Businesses rely on suppliers, but their relationships are stuck in the past
In today’s dynamic, hyper-connected business environment, having the right suppliers is critical for success.
However, unlike supply chains of the 20 years ago, today’s supply chains are intricate, value networks made up of layers of complexity, risk and diverse players - players which are typically specialists in their respective markets. And can run into the thousands right across your business.
Historically, the conventional approach to procurement has revolved around sourcing. In the past this has been enough to deliver results, particularly when initially reducing or creating a cost base. However, over the past decade the construct of a business has fundamentally changed.
Today, labor costs are just 12.5% of a company’s revenues.
Supplier costs consume up to 70%.
Given that up to 2/3 of your revenues are now being spent with external third-parties, your suppliers now constitute one of the biggest areas of business investment, an area that you neither own, nor control.
The success of your business now relies heavily your suppliers - read more about the impact of poorly managed supply chains here.
Yet, the conventional approach to managing suppliers too often fails to engage on any level other than price, fails to question the buying itself or think about the context around it, and fails to effectively connect suppliers to corporate objectives.
It is increasingly recognized that a far more effective procurement strategy sets clear business outcomes that allow suppliers to make a richer contribution to your long-term objectives. At the same time, businesses recognise the need to focus on triple bottom line (TBL) outcomes – that is not just economic but also environmental and social performance factors. Procurement is not about reducing costs but adding value to your business.
What’s increasingly called for is a more creative approach that aligns company culture around complex new supplier eco-systems – making them responsive, value-driven and strategic.
Recent research conducted alongside the University of Oxford identified such an approach - Catalytics©.
Catalytics© defines some of the world’s most successful businesses. A company like Apple, for example, makes almost none of its hardware; instead it is reliant on key suppliers, who themselves are equally dependent on a huge supply eco-system. The whole of Apple’s business is geared towards that eco-system – from exploiting its innovative tech to issuing extremely precise specifications for assembly. The result is a compelling proposition to the end user – and an incredibly successful business.
Despite the compelling benefits of a strategy that allows suppliers to make a richer contribution to businesses’ long term goals, companies have been slow to embrace new procurement strategies. In particular, despite their significant flaws, companies’ reliance on “tried and trusted” ways of working them has led to fear and inertia to try something new.
Even among those who track TBL outcomes, just 41% said they extend at least some of these requirements to their supply chains. Compare this with those organizations who do not track TBL; only 9% said they evaluate social implications, for example, in the supply chain.
Catalytics© is a framework for moving beyond savings. It is a revolutionary approach to procurement recognizing that while today’s companies cannot isolate themselves from financial, operational and reputational risks in their extended supply eco-system, those same suppliers are a valuable source of competitive advantage.
Catalytics© is an important framework for business leaders who want to get more value from their supplier relationships and harness the capabilities of their extended enterprize.