are based on the emerging enabling strategies to achieve cost and other
supply strategies that respondents provided. performance improvements.
3. Supplier integration and the overall integration of
1. The emerging strategies for 2011 to 2015 follow the supply chain and processes appear to be of
traditional patterns that focus on Supplier increasing importance to organizations compared
Management, Global Supply, Purchase Category to prior years — and could provide significant
Strategy Development, and Cost Management, benefits if alignment and linkages can be achieved
and the enabling strategies dominated by across the supply chain.

CAPS Research 41
 4. Environmental sustainability still is not achieving
frequent mentions by responding firms,
suggesting a limited focus. This finding agrees
with the ratings data of importance and
implementation shown in Chapter 2.
5. Strategies that were mentioned as “most critical
emerging strategies” have significant gaps between
importance and implementation and will take
focused effort and investment to achieve
implementation.

In addition, Appendix C provides non-attributed and

selected examples of the most critical supply strategies
that respondents provided.

42 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 7: Summary and the Path
Forward

Introduction 1. Engagement by Corporate Executives & Business

Unit Leaders
This chapter provides a summary of the key findings 2. Vision, Mission and the Strategic Plan
and broadly discusses a “path forward” to be considered 3. Commodity & Supplier Strategy Process
by supply executives to aid in their continuous 4. Strategic Cost Management
transformational journey. 5. Procurement & Supply Organization Structure &
Governance
6. Human Resource Development
7. Total Cost of Ownership
Summary: Key Findings
8. Structuring & Maintaining the Supply Base
9. Measurement & Evaluation
Supply organizations are continuing their
10. Establishing World-Class Supplier Quality
transformational efforts, but are currently achieving a
slightly lower level of supply strategy implementation
The 10 most implemented strategies were:
than in 2009. There is also an increase in the gap
between supply strategy importance and implementation,
1. Procurement & Supply Organization Structure &
with significant gaps existing across a number of
Governance
strategy areas. Even at those firms with the highest
2. Engagement by Corporate Executives & Business
degree of implementation, there are opportunities to
Unit Leaders
further enhance and implement supply strategies. In
3. Vision, Mission and the Strategic Plan
addition, it appears that the recent severe recession
4. Commodity & Supplier Strategy Process
slowed supply strategy implementation.
5. Strategic Cost Management
6. Cross-Functional/-Location Teaming
The largest supply strategy gaps between importance
7. Structuring & Maintaining the Supply Base
and implementation were for Human Resource
8. Total Cost of Ownership
Development; Supplier Assessment, Measurement &
9. Strategic Insourcing/Outsourcing
Communications; Accelerated Change Management;
10. Measurement & Evaluation
World-Class Supplier Quality; Collaborative Buyer/
Supplier Development & Continuous Improvement;
Comparisons between the 25 firms that had the highest
Standardization of Products, Services, Components &
and lowest implementation ratings on average showed
Design Specifications; Environmentally Sustainable
that:
Supply Chain Management; and Strategic Cost
Management. Total Cost of Ownership, Measurement &
• Procurement & Supply Organization Structure &
Evaluation, Commodity & Supplier Strategy Process,
Governance; Engagement by Corporate Executives
Supplier Integration Into New Product/Process/Service
and Business Unit Leaders; and Vision, Mission
Development, and Structuring and Maintaining the
and the Strategic Plan were in the top five most
Supply Base followed closely.
implemented strategies for both groups. However,
the average implementation rating for these three
The 10 most important supply strategies were:

CAPS Research 43
 strategies was more than four points higher for and high talent people acquisition and development.
firms that had the most implemented strategies. These strategies need to deliver supply performance
today.
• The rank order of the least implemented strategies
was similar for both groups except for Second, leading supply organization and business unit
Standardization of Products, Services, Component leaders need to further invest in their long-term success
& Design Specifications, which was ranked lower by accelerating the transformation of e-systems, better
by the firms that had a higher degree of strategy integrating suppliers into both new product
implementation. The most implemented development and customer order fulfillment,
companies had an average implementation rating standardizing specifications and purchases to reduce
of 7.4 versus 3.4 for the least implemented firms. complexity, achieving supplier innovation through
This clearly reflects significant differences in the effective collaboration, and establishing environmentally
maturity stages between the most and least sustainable supply chains. These strategies are necessary
implemented firms. to deliver future performance improvements.

Industry comparisons were also made for the

implementation and importance ratings between the The Path Forward: Supply Transformation 2011 to
discrete, process, and service industries. The ratings
were generally similar, with the discrete industry sector 2015
giving hire ratings in terms of both importance and
implementation compared to the process and service Based on the research, the supply transformation
sectors. journey can be long and perilous. However, our
ongoing research and prior experience suggests a
The research findings also show that the most number of elements critical to success, including:
implemented strategies are critical enablers to world-
class supply strategies. These strategies include • Clearly articulated goals important to the business
Procurement & Supply Organization Structure & • Transformation priorities
Governance; Engagement by Corporate Executives & • The resources and capabilities to implement
Business Unit Leaders; and Vision, Mission and the significant change
Strategic Plan. In addition, the least implemented • A transformation process
supply strategies generally include those that require
significant investment and considerable cross-functional In addition, due to the economic crisis of 2008-2009
alignment and linkage of goals, strategies, and resources and slow growth, priority setting and goal clarity
(Environmentally Sustainable Supply Chain (especially related to cost reductions) become more
Management; Supplier Integration into New Product/ important as resources for transformation have become,
Process/Service Development; Standardization of and will continue to be, limited. New emerging supply
Products, Services, Components & Design Specifications; strategies, such as risk management, environmental
and Environmentally Sustainable Supply Chain sustainability, and innovation sourcing, also require
Management). greater executive focus, engagement, and investment.

In addition, supply achieved positive improvements for Clear Goals

2011, although performance improvement slowed and It is important to create and clearly articulate the value
was less than had been achieved in 2009. There was contribution to be achieved from a supply
absolute improvement, but the rate of improvement was “transformation” and its specific elements. For example,
less. For example, average unit price improvements supply organizations are focusing on various approaches
were reduced from 4.0 percent in 2009 to 3.65 percent to achieve cost reduction such as negotiation, price
in 2011. reduction based on raw material price decreases,
achieving supplier cost reduction ideas, cost modeling,
Given these findings and recognition that firms are at best country sourcing, and so forth. In addition, some
different stages of maturity, two transformation firms are also increasing their longer term focus on
observations are important. First, there is a need to obtaining supplier innovations.
ensure high implementation and effectiveness for core
strategies such as category and supplier strategy For any of these initiatives, capital, people, and time
development (with risk management), structuring the investments may be required. Increasingly, firms are
supply base, total cost of ownership, supplier selection, requiring that the return on investment from these types
strategic cost management with total cost of ownership, of initiatives be measured, including personnel capacity

44 Supply Strategy Implementation: Current State and Future Opportunities 20011

and capabilities to implement the transformation. To be In addition, we earlier discussed those strategies with
effective, clear-cut goals and how they will be achieved the largest gaps. These strategies can be characterized as
need to be well thought through and effectively a top priority.
communicated throughout the firm.
Resources and Capabilities
Figure 7.1 illustrates different value contributions that Firms undertaking supply transformations must ensure
can be made through effective supply management and that they have the resources and capabilities to execute
transformations. the transformation. Figure 7.3 provides a framework to
help evaluate implementation capabilities for priority
Supply transformation results must focus on the overall transformations. Strategy complexity and the capability
financial and customer market contributions to be made of the firm to actually implement specific strategies
to the firm and not be limited by functionally driven must be established.
objectives. The linkages between supply transformations
and revenue, cost, and asset improvement must be Supply Transformation Process and EAS
clear, logical, and supported by the CFO. Application
Supply transformations will sometimes fail. To minimize
Establish Priorities failures, a critical success factor is a process to achieve
Based on the three EAS Assessment findings and prior successful supply transformations, centered on
experience, the strategy areas shown in Figure 7.2 maintaining a tight focus. Figure 7.4 shows a 10-step
should be clearly evaluated for transformation priorities. implementation process that can help achieve successful
Priorities will be established based on an organization’s supply transformations. (This process is the same as the
current state and potential short- and longer term one we outlined in the 2009 EAS report.)
benefits from the transformation. Figure 7.2 has been
modified since 2007 and continues to be relevant.
The “Decade Ahead”: Supply Strategy
Even though many firms are implementing some or all
of these strategies, they are only partially implemented Implementation
against the attributes shown for each of the 22 strategy
areas. This was again confirmed by our 2011 research This section builds on the data gathered in the EAS,
findings. Therefore, these strategies should be other research, and consulting experience combined
prioritized for implementation based on anticipated with the findings of Succeeding in a Dynamic World:
results compared to costs and complexity to implement. Supply Management in the Decade Ahead. This

Figure 7.1
Improving Economic Value-Add (EVA)

CAPS Research 45
 Figure 7.2
Building Blocks for Supply Transformation*

discussion is similar to that from our 2009 study, people capabilities will increase given the capabilities
recognizing that supply strategy implementation required in an increasingly complex and competitive
progress has been achieved to some degree but that world with extended supply lines. Recruitment and
considerable progress overall is still required. people location at all levels will be worldwide, with a
focus on creating strategic, challenging jobs,
Figure 7.5 illustrates the likely next wave of supply establishing a “best place to work” environment and
strategies to be the focus of innovation at leading-edge recognizing generation differences. Highly talented
companies. A brief discussion follows. people will also have to be hired and developed in
emerging regions. Initiatives to further transfer supply
These strategies combine further enhancement of the strategy approaches and processes from mature to less
critical enablers and the development of supply mature regions will require implementation.
strategies that increasingly require cross-functional and
cross-enterprise collaboration with a holistic supply E-sourcing without human touch will be achieved. The
chain and customer focus. The “function only” proportion of time supply people spend on clerical,
perspective will fade as they are adopted. administrative, and routine tasks will continue to be
reduced. Procure-to-pay interfaces with suppliers will
become automated.
Strategy Enhancement

An expanded supply strategy vision with center-led Supplier-Focused Strategies

approaches will be required to achieve maximum
supply performance in the future. Supply will be A number of supply strategies that primarily focus on
expected to not only contribute to cost reduction, but suppliers and supply networks will be enhanced and
also to help improve asset utilization and enhance take on greater importance in the future. These include
revenue. This can be seen based on the increased true cross-functional teams developing value-driven
emphasis on obtaining supplier innovations and “open category strategies. For example, at one firm revenues
innovation” approaches. were enhanced because supply determined that there
would be insufficient capacity to meet demand for a
People acquisition, development, and retention product with a very long lead time, so it created a new
strategies will require transformation. Salary grades and supply chain capable of providing the product. The firm

46 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 7.3
Strategic Supply Strategy Priorities and Capabilities Assessment Framework

also bought out capacity and was able to provide its Value and demand analyses will also be more fully
business customers with needed products earlier than utilized at the product or service design stage.
the competition, thereby gaining high-value orders. (For Standardization and product/service complexity
more information on this case, see the CAPS Research reduction efforts will increase. At one manufacturing
report entitled Value Focused Supply: Linking Supply to firm, engineering and supply are working closely
Competitive Business Strategies.) together in teams with executive engagement and
support to reduce product complexity at the raw
Category strategy development will be resourced with material, systems, and component levels.
highly capable people with high-level representations
across functions for the most important purchase Environmental sustainability efforts and results will
categories. Key category strategies will aim to provide increase. Firms in the automotive, electronics,
value, going far beyond traditional cost reduction goals. computer, energy, and many other industries are
implementing significant initiatives, such as IBM’s
Increasing collaboration with strategic supply partners Global Supply Social and Environmental Management
and networks will be required and achieved due to the System.
global scope of business, limited investment capability,
and the scale and know-how that external firms may Greater emphasis will also be placed on supply risk
possess. Firms will have to enhance trust with suppliers management strategies. These strategies will both
and more effectively share risk and rewards. Other protect supply and be a means to achieve competitive
CAPS Research studies have demonstrated that trust advantage.
and “risk/reward” sharing are critical elements to
successful collaboration. Supplier-focused activities are required to provide
greater value to customers by providing differentiated
Supplier development activities will also increase. As features while controlling costs. Implementation to date
worldwide sourcing is being implemented, especially in has been relatively low for these strategies.
emerging markets, some suppliers may not have the full
manufacturing or operations capabilities required. For
example, automotive OEMs are utilizing hundreds of Supply/Value Chain Integration
technical and other non-supply personnel in supplier
development. The integration of functions and firms making up the
supply value chains is one of the last frontiers. How

CAPS Research 47
 Figure 7.4
Supply Strategy Transformation Process

48 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 7.5
Critical Supply Strategies: 2011 and Beyond

well suppliers and customers are aligned and linked The “building block” strategies shown in Figure 7.5 are
with a company will influence future success. Strategies the focus of Stages II and III in the Maturity Model
to better integrate the value chain are the most complex presented in Chapter 1. To move to Stage IV, firms will
because they include so many functions and implement supply strategies and their enablers that
organizations. However, alignment and linkage require additional collaboration, integration, and
strategies across the value chain and networks will be customer-focused rather than functional metrics.
increasingly important once supply strategy building
blocks are in place. These strategies will drive alignment Each firm requires a supply transformation strategy that
among functions and firms focused on collaborative is regularly updated and executed to achieve high
innovation efforts, shared resources, standardization and supply performance in a fast-changing and increasingly
complexity reduction, and environmental sustainability. complex world. Those dozen or so supply strategies a
firm identifies as “critical to success” require complete
In addition, firms such as IBM, Cisco, Whirlpool, and implementation to move to the next level of
many others are driving toward end-to-end supply performance.
chain integration. Those that are first and that focus on
holistic company rather than narrow “function only” Although the recent economic crisis may have slowed
goals will likely achieve competitive advantage. the rate of implementation, the lessons learned can help
firms prioritize those supply strategies most important
in the new economy. For example, risk management
Concluding Comments will be of increasingly significant importance as part of
category and supplier strategy development. Companies
This report provides insights to firms about the supply will have to reexamine their focus and ensure that the
strategies most important to the strategic success of the correct supply strategies are targeted for implementation
overall firm. The findings also suggest that firms are to provide maximum future benefits.
somewhat lagging with respect to full implementation of
important supply strategies.

CAPS Research 49
A APPENDIX

Supply Strategy Definitions

Vision, Mission and the Strategic Plan Structuring & Maintaining the Supply Base
Definition Definition
This strategy sets direction for the development and A properly structured supply base includes the
management of a supply network that creates value and appropriate number and quality of suppliers to
leads to competitive advantage. Vision and mission significantly contribute to companywide economic
articulates how the supply network will create value, value-add and maintain a competitive sourcing
and the strategic plan provides a “blueprint” for advantage. Suppliers are categorized as strategic,
implementation and execution. The vision, mission and preferred, improve, eliminate, and other categories
strategic plan are documented. deemed appropriate. The maintenance of the supply
base reflects changing external economic risk and
market/competitive conditions worldwide, and aligns
Strategic Insourcing/Outsourcing with the overall current and future sourcing program
and specific commodity/purchase family strategies to
Definition meet companywide requirements.
A “strategic sourcing” process to evaluate internal
capabilities, competencies, and capacity versus external
sources and capabilities to identify opportunities to Supplier Assessment, Measurement &
better focus on core competencies, improve product/ Communications
service differentiation, and develop and sustain
competitive advantage. Definition
This strategy encompasses the process of continuously
measuring and providing feedback to suppliers about
Commodity & Supplier Strategy Process performance to ensure that the supply base is a source
of competitive advantage. The objectives are to identify
Definition outstanding suppliers and reward them with additional
A written, systematic plan to achieve both short- and business; identify substandard suppliers and eliminate
long-term commodity/purchase family goals over at or strengthen them through development efforts; align
least a one- to three-year horizon. Strategies are supplier/buyer goals through joint metrics; and establish
developed for the important commodities/categories. a performance baseline to track trends.
Elements include supply base structuring, sourcing,
contracting, supplier development, product/process
design/specifications characteristics, and value chain Supplier Integration into New
considerations. The strategy combines various elements
into an executable plan with timelines, accountabilities, Product/Process/Service Development
and measurable performance expectations. The view
includes the total supply chain or network. Definition
The systematic process of involving external suppliers in
the design, development, and introduction of new

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A
products, processes, or services as well as innovations Establishing World-Class Supplier Quality
around them. Integration occurs at any stage in the
process and supplier responsibilities range from “black Definition
box,” in which a supplier owns primary responsibility World-class supplier quality management is the process
for the process, to “white box,” in which the supplier of managing the entire supply chain to obtain
may be consulted. comprehensive quality process controls utilizing
traditional and innovative quality management
strategies. These strategies are both internal and
Supplier Integration into Customer Order external, at every stage of the supply chain process,
with the objective of attaining a competitive advantage
Fulfillment and long-term success through customer satisfaction
and overall stakeholder loyalty.
Definition
Customer-driven synchronization of supply chain
physical, financial, and information flows from
customer needs through post-sales service and disposal Global Sourcing & Supply Strategy
to enhance asset velocity, value creation, and
competitive advantage. The cross-enterprise supply Definition
chain versus a single business unit is the competitive Global sourcing and supply strategy includes strategies
unit; the objective is to optimize capability of the total and practices enabling firms to effectively coordinate
value chain. information and decisions about customers, company
needs, commodities/purchase families, and suppliers on
a worldwide basis. Globalization of a firm’s procurement/
sourcing and supply chain strategy requires global
Strategic Supplier Alliances leveraging of suppliers and internal resources and
processes.
Definition
Strategic supplier alliances are long-term, cooperative
relationships designed to leverage the strategic and
operational capabilities of individual participating Strategic Cost Management
companies to achieve significant ongoing benefits to
each party. The relationship is based on mutual business Definition
interest and does not involve the formation of a separate The identification and proactive management of all costs
legal entity. Successful alliances require high levels of and associated cost drivers throughout the product/
coordination, trust, information sharing, creativity, and service supply chain. Requires development,
senior management support to fully exploit joint prioritization, and implementation of strategies and
opportunities. processes to control, reduce, or eliminate costs during
each phase of the life cycle. Cost categories include but
are not limited to design, purchase item costs, quality,
inventory, delivery, and end-of-life costs.
Collaborative Buyer/Supplier Development &
Continuous Improvement
Total Cost of Ownership
Definition
A strategy for developing and improving strategic and
Definition
tactical processes and relationships with key suppliers
Total Cost of Ownership (TCO) is a cost-analysis
to maximize cross-enterprise performance. Formalized
technique utilized in support of a company’s strategic
development efforts and continuous improvement
cost management strategies. TCO analysis involves the
processes ensure performance targets are established
identification and categorization of all cost elements and
with appropriate metrics and progress reporting for
associated cost drivers related to a sourcing/procurement
critical value chain processes. World-class efforts will be
decision. TCO includes all costs, direct and indirect,
characterized by greater focus on bilateral
incurred throughout the life cycle of an asset, including
improvements, commitment of joint resources to
acquisition and procurement, operations and
development activities, and more risk/reward sharing.
maintenance, and end-of-life management.
Lean practices are applied.

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Standardization of Products, Services, Measurement & Evaluation

Components & Design Specifications
Definition
Definition Strategic and supply chain performance measurements
Standardization strategies include companywide include metrics for commodity/purchase family sourcing
determination of those products, services, components, effectiveness that can also be used to gauge supplier
or technologies that can be defined to company or performance; overall functional strategies and processes;
industry standards for simplification and cost savings. cross-functional team performance; and cross-enterprise
Differentiation is only applied when it provides value to performance. Metrics are utilized within a balanced
the ultimate customer and justifies higher pricing and scorecard performance measurement and evaluation
greater margins. Differentiation is commonly established methodology against specific measures and objectives;
around core competencies. they are integrated with the company/business unit
performance evaluation system.

Environmentally Sustainable Supply Chain

E-Sourcing & Supply Chain Strategies
Management
Definition
Definition E-sourcing and supply chain strategies are a series of
A written, systematic set of supply management practices that involve automating supply chain process
strategies that incorporate environmentally sustainable and/or conducting supply chain activities electronically
processes to make both short- and long-term and via the internet to optimize inherent efficiencies.
performance improvements in supply management at E-sourcing and supply chain streamlines processes,
the firm level and/or across the supply network. including procurement, supply/demand planning, and
logistics, as well as supplier relationship management,
design/development, and customer relationship
Procurement & Supply Organization Structure & management. E-systems are substituted for tactical
Governance operations where possible.

Definition
Firms operate in a globally coordinated environment Human Resource Development
with companywide or strategic business unit (SBU)
center-led leadership with purchasing authority and Definition
coordination, combined with decentralized purchasing Human resource development is a continuous process
execution. Purchasing or supply reports to a top-level of attracting, acquiring, developing, and retaining
executive. Much of the sourcing/supply strategy knowledgeable and skilled personnel to achieve
development is increasingly done by global commodity increasing competitive advantage worldwide. The
teams recognizing the direct needs of customer facing evolution to a “virtual organization” makes highly
organizations and ultimate customers. effective human resource development practices
imperative as personnel are provided with significant
“place and time flexibility.” Ongoing knowledge
Cross-Functional/-Location Teaming management and development is a priority.

Definition
World-class teaming involves proactively forming, Engagement by Corporate Executives &
managing, and supporting cross-functional/-location Business Unit Leaders
teams with the objective of achieving competitive
advantage through purchasing/supply strategies. Teams Definition
pursue tasks and assignments that link to and directly Executive engagement includes company executives
support the attainment of business and/or corporate participating in (sometimes leading) and providing
objectives. Teams are the correct organizational response organizational and budgetary support for critical
when faced with complex or large-scale decisions or sourcing and supply chain strategies and initiatives.
tasks that span functions, geographies, product/service This engagement signals to the organization the strategic
lines, etc. criticality of sourcing and supply to sustaining the
competitive advantage of the firm.

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Accelerated Change Management competitive network of supplying firms that produce
superior results. Key elements of competitive
Definition performance include direct and measurable economic
Accelerated change management is a process that value-add (EVA) or return on invested capital (ROIC)
enables rapid, innovative change from the existing state contributions to the overall business unit performance
to a new paradigm. The new paradigm, which becomes and for specific sourcing and supply chain metrics.
the existing environment, is again shifted to a new
paradigm with increasing speed. This continuous
improvement process combines an organization’s Instructions
system, structures, and culture. Project and process
implementation speed are measured, communicated, For your most important purchases (80/20 rule) over
and reinforced throughout the organization. the past twelve (12) months, indicate the magnitude of
measurable performance improvements and/or business
unit contribution achieved through sourcing & supply
Competitive Performance chain strategies at your business unit. NA=Not
Applicable.
Definition
Strategic sourcing and supply chain strategies achieve
competitive performance by creating and enabling a

CAPS Research 53
A APPENDIX

Instructions

Please indicate the overall results achieved by your

business unit over the past 12 months from your
business unit’s strategic sourcing and supply chain
strategies for each of the following:

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CAPS Research 55
B APPENDIX

Statistical Analysis

22 Strategy Area Calculations Performance Difference by Industry

The statistics provided for each of the 22 strategies are Chapter 3 of the report includes a section that examines
based on simple averages of strategy implementation the difference between each of the dimensions of
and strategy importance for all of the respondents or performance (unit purchase price, transportation &
groups of respondents (i.e., discrete manufacturing, logistics cost, etc.) between each of the three industry
process manufacturing, and service). The “gap” scores groupings (discrete, process, and service). These
provided are calculated as the average implementation calculations were done using a one-way analysis of
score for a specific strategy area minus the average variance (ANOVA). The ANOVA statistical procedure
importance score for a specific strategy area. Therefore, examines the difference in the mean for each group and
positive scores indicate that implementation exceeds then forms a confidence interval around the mean (in
importance and negative scores indicate that importance this case) of 95 percent probability. Each mean is
exceeds implementation (the more common case). compared and, based on the 95 percent confidence
level, a determination is made as to whether the
difference in the means is statistically significant (at a 95
Strategy Area Difference Tests percent level of confidence).

For each of the 22 strategy areas, estimates of

statistically significant (paired t-test) differences are Correlation Analysis
indicated by a box drawn around a group of either
importance or implementation strategy areas. To Chapter 4 of the report provides a written discussion of
determine the box that represents the approximate a correlation analysis between each of the strategy areas
differences, statistical difference tests (paired t-tests) and each dimension of performance (unit purchase
were calculated between each of the averages for a price, transportation & logistics, etc.) overall and by the
specific strategy area (implementation or average) with discrete manufacturing, process manufacturing, and
each of the other 21 averages, yielding 231 difference service industry grouping. The correlations were
tests ((22 * 21)/2). The differences were then rank calculated as simple “Pearson product moments.”
ordered from largest to smallest absolute difference. An
inspection of this rank ordering was used to determine
the smallest absolute difference, where all larger
absolute differences were statistically significant. The
boxes were then created by subtracting this smallest
statistically significant absolute difference value from the
largest of the average values (average implementation or
average importance). All of the values that were less
than this value were included in the box that is reflected
on each of the rank-ordered strategy importance and
strategy implementation tables.

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Supply Strategy Comparisons by Industry Sector

The supply strategy comparisons by industry sector are provided for the importance, implementation, and gap
analysis, and for the implementation at highest/lowest implemented companies.

Discrete Manufacturing Ratings/Rankings

Table A3.1
Discrete Manufacturing Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Strategic Cost Management 6.55 8.61 -2.06
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Human Resource Development 6.00 8.52 -2.52
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Engagement by Corporate Executives & 6.91 8.33 -1.42
Business Unit Leaders
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Total Cost of Ownership 6.18 8.06 -1.88
Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Measurement & Evaluation 6.24 7.97 -1.73
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Global Sourcing & Supply Strategy 6.15 7.91 -1.76
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Accelerated Change Management 5.03 7.42 -2.39
Strategic Supplier Alliances 5.48 7.36 -1.88
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33

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Table A3.1
Discrete Manufacturing Importance Strategy Rankings/Ratings (continued)

Cross-Functional/-Location Teaming 5.79 7.30 -1.52

Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Average 5.91 7.84 -1.92

Table A3.2
Discrete Manufacturing Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Engagement by Corporate Executives & 6.91 8.33 -1.42
Business Unit Leaders
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Strategic Cost Management 6.55 8.61 -2.06
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Measurement & Evaluation 6.24 7.97 -1.73
Total Cost of Ownership 6.18 8.06 -1.88
Sourcing & Supply Strategy 6.15 7.91 -1.76
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33
Human Resource Development 6.00 8.52 -2.52
Cross-Functional/-Location Teaming 5.79 7.30 -1.52
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Strategic Supplier Alliances 5.48 7.36 -1.88
Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Accelerated Change Management 5.03 7.42 -2.39
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
Average 5.91 7.84 -1.92

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Table A3.3
Discrete Manufacturing Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
Human Resource Development 6.00 8.52 -2.52
Accelerated Change Management 5.03 7.42 -2.39
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Strategic Cost Management 6.55 8.61 -2.06
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Strategic Supplier Alliances 5.48 7.36 -1.88
Total Cost of Ownership 6.18 8.06 -1.88
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Global Sourcing & Supply Strategy 6.15 7.91 -1.76
Measurement & Evaluation 6.24 7.97 -1.73
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Cross-Functional/-Location Teaming 5.79 7.30 -1.52
Engagement by Corporate Executives &
Business Unit Leaders 6.91 8.33 -1.42
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33
Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Average 5.91 7.84 -1.92

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Table A3.4
Implementation: Highest 10 Discrete Manufacturing Companies versus
Lowest 10 Discrete Manufacturing Companies

Table A3.5
Discrete Manufacturing: Implementation Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 9.09 1 3.36
2 7.77 2 4.00
3 7.64 3 4.05
4 7.45 4 4.68
5 7.18 5 4.73
6 7.00 6 4.77
7 7.00 7 4.77
8 6.82 8 5.05
9 6.82 9 5.18
10 6.59 10 5.36
Average 7.34 Average 4.60

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Process Manufacturing Rating/Rankings

Table A3.6
Process Manufacturing Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Strategic Cost Management 6.40 8.21 -1.81
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Human Resource Development 5.90 8.00 -2.10
Measurement & Evaluation 6.05 7.74 -1.69
Total Cost of Ownership 5.83 7.69 -1.86
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Strategic Supplier Alliances 5.86 7.43 -1.57
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Accelerated Change Management 5.02 7.19 -2.17
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Average 5.73 7.48 -1.75

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Table A3.7
Process Manufacturing Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Strategic Cost Management 6.40 8.21 -1.81
Measurement & Evaluation 6.05 7.74 -1.69
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Human Resource Development 5.90 8.00 -2.10
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Strategic Supplier Alliances 5.86 7.43 -1.57
Total Cost of Ownership 5.83 7.69 -1.86
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Accelerated Change Management 5.02 7.19 -2.17
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Average 5.73 7.48 -1.75

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Table A3.8
Process Manufacturing Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Accelerated Change Management 5.02 7.19 -2.17
Human Resource Development 5.90 8.00 -2.10
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Total Cost of Ownership 5.83 7.69 -1.86
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Strategic Cost Management 6.40 8.21 -1.81
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Measurement & Evaluation 6.05 7.74 -1.69
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Strategic Supplier Alliances 5.86 7.43 -1.57
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Average 5.73 7.48 -1.75

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Table A3.9
Implementation: Highest 10 Process Manufacturing Companies versus
Lowest 10 Process Manufacturing Companies

Table A3.10
Process Manufacturing: Implementation Ranking/Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 9.59 1 2.27
2 8.50 2 2.59
3 8.00 3 3.18
4 7.45 4 3.50
5 7.36 5 3.77
6 7.27 6 3.82
7 7.27 7 3.86
8 7.27 8 4.09
9 6.95 9 4.32
10 6.95 10 4.55
Average 7.66 Average 3.60

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Service Rating/Rankings

Table A3.11
Service Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Human Resource Development 4.95 8.18 -3.23
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Strategic Cost Management 5.45 8.02 -2.57
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Total Cost of Ownership 5.39 7.93 -2.55
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Measurement & Evaluation 4.80 7.61 -2.82
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Establishing World-Class Supplier Quality 4.35 7.40 -3.14
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Strategic Supplier Alliances 4.80 7.02 -2.23
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Accelerated Change Management 3.98 6.84 -2.86
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Sustainable Supply Chain Management 4.39 6.68 -2.30
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Average 4.98 7.34 -2.36

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Table A3.12
Service Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Strategic Cost Management 5.45 8.02 -2.57
Total Cost of Ownership 5.39 7.93 -2.55
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Human Resource Development 4.95 8.18 -3.23
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Strategic Supplier Alliances 4.80 7.02 -2.23
Measurement & Evaluation 4.80 7.61 -2.82
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Environmentally Sustainable Supply Chain 4.39 6.68 -2.30
Management
Establishing World-Class Supplier Quality 4.35 7.49 -3.14
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Accelerated Change Management 3.98 6.84 -2.86
Average 4.98 7.34 -2.36

66 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Table A3.13
Service Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Human Resource Development 4.95 8.18 -3.23
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Establishing World-Class Supplier Quality 4.35 7.49 -3.14
Accelerated Change Management 3.98 6.84 -2.86
Measurement & Evaluation 4.80 7.61 -2.82
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Strategic Cost Management 5.45 8.02 -2.57
Total Cost of Ownership 5.39 7.93 -2.55
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Environmentally Sustainable Supply Chain 4.39 6.68 -2.30
Management
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Strategic Supplier Alliances 4.80 7.02 -2.23
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Average 4.98 7.34 -2.36

CAPS Research 67
C APPENDIX

Table A3.14
Implementation: Highest 10 Service Companies vs. Lowest 10 Service Companies

Table A3.15
Service Implementation Ranking/Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 6.86 1 1.64
2 6.86 2 2.23
3 6.86 3 2.27
4 6.82 4 2.59
5 6.64 5 2.82
6 6.50 6 3.14
7 6.50 7 3.55
8 6.32 8 3.77
9 6.23 9 3.95
10 6.23 10 4.14
Average 6.58 Average 3.01

68 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
D

Selected Emerging Supply Strategies

Appendix D provides non-attributed selected supply Supplier risk management/supplier improvement.

strategies from respondents to provide insights into The driver is extensive new product development
those strategies that will likely be the focus of supply activity along with moderate rate increases in legacy
transformation efforts over the next few years. These business that will compound capacity concerns. Higher
strategies are presented for the discrete, process, and level of supplier partnering extends greater risk outside
service industries. of direct control.

Strategic enterprise aligned commodity strategies.

Discrete Industry This optimizes the supply base across the enterprise by
establishing a preferred supplier base with the best of
Purchasing must maximize savings opportunities by the best. Should see continued improvement in total
consolidating requirements to leverage spend in cost of ownership.
order to maximize sub-tier supplier efficiencies and
competition. Purchasing must strive to evaluate raw Our market growth and thus the manufacturing
material pricing and understand the impact on material footprint associated is going to be coming a lot from
costs. Purchasing must analyze industry, supplier, and ER regions (China — India). Thus the need to
raw material commodity markets to assess sourcing develop a local competitive supply base to serve those
opportunities and bargaining positions. Purchasing markets. This base will also be used for other markets if
must leverage the corporate spend and determine the the total landed cost shows a benefit for that. For this
opportune time to place orders to achieve maximum strategic drive, we will rely heavily on one of our main
cost savings while ensuring that production schedules assets, a team of supplier quality and development
are not placed at risk. specialists with a heavy presence in those ER regions
whose task is to participate in the screening of new
Refine a new methodology to project the future cost suppliers and develop these.
of material for use in proposals to customers.
Methodology must reflect the cost impact of raw High-velocity supply chain. For the lower end portion
material and non-material costs on sub-tier supplier of the product portfolio, exceptional serviceability to
prices. Methodology must be clearly defined for use in our end clients and consistent delivery performance are
projecting costs and acceptable to customer base for use our critical success factors. The company is driving a
in forecasting cost and proposal development. new high-velocity supply chain to reengineer the
planning, manufacturing, procurement, and fulfillment
First is the sophistication of our supplier processes for this portion of the portfolio. For the high
segmentation strategy. We segment suppliers today, end of the company’s product portfolio, the attributes of
but we do not “break them down” into groups that the supply chain are quite different. Product
merit executive interaction, more intense scorecarding customization and optimized workload performance are
and supplier relationship management overall. By the critical. As such, a supply chain setup with unique
end of the year, we will have assessed and super- attributes from a “high-velocity” supply chain is needed.
segmented the supply base to concentrate supplier
relationship management on the correct companies. China + 1 strategy. Diversify sourcing of key product
categories outside of China. In some cases this could

CAPS Research 69
D APPENDIX

mean bringing products back to North America. The Developing effective shared services for
reason is offset inflationary trends in China. Mitigate procurement across our business. 1) Drive efficiencies
potential supply chain disruptions/shortages in China. that keeps pace with competitors. 2) Leverage ERP
systems and e-commerce tools to drive cost out of the
Establish risk assessment for all purchased business that improves internal customer service and
component parts. (We are a medical device support. 3) Standardization and common processes will
manufacturer and this is patient risk. If a part fails, what drive further integration of our business PM&E.
is the risk to the patient?) The suppliers of components 4) Facilitates spend management and corporatewide
with the highest risk ratings will be subject to higher deals to improve our competitive position.
scrutiny, more frequent audits, more extensive supplier
qualifications, ongoing monitoring of quality Raising the expertise and capability of the supply
performance levels, etc. The goal is to ensure the chain staff. New skill sets are required to compete in
highest level of quality in all of our finished devices. an increasingly competitive market. We need to learn
and perform at a global best practice level. The parent
Supply strategy: improve, standardize and leverage company’s supply chain staff is much more mature and
category and supplier management across the professional and we need to take on their best practices
company. Drivers/reasons: Leverage larger amounts of and procedures.
spend across a smaller, focused supply base to drive
improved performance. Standardized best practices to Improved integration of sourcing into new product
drive best-in-class performance, efficiency and risk development earlier in the process to drive growth.
management. Drivers/reasons: Better leverage supplier innovation to
drive top-line growth, improve processes and business
Blended strategy best cost for major raw materials models.
using cost driver analysis for the end product/material
costs, using VAVE and effective sourcing mix. Strategic alliances with select suppliers. This is to
reduce costs and increase innovation, improve
Increase sourcing in lower cost countries, and relationship, move from transactional-based to strategic-
localize sourcing in those countries when we have based relationship, share market intelligence, build
an industrial presence there. Do not rely on trust.
traditional western suppliers in case on technology
transfer. Early supplier involvement in the product
development process. Key drivers/reasons: Need for
Security of supply and capacity growth. Our innovation/speed to innovation and ability to meet
company forecasts indicate significant growth during customer needs with products at price points
the next decade. Our supply chain must be ready to demanded.
respond to this growth which has three significant
elements: 1) organic portfolio growth; 2) new product Talent pipelines and cross-business movement of
introduction; 3) domestic manufacture to transfer to talent. Establishing reliable talent pipelines, especially
external supply chain. in emerging market regions and moving talent across
businesses to create leaders with a broader view of the
Increasing asset utilization to drive increased return company. This is important because we are constantly
on investment. This is a commodity business so cost being asked to do more with less and rapid business
wins; key supply chain function will be effectively growth is creating the need for a deeper bench of talent.
sourcing and implementing new high-dollar-value,
high-speed equipment so can drive down production Capturing supplier innovation in the product
variable costs. development process and cost reduction process.
This is to expand our capability to drive a sustainable
Procurement productivity tools. Given the cost advantage in input costs.
competitiveness of our business, we can no longer
afford to have large purchasing organizations. Tools that To build a set of unified item code. Currently, we
promote productivity enable sourcing personnel to have 20 different operation units in Taiwan and
work more on supplier development and be less tied to Mainland; however, we do not have a set of unified item
their desks completing transactions. code while purchasing. We are not able to do further
and deeper spend analysis if we cannot unify item code
internally.

70 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
D
Standardization of products, services, components Increased market assessment expertise in technical
and design specs. Custom designs continue to drive purchasing. Must become the experts and go-to group.
costs, extend manufacturing and material lead times,
and limit our ability to be competitive and exceed Management of human capital will be essential in
customer expectations. the upcoming years. Management rotations to cross-
train and broaden management knowledge will better
Advance a powerful commitment to sustainability position our company to prepare for upcoming
and corporate social responsibility. Major drivers: retirements and minimize turnover.
1) The right thing to do and consistent with our long
history of responsible citizenship; 2) Meeting changing Supplier relationship management — enterprise
expectations on the part of customers, consumers, and risk-focused model. With increased reliance on third
the Investment community. parties for key business operations, it is absolutely
critical that we have robust supplier relationship
management practices in place with a global
Process Industry programmatic view to ensure appropriate risk
mitigation and risk response. Additionally, supplier
Identification of low-cost country sourcing and collaboration and innovation will absolutely be required
effective use in other regions when a competitive for us to continually advance our business model and
advantage can be achieved. drive year-over-year productivity and innovation.

Best cost country sourcing. Establish lower cost for Improve supplier relationship/performance
raw materials and technical goods. Increase sourcing management program and tangible benefit delivery.
one-third of total coming from low-cost regions. Drivers include revenue and profit erosion due to generic
competition, pipeline challenges, political environment,
Key raw material sourcing. Opportunity to reduce worldwide demographics, etc. and resultant focus on
supply risk for key raw materials and improve cost reductions, supplier innovation, and total value.
economics through strategic sourcing arrangements We will partner with suppliers that successfully
such as licensing technology, JVs, M&A, and capital collaborate to deliver against all facets of AQSCI
projects, in addition to cross-functional purchasing (assurance of supply, quality, service, cost, innovation),
approaches for qualifying new sources. year-on-year cost reductions, and total value.

Localization of purchasing requirements in emerging Standardization of technical goods. Drivers: supplier

regions. This is important in order to optimize supply portfolio reduction, reduction in working capital,
chain costs and reduce import duties as well as harmonization of MRO practices.
transportation costs.
Team building. Our overall executive team has not
Take a more holistic approach and strategic thinking been effective nor stable. Turnover at the highest
to risk mitigation. Recognize external factors/events levels of the company has had a negative effect on both
that could potentially have a high impact if they occur company financials and employee morale. As a
and cause a large impact to the business. Initiate company, we have to do a significantly better job of
thinking to develop contingencies, even if it’s at a very defining what we need in our executives and executive
high level. team, and develop a rigorous process of recruiting and
retaining true world-class executives to lead and
Risk management. Establishing a comprehensive risk manage this company. “All stars” at each position are an
management program to mitigate supply risks and absolute necessity, as well as collaborative teamwork in
ensure consistent supply and quality of product, while the best sense of the term. We are currently not where
expanding reach into emerging markets. we need to be for the long haul.

Global expansion. Need to build strong procurement Ensure continued high impact from procurement
team in Asia, India, and Brazil. Seeing healthy growth integration in business/cash improvement
across the globe. opportunities. Company focus is on significant
improvement in earnings. Company focus is on
Standardization. With the consolidation of three legacy significant ROCE improvements across several key
procurement organizations, there needs to be a singular regional operating envelopes. Incentive compensation
way of engaging our internal stakeholders and one has value creation and superior cost management as key
process for our external suppliers. components.

CAPS Research 71
D APPENDIX

Environmental, social, governance challenges. Globalization of relationships with important

1) Governmental, social, and nongovernmental suppliers. Transformation of the procurement function
pressures challenge brand name preservation; into a strategic sourcing function has progressed well.
2) Compliance requires process, systems, and Now at the stage where the opportunities lie in
behavioral changes across corporation requiring leveraging our global footprint with large monopoly or
investment and time; 3) Separation of focus challenges oligopoly suppliers of technology and technology
the delivery of sourcing and procurement strategies services.
versus compliance.
Implementation of corporate supplier management
program and process. Again as a part of an overall
Service Industry transformation of the function, we are implementing a
corporate supplier performance management process
Support company revenue growth. Through “balance with supplier segmentation, performance measurement
of trade” initiatives; by joint calling on customer’s and communication, periodic business reviews, named
procurement individuals with sales force; by providing executive sponsors, and strategic plans and roadmaps.
“procurement” insight and tips to sales force via formal
presentations; by meeting external customer Development of robust category strategies. This will
requirements for small and disadvantaged vendor data, result in a very targeted supply base for each
and by achieving other certification recognition, i.e., ISO. category/subcategory. Supply base tiering and
rightsizing becomes a part of this category strategy
Develop more accurate and extensive “should cost” development. Drivers include 1) better leverage through
models. We are looking to be much more efficient with consolidation of supply base; 2) better supplier
market penetration in unfamiliar areas for performance management because of significant
manufacturing and project execution. Time pressures to reduction of supply base and identification of preferred
meet our end customer demand are shortening; we do suppliers to focus on; and 3) increased ability to drive
not have adequate time to estimate costs as we have supplier innovation and speed to market.
done traditionally; looking for a better solution.
Advanced supplier risk management. Drivers:
Distributed execution. This strategy focuses on the 1) minimize risk; 2) protect brand and reputation.
labor cost savings that may be realized by conducting
procurement execution activities from our established Work with key suppliers to have more of their
offices in India and the Philippines. The three strategies compensation at risk/pay for performance.
as noted above are specifically driven by the Drivers/reasons: 1) The future of health care in the US
requirement to seek additional avenues of cost will be on a pay-for-performance basis. 2) Under health
reduction in order to remain competitive with firms that care reform, hospitals will be paid for successful
have emerged from nontraditional EPC execution outcomes, not simply paid on volume.
markets such as China and South Korea. While these
firms are gaining increasing acceptance by the Western Attain an improved supplier behavior model based
client base due to their ultra cost competitiveness and on mutual respect and win-win. Drivers/reasons:
improved execution capabilities, we seek to maintain 1) Health care industry supplier behavior is based
competitive advantage through strategic sourcing and almost exclusively on pricing. 2) Suppliers in the health
procurement initiatives that both decrease cost and care space are conditioned to provide a price only, and
provide value add differentiation to our clients. because of this, suppliers do not traditionally offer
additional value to their customers outside of pure price.
Supplier management framework. Roll out a
framework of governance, processes, and tools to Supplier management, risk management, and
manage enterprise supplier risk and performance. A compliance. Enforce policies with required diligence
framework of governance, processes, and tools to and documentation in fair and consistent business
manage enterprise supplier risk and performance practices. Grow processes to qualify suppliers and
annually for tier 1 and tier 2 suppliers is key to long- ensure compliance with standards, plans, and
term viability with strategic suppliers. Supply managers regulations. Increase use of internal auditors to assess
and suppliers submit program deliverables that enable and evaluate risks, facilitate risk discussions, and
our ability to assess, manage, and mitigate supplier develop and support risk mitigation enhancements.
performance and risk issues in a timely manner. This is
needed not just at the global level, but at the regional Long-term cost reduction is critical to ensure
and local level as well. viability. A number of strategies are in place to

72 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
D
accomplish this, but one of the first will be to supply management; 4) improve speed to market;
consolidate and reduce the number of suppliers for 5) Better manage risks (operating costs, technology
both services and materials. This will reduce the expertise).
number of contracts to manage and speed up the
ordering and fulfillment process. Vendor-managed- National strategy for sustainable business practices
inventory through a long-term blanket purchase order to increase energy efficiency, reduce environmental
will be a component of this evolution. impact, and measure and report sustainability
performance.
Supply chain/supplier risk management. Ever-
changing world events, from EMEA instability to natural Standardization of key equipment to leverage spend
disasters, have a profound impact on supply availability and reduce inventory. The standardization team plans
and pricing. This is true of commodities, finished or to work on: 1) Update or creating standards for selected
partially finished goods as well as logistics to obtain engineered equipment used across our company.
either. Supply chain’s ability to identify and manage 2) Investigate adoption of standard processes and best-
through these risks in a rapidly changing world and in-class technologies. 3) Develop purchasing agreements
economic environment is arguably the most critical with selected suppliers and producing best total cost of
strategy currently being discussed. ownership pricing. 4) Realize improved quality and
superior service. 5) Develop a better understanding of
Implementation of a supply chain risk process. “hidden” purchasing activity (that done on our behalf
Limited view of true risk across supply chain. Robust, by third parties) in selected areas for future sourcing
comprehensive process needed to identify “holes” in leveraging. The drivers were operating costs, quality,
existing supply chain, where the company could be and future implementation of value-added technologies.
exposed to risk. Support development of second
sources/ additional resources. Need proactive process to
monitor financial health of key/critical suppliers.

Supplier collaboration. Developing supplier

relationships with full transparency to costs and growth
strategies so we implement initiatives that are mutually
beneficial and we receive preferred treatment to supply,
innovation, cost reductions, and other benefits. This
will be especially important as the economy starts to
recover and demand outpaces supply.

Small country solution. This means effectively

addressing smaller non-hub locations around the world
from a technology, process, assisted buy desk
perspective to address controls and governance issues
surrounding how the organization spends money.
Currently, most global organizations address these issues
for the larger countries and ignore smaller spend
countries. The ability to address this issue at a lower
cost raises the question on whether cloud or software-as-
a-service solutions will be of interest. The only barrier
to this will be convincing financial regulators that there
are no security or data privacy issues in doing so.

Source to pay. Transforming the end-to-end purchasing

and payment process to move beyond the vertical, fixed
model to a horizontal, global model for providing
critical skills and services. The move toward a global,
horizontal model will help: 1) optimize costs; 2) enhance
agility in delivering services to the right place at the
right time; 3) increase focus on strategic planning and

CAPS Research 73
 CAPS Research

CAPS Research was established in November 1986 as the result of an affiliation agreement between the W. P. Carey
School of Business at Arizona State University and the Institute for Supply ManagementTM. It is located at the
Arizona State University Research Park, 2055 East Centennial Circle, P.O. Box 22160, Tempe, Arizona 85285-2160,
telephone 480-752-2277.
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is dedicated to the discovery and dissemination of strategic supply management knowledge and best practices.

Research published includes more than 85 focus studies on purchasing and supply management topics, as well as
benchmarking reports on purchasing and supply management performance in 20-plus industries.
CAPS Research, affiliated with two 501(c)(3) educational organizations, is funded solely by contributions from
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Christine Breves, C.P.M., Alcoa, Inc.

Kevin Brown, Dell Inc.
Susan Brownell, U.S. Postal Service
Phillip L. Carter, D.B.A., CAPS Research, Arizona State University
Timothy W. Coats, General Mills, Inc.
Harold E. Fearon, Ph.D., C.P.M., CAPS Research (retired)
Timothy R. Fiore, CPSM, C.P.M., Chair, CAPS Research Board of Trustees
Beverly Gaskin, Rolls-Royce Corporation
John S. Gundersen, CPSM, Emerson Process Management
Bradley J. Holcomb, Dean Foods
Thomas K. Linton
Leo Lonergan, Chevron Corporation
Farryn Melton, C.P.M., Amgen, Inc.
Vince Messimer, Royal Dutch Shell plc.
Robert Mittelstaedt, Jr., Arizona State University
Robert Monczka, Ph.D., C.P.M., CAPS Research, Arizona State University
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Deborah Stanton, MasterCard Worldwide
Shelley Stewart, Jr., Tyco International
James A. Ward, Eli Lilly and Company
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74 Supply Strategy Implementation: Current State and Future Opportunities 2011

 CAPS Research
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