3 Lines of Defense in Supply Chain—-（6）Organizational complexity: A performance appraisal solution

In 1997, United Signal (later Honeyville) won the US "purchasing gold medal" magazine. Among its best practices is an annual target of 7% . Initially, procurement mostly met the 7 per cent target through vendor consolidation, long-term contracts and active negotiations. But as the years passed and all was said and done, the big question became what to do next.

Honeyville isn't the only one with a problem. More than ten years ago, at CAPS Research, a program that brings together some of the world's top 500 purchasing chiefs in round tables in several cities around the world to discuss strategic procurement goals, the main issue being what to do about reducing costs. The importance of cost reduction, in the words of a chief purchasing officer, can not be overemphasized, because "70% of the performance of procurement is on the cost reduction of procurement. ".

In order to survive in the fierce competition, the company can not do without annual cost reduction. For Procurement, such as cost reduction for many years, can be negotiated down to talk down, this issue is ostensibly an annual price reduction of how much, in-depth is actually by which function to do the problem. In the "big purchase" company with strong purchasing power and high status, a considerable part of the task of cost reduction is accomplished by cross-functional teams together Has become a "small procurement" a major feature: There are many responsibilities, but not much resources.

To say that the procurement cost reduction, does not mean that it is the procurement task of course. How to reduce the cost of purchasing? Just a few moves: negotiation, integration, horizontal and horizontal opening and closing. The theoretical basis here is several: (1) based on future considerations, suppliers are willing to sacrifice part of the benefits, less profit; (2) under the pressure of cost reduction, suppliers become more lean, reduce waste, the proceeds to the purchaser; (3) business volume increase, economies of scale. There is an end to all of this. After all can talk down, cost reduction from the "Talk" phase to the "do" phase, only the cost from the supply chain to remove, to achieve further cost reduction. It would have to be backed up by technology. And cost reduction is no longer the protagonist of procurement, but including design, quality and procurement cross-functional team.

There are three kinds of cost-reducing measures for cross-functional teams: carrying out standardized design and design optimization to reduce the cost of products from the Design Angle; In the supply chain management to implement information, e-commerce, transaction costs down. In the "small purchase" company, the Design Department often appears as an internal customer. If the target cost is not reached, they often blame the purchase. They think that the purchase negotiations with the supplier are not effective, putting all kinds of pressure on the purchase, causing them to go toe-to-toe with the supplier Do profit-shifting Games, rather than risk or invest resources to bring costs down from a design change perspective.

Quality Departments, too, are reluctant to take risks on quality, unwilling to allow suppliers to simplify production processes and eliminate those that do not add value. Because of the low procurement status, IT departments do not buy into the information and e-commerce resources, the result is that procurement and suppliers of a large number of resources to manually manage the order operation, no energy to do more valuable things. Without the support of other departments, the purchase of only the strong implementation of profit-shifting game, doing business, to a certain extent, suppliers profit thin as razor, quality, delivery, service decline, became a vicious circle.

At Honeyville, cross-functional teams play an important role and are key to achieving a 7% annual cost reduction. Cross-functional team is also aircraft, equipment manufacturing and other small-volume industries, "gold" procurement company a common. Important vendors are managed by cross-functional teams, and procurement is a cross-functional team leader. It's a sign of big shopping. It's a lot of good. First, design and quality become part of the management team and part of the solution. Under "small purchases, " product design often appears as an internal customer, a "troublemaker, " who often says that the design is done and that it is now the procurement task to negotiate with the supplier to achieve the target cost. The design of this thing is too expensive, the procurement can not talk down, it became the performance of poor procurement. Design puts pressure on purchasing as an internal customer. With cross functional teams, design becomes part of the solution, as they are also responsible for failing to meet target costs and annual price reductions. Second, procurement and design to form a synergy, consistent response to suppliers. "Small Procurement" , procurement in the competition with suppliers in a single horse. If the buyer threatens not to cooperate, there will be no new business, and the design will give the new product to the supplier, or if the buyer finds a willing supplier, the design will give the new business to another supplier. The company internal formation does not form the resultant force, gives the supplier each to break. And cross-functional team, we form a synergy, the management and control of key suppliers will be strong.

In addition to enlisting the support of the design department, procurement also has to improve its own technical capabilities, namely the Procurement Engineer / Supplier Engineer. This procurement has sufficient capacity, on the one hand to understand and improve the supplier's production process, quality management, to provide technical support for cost reduction negotiations; on the other hand, with the design department, checks and balances. This is especially important in technology-driven, design-and-production-related companies. For example, in a Silicon Valley equipment manufacturing company, 10 years ago, the purchasing department of the technical force is basically zero, the procurement of quality department has two managers, are doing production, quality, design background is basically no Most of his engineers are quality inspectors. Once involves the design, the technical question, the purchase can only retreat, completely relies on the design department, simply can not with the design equal dialogue, naturally can not drive the design to assist the annual cost reduction. The annual cost-cutting only rely on a group of purchasing managers mouth skills.

A few years ago, the company's chief purchasing officer brought in some very good engineers from the design department, one of whom later became the director of supplier engineers. Two years later, there was another executive director, a vice president from the original design department. The original two quality managers became seven, and the number of engineers under them nearly tripled. Finally, the purchasing department had enough technical force to challenge the suppliers and the design department and support the numerous purchasing plans from a technical point of view So that the procurement in the annual cost reduction, quality, delivery and other aspects of the industry leading. Many of the supplier engineers are from the original design department, familiar with the design, know how to deal with the designers, in doing a good design and supplier bridge, but also can drive the designers to do what they should do. The company's procurement management to the top of the industry, supplier engineers played an important role.

All predictions are wrong, but there is a difference between how wrong they are. The goal of demand forecasting is "as accurate as possible, as soon as possible correction" : First, how to effectively docking sales and operations, "from the data start, from the end of Judgment'' , make a "highest accuracy of the wrong forecast, " to strive for the launch accuracy? Second, the forecast is wrong, how to effectively manage demand, early detection, as soon as possible correction and remedy? Third, how to effectively implement demand forecasting and drive supply chain to respond effectively?

What if demand forecasts are wrong? The natural response of the supply chain is to set up safe stocks. Setting the water level of stock scientifically and reasonably is the key to put proper stock in proper place, improve customer service level and reduce stock. We will also discuss inventory control in detail: First, inventory is an angel is also a devil, how much is appropriate? Second, the inventory decline and rise again and again, a "kill the monster" , how to deal with? Third, Information asymmetry creates the bullwhip effect. How do you trade information for inventory?

The goal of supply chain is global optimization. Why is local optimization prevalent? Suppliers are responsible for most of the value-added activities in the supply chain. How to solve the problem of "selective, not managed" ? How to do "big purchase" and focus on suppliers as a strategic resource? The training focuses on the overall supply chain perspective, promotes cross-functional collaboration to optimize design, reduce costs, select and manage suppliers, effectively manage supply chain risks, and systematically improve supply chain performance. This also includes customer-appointed vendors, as well as key sub-vendor management.