Supply Strategy Implementation: Current State and Future ... Strategy... · Supply Strategy...

Supply Strategy Implementation:Current and Future Opportunities 2011

Robert M. Monczka, Ph.D.Director, Strategic Sourcing and

Supply Chain ResearchCAPS Research

andDistinguished Research Professor of

Supply Chain ManagementW. P. Carey School of Business

Arizona State University

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

Department of Marketing and LogisticsUniversity 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 ResearchCAPS Research

andDistinguished Research Professor of

Supply Chain ManagementW. P. Carey School of Business

Arizona State University

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

Department of Marketing and LogisticsUniversity 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.

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

• Kathleen A. Chester of the Institute for Supply Management™ (ISM) providedgeneral administrative support and draft report development to the researchteam.

• Debbie Maciejewski, Research/Marketing Manager at CAPS Research, managedthe solicitation process for the Web survey and administered the ongoingcommunications with survey respondents.

• Steve Koch, Director of Information Technology Services at CAPS Research,developed the database and web-based assessment application and provideddata 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 andreporting tools.

• Steve Gozdecki of Expressive Editorial Services provided editorial guidance forthe final report.

ISBN 0-945968-86-8

2 Supply Strategy Implementation: Current State and Future Opportunities 2011

Acknowledgements

Robert M. Monczka, Ph.D., is Director of Strategic Sourcing and Supply ChainStrategy Research at CAPS Research. He is also Distinguished Research Professor ofSupply Chain Management at Arizona State University’s W. P. Carey School ofBusiness. Dr. Monczka focuses on sourcing and supply strategy development andimplementation and provides leadership for major supply strategy researchinitiatives at CAPS Research. He has authored more than 100 articles and books andhas consulted with numerous Fortune 500 firms. He is also Professor Emeritus, EliBroad College of Business at Michigan State University and was awarded the J. Shipman Gold Medal Award in 2008, the Institute for Supply Management™’shighest recognition.

Kenneth J. Petersen, Ph.D., is the John H. Dove Professor of Logistics in theDepartment of Marketing and Logistics at the University of Tennessee and VisitingSenior Fellow at Manchester Business School in Manchester, England. He hasauthored more than 50 articles, reports, and book chapters and has consulted withnumerous firms in strategic sourcing and supply management. Dr. Petersen alsoserves as an associate editor for the Journal of Operations Management, Journal ofSupply Chain Management and Journal of Business Logistics.

Author Biographies

3CAPS Research

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Author Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Index of Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Research Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Changes: 2011 vs. 2009 and 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Guidance for Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 1: Introduction and Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 11Transforming Purchasing/Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11What Will the Next 10 Years Look Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12CAPS Executive Assessment of Supply (EAS): Development and Objectives . . 13Supply Strategies Included in EAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13EAS and Value-Add to Company Competitiveness . . . . . . . . . . . . . . . . . . . . . . 13Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Respondent Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Overall Research Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Report Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Chapter 2: Supply Strategies: Importance, Implementation, and Gaps. . . . . . . . . . 18Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Example Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Overall EAS Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Supply Strategy Importance Ratings and Rankings . . . . . . . . . . . . . . . . . . . . . . 22Supply Strategy Implementation Ratings and Rankings . . . . . . . . . . . . . . . . . . 20Supply Strategy Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Overall Importance/Implementation Gap Analysis . . . . . . . . . . . . . . . . . . . . . . 23Comparison Between High and Low Implementation Firms . . . . . . . . . . . . . . 23Observations: High and Low Implementation Firms . . . . . . . . . . . . . . . . . . . . 25Conclusions: Current State of Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . 25

Chapter 3: Industry Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Industry Sector Difference Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Industry Difference Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Average Ratings by Industry Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 4: Strategy Implementation and Supply Performance . . . . . . . . . . . . . . . . 31Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table of Contents


Supply Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Industry Performance Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Chapter 5: What Has Changed? 2007 to 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Overall Changes: 2007, 2009, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Supply Strategy Changes: Firms Common among 2007, 2009, and 2011 . . . . 35

Chapter 6: Critical Supply Strategies: 2011 to 2015. . . . . . . . . . . . . . . . . . . . . . . . 40Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Emerging Supply Strategy Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Chapter 7: Summary and the Path Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Summary: Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43The Path Forward: Supply Transformation 2011 to 2015. . . . . . . . . . . . . . . . . 44

Clear Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Establish Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Resources and Capabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Supply Transformation Process and EAS Application. . . . . . . . . . . . . . . . . . 45

The “Decade Ahead”: Supply Strategy Imlementation. . . . . . . . . . . . . . . . . . . . 45Strategy Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Supplier-Focused Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Supply/Value Chain Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47Concluding Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Appendix A: Supply Strategy Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Appendix B: Statistical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56Appendix C: Supply Strategy Comparisons by Industry Sector . . . . . . . . . . . . . . . 57Appendix D: Selected Emerging Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 69

5CAPS Research

Figure 1.1 Sourcing and Supply Chain MaturityModel . . . . . . . . . . . . . . . . . . . . . . . 11

Figure 1.2 EAS Application . . . . . . . . . . . . . . 14

Figure 1.3 Responding Company Profile . . . . 15

Figure 1.4 EAS Participating Industries . . . . . 15

Figure 1.5 Supply Leadership Model . . . . . . . 16

Figure 2.1 Assessment Example with Rating Scales . . . . . . . . . . . . . . . . . . . . . . 19

Figure 2.2 Overall 2011 EAS Findings . . . . . . 20

Figure 2.3 Strategy Segmentation Analysis: Importance/Gap . . . . . . . . . . . . . . 24

Figure 7.1 Improving Economic Value-Add (EVA) . . . . . . . . . . . . . . . . . . . . . . 45

Figure 7.2 Building Blocks for SupplyTransformation . . . . . . . . . . . . . . . 46

Figure 7.3 Strategic Supply Strategy Priorities and Capabilities Assessment Framework . . . . . . . . . . . . . . . . . . 47

Figure 7.4 Supply Strategy Transformation Process . . . . . . . . . . . . . . . . . . . . . 48

Figure 7.5 Critical Supply Strategies: 2011and Beyond . . . . . . . . . . . . . . . . . . 49

Table 2.1 Overall Importance Strategy Ratings . . . . . . . . . . . . . . . . . . . . . 21

Table 2.2 Overall Implementation Strategy Ratings . . . . . . . . . . . . . . . . . . . . . 22

Table 2.3 Overall Strategy Ratings — Gaps. . 23

Table 2.4 Implementation: Highest 25 Companies versus Lowest 25 Companies . . . . . . . . . . . . . . . . . . 25

Table 2.5 Overall Implementation Ratings for Top/Bottom 25 Firms. . . . . . . . 26

Table 3.1 Strategy Importance Differences by Industry . . . . . . . . . . . . . . . . . . 29

Table 3.2 Strategy Implementation Differences by Industry . . . . . . . . . 29

Table 3.3 Average Ratings by Industry Sector . . . . . . . . . . . . . . . . . . . . . . 30

Table 3.4 Implementation Ratings for Top/Bottom Firms by Industry Sector for 22 Strategies . . . . . . . . . . . . . . 30

Table 3.5 Top Six Strategy Gaps by Industry Sector . . . . . . . . . . . . . . . . . . . . . . 30

Table 4.1 Supply Performance Results (2007, 2009, and 2011) . . . . . . . . 31

Table 4.2 Performance Ratings (2007, 2009, and 2011) . . . . . . . . . . . . . . . . . . . 32

Index of Figures and Tables


Table 4.3 Actual Performance: Overall and by Industry Sector. . . . . . . . . . . . . 33

Table 4.4 Performance Improvement: Overall and by Industry Sector . . . 34

Table 5.1 Comparison of 2007, 2009, and 2011 Implementation/Importance Gaps . . . . . . . . . . . . . . . . . . . . . . . 36

Table 5.2 Differences in Overall Implementation between 2007, 2009, and 2011. . . . . . . . . . . . . . . 37

Table 5.3 Differences in Overall Importance between 2007, 2009, and 2011 . . 38

Table 5.4 Importance, Implementation, and Gap Strategy Ratings for CompaniesParticipating in 2007, 2009, and 2011 . . . . . . . . . . . . . . . . . . . . . . . 39

Table 6.1 Critical Supply Strategy Focus Areas . . . . . . . . . . . . . . . . . . . . . . . 41

Table A3.1 Discrete Manufacturing ImportanceStrategy 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 ImportanceStrategy Ranking/Ratings . . . . . . . . 61

Table A3.7 Process Manufacturing Implementation Strategy Ranking/Ratings . . . . . . . . . . . . . . 62

Table A3.8 Process Manufacturing Strategy Gap Ranking/Ratings . . . . . . . . . . . 63

Table A3.9 Implementation: Highest 10 Process Manufacturing Companies versus Lowest 10 Process Manufacturing Companies . . . . . . . . . . . . . . . . . . 64

Table A3.10 Process Manufacturing Implementation Ranking/Ratings for Top/Bottom 10 Firms. . . . . . . . 64

Table A3.11 Service Importance StrategyRanking/Ratings . . . . . . . . . . . . . . 65

Table A3.12 Service Implementation Strategy Ranking/Ratings . . . . . . . . . . . . . . 66

Table A3.13 Service Strategy Gap Ranking/Ratings . . . . . . . . . . . . . . . . . . . . . 67

Table A3.14 Implementation: Highest 10 Service Companies vs. Lowest 10 Service Companies . . . . . . . . . . 68

Table A3.15 Service Implementation Ranking/Ratings for Top/Bottom 10 Firms . . . . . . . . . . . . . . . . . . . . 68

7CAPS Research

Research Background

Over the past 20 years, supply management has evolvedfrom an administrative function to become a strategiccontributor to organizational competitiveness. Thesuccess or failure of supply management to establishand lead a competitive supply base and work with otherfunctions can drastically impact a firm’s success. Supplymanagement positively or negatively affects cost, assets,and revenue generation, all of which are critical tocreating company value and to the financialperformance of the firm.

Currently, the strategic direction of many firms is beingsupported by supply strategies. Consider, for example,P&G’s “Connect and Develop” open innovation focus;the purchasing function’s savings contribution presentedto Wall Street analysts by a number of companies;General Mills’ “Holistic Margin Management” programthat requires significant contribution from supply;globalization of the supply base across industries;increasing collaboration with suppliers; and thedramatic efforts undertaken by firms during and afterthe recent economic downturn to reduce costs whilefurther globalizing the supply base and reducing risk.

To achieve supply transformations that provide overallvalue creation, firms worldwide need to regularly assessthe degree of implementation of supply strategies theyconsider most important to the success of theirorganization. With this in mind, and armed with theexperience we have gained over the past decade indeveloping, providing, and conducting supplyassessments, CAPS Research executed the 2011Executive Assessment of Supply (EAS).

The primary objective of the 2011 EAS was todetermine what importance organizations on aworldwide basis place on critical supply strategies, their

level of implementation, and the performance resultingfrom these strategies. Data was collected from 119supply organizations across 25 industries regarding 22supply strategies and performance results in order tofurther develop a baseline for current and futureanalyses. The 2011 EAS is the third in a series; priorstudy results were published in 2007 and 2009.

Key Findings

The 2011 EAS shows that firms are still lagging inimplementing supply strategies considered important tothe competitive success of their firms. Firms rated theimportance of the 22 strategies from between“functionally required” to “an operational necessity tocompete.” Implementation of the strategies was notcomplete. For all organizations, the supply strategieswere implemented at a “limited number of supplylocations and were being accepted as best practice withinitial positive results.”

In addition, there was a large gap between the reportedimportance of each strategy and its actualimplementation. There was also a large implementationdifference between those firms where supply strategieswere most and least implemented.

The 10 most important and implemented supplystrategies were:

! Engagement by Corporate Executives andBusiness Unit Leaders

! Vision, Mission and the Strategic Plan! Commodity & Supplier Strategy Process! Strategic Cost Management! Procurement & Supply Organization Structure &

Governance! Human Resource Development

Executive Summary


! Total Cost of Ownership! Structuring & Maintaining the Supply Base and

Cross-Functional/-Location Teaming! Measurement & Evaluation! Establishing World-Class Supplier Quality

These strategies focus on the building blocks requiredto achieve an effective supply organization and strategyas well as the specific supply and supplier strategiescritical to achieving year-over-year supply performanceimprovement. However, implementation of thesestrategies also lags behind their strategic importance.

Overall, the largest gaps between those strategiesconsidered to be most important, but leastimplemented, were:

! Commodity & Supplier Strategy Process! Strategic Cost Management! Human Resource Development! Total Cost of Ownership! Supplier Assessment, Measurement &

Communications! Establishing World-Class Supplier Quality! Structuring & Maintaining the Supply Base

These strategies should provide an implementationfocus at most firms.

In addition, analysis of the differences among industrysectors showed that they were quite limited. However,the discrete manufacturing industry sector had asomewhat higher degree of implementation overall thanthe process and service sectors.

Supply performance, on average, showed improvementfor key performance areas. Purchase prices werereduced by 3.7 percent on average; transportation andlogistics costs were reduced by 2.8 percent, and totalcost of ownership reduced by 3.6 percent. Compared to2009, price improvements were somewhat less (2009figures were 4.0 percent, 5.1 percent, and 4.3 percent,respectively). Supplier flexibility and responsiveness wasalso somewhat improved in 2009 and 2011.

Changes: 2011 vs. 2009 and 2007

• The overall “gap” between strategy importanceand implementation for 2011 and 2009 weresimilar, -2.0 vs. -1.9, with both being less thanthe 2007 gap of -2.4, generally indicating anincreased degree of supply strategyimplementation since 2007.

• For strategy implementation overall,implementation was slightly less in 2011 (5.50)than 2009 (5.68) but higher than in 2007 (5.27),possibly reflecting the recent economic distress.

• Procurement & Supply Organization Structure &Governance; Cross-Functional/-Location Teaming;Structuring & Maintaining the Supply Base;Strategic Insourcing/Outsourcing; and E-Sourcing& Supply Chain Strategies all, at least minimally,saw increased implementation in 2011 from 2007and 2009.

• The most significant decreases in strategyimplementation between 2009 and 2011 were forAccelerated Change Management;Environmentally Sustainable Supply ChainManagement; Human Resource Development;Measurement & Evaluation; and Standardizationof Products, Services, Components & DesignSpecifications — although increasing from 2007.

• For firms participating in the 2007, 2009, and2011 iterations of the EAS, gap reductionsbetween importance and implementation wereachieved for all strategies. Major gap reductionsbetween 2009 and 2011 were for Procurement &Supply Organization Structure & Governance;Total Cost of Ownership; Supplier Assessment,Measurement & Communications; Engagement byCorporate Executives & Business Unit Leaders;Structuring & Maintaining the Supply Base; andEstablishing World-Class Supplier Quality.

Guidance for Senior Management

Although supply is becoming more strategic at firmsworldwide, implementation of critical supply strategiesis still lagging. We also found that those supplystrategies that have longer implementation timeframesand require more resources and cross-functionalsupport were not viewed as being most important, norwere they most implemented. However, these morerobust strategies, such as standardization of purchasesto reduce complexity and cross-functional and cross-enterprise collaboration, will likely be very important tothe future success of many organizations.

Based on this research, we believe that firms should beworking two “supply buckets” concurrently. First, thereis a need to ensure a high level of implementation andeffectiveness for core strategies, such as purchasecategory and supplier strategy development, includingrisk management, structuring the supply base, total cost

9CAPS Research

of ownership, strategic cost management, and peopleacquisition and development. These strategies deliversupply performance today and tomorrow. Second,leading supply organizations and their supply andbusiness unit leaders need to invest in the their firms’long-term success by accelerating the transformation ofe-systems for supply, integrating suppliers into bothnew product development and customer orderfulfillment, standardizing specifications and purchasesto reduce complexity, attaining supplier innovationthrough effective collaboration, and establishingenvironmentally sustainable supply chains. Thesestrategies will be necessary to deliver future value andperformance improvements.

Overall, this suggests that increasing emphasis on cross-functional and cross-enterprise will be required forsupply and supplier networks to become an integralpart of customer focused value chains. These valuechains will require improved integration betweencompany functions and external customers andsuppliers that will be achieved through a strategic valuechain vision and leadership, combined with metrics thatmeasure customer satisfaction with value provided andsupply and supplier contributions. Supply strategiesthat can make major contributions to companyperformance must be implemented worldwide.


What supply strategies are viewed as most important bysupply organizations? To what extent have thesestrategies been implemented? How do supply strategiesrelate to supply performance? What supply strategiesare likely to be the focus of future transformationefforts? This research provides answers to thesequestions.

Transforming Purchasing/Supply

Beginning in the early to mid-1980s, purchasing beganto transform from a back-office, transaction-focused

function to become a critical part of a firm’s competitivestrategy. This transformation process began with Xeroxgaining insight into “new” purchasing and supplystrategies from its Japanese counterpart, Canon,followed by transformations in the automotive,appliance, electronics, computer, and other industrysegments worldwide.

This transformation can be illustrated by the maturitymodel shown in Figure 1.1.

This multi-decade transformational journey hasfrequently been characterized as price-focused. Strategic

Chapter 1: Introduction and ResearchApproach

11CAPS Research

Figure 1.1Sourcing and Supply Chain Maturity Model

sourcing, low-cost-country sourcing, reverse e-auctions,and supplier consolidation to gain scale advantage havehad price improvement as a major objective. It appearsthat most firms are in Stage II or III of the maturitymodel, with a limited number of firms in Stage IV.

Firms are typically positioned at Stage II or III becausethey were price focused; had only recently begun thesupply transformation journey; focused on shorter-termimprovement objectives that reflected company andfunctional executive directions; or failed to make thesizeable and challenging investment required totransform supply strategies, practices, structures, andsupplier working relationships across functions and theextended supply chain.

In addition, there is anecdotal information thatcorporate purchasing and supply transformations mayhave stalled due to the challenges of adjusting to therealities of a more complex environment. This reducedpace of transformation may again be caused by narrowprice-focused rather than value-driven supplyobjectives, limited e-system integration, and difficultiesin achieving cross-functional integration and companyreorganizations. Over the recent past, the severeworldwide economic recession has also slowed supplytransformation initiatives. However, firms are againfocusing on developing world-class supply managementas risk (e.g., typhoons, nuclear accidents, financialdistress, and geopolitical disruptions) and lack ofinnovation have negatively affected supply chain andfirm performance.

What Will the Next 10 Years Look Like?

For a firm to achieve progress toward attaining Stage IVstatus, it must identify supply strategies that are criticalto its success, understand the current state ofimportance and implementation, and work towardappropriate alignment. A transformation strategy mustthen be established, supported by required investmentsand measurement of implementation progress andresults.

To position this report in terms of the futurecompetitive environment and resulting desired state, wecontinue to draw on the 2007 CAPS Research reportSucceeding in a Dynamic World: Supply Management in theDecade Ahead,1 which suggests that we will faceturbulent times in the future. Significant forces ofchange will impact organizations. Some of these forces

include globalization, changes in worldwideconsumption patterns, demographic changes, regulationand activism across countries throughout the world,and increasing pressure to maintain natural resourcesand the environment. In addition, there will besignificant changes in technology and increasingrequirements for innovation. “Wildcards” that cannot begenerally predicted will also come into play. All of thesechanges will drive business models and strategies tochange, and innovation will strongly impact a firm’ssupply mission, goals, and performance expectations.

In addition, as firms look for ways to improve theirrevenue streams, they will likely move up the valuechain, enrich customer relationships, and embraceemerging markets. From a cost perspective, thestructural cost of conducting the business will have tobe addressed and optimized while firms pursue ongoingvariable cost reduction. On the balance sheet, moreefficient and effective use of fixed assets will berequired. There will also be a need to increase cash flow.These requirements will impact the business modelsand all functionally driven strategies, including supply.

These drivers have a cascading effect on the supplymission, goals, and performance expectations. Theabove-mentioned research study concluded that moreinnovation will be required from suppliers, there will bean increased need to contribute to revenue generationthrough effective sourcing and supply, and supplystrategies will require further risk mitigation and anexpanded cost management focus. Overall, thestrategies and processes that have worked in the pastwill require significant transformation to be effective ina changing world in the future.

Even though the ideas presented in the aboveparagraphs were written in 2007, they still ring truetoday. Therefore, every supply organization worldwidemust continually examine itself and the transformationstrategies being employed to ensure effective world-classsupply organizations over the next five, 10, and 15years. Continuous change and transformation isrequired, although not necessarily natural to allorganizations. Therefore, supply organizations mustdevelop a mindset to embrace change and then developthe processes to drive continuous — and sometimesbreakthrough — renewal.


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

CAPS Executive Assessment of Supply (EAS):Development and Objectives

The CAPS Executive Assessment of Supply (EAS) wasdeveloped to help firms address the changing world ofsupply management. EAS builds on the knowledgegained in deploying Project 10X at CAPS Research andfollows the development of approximately 350 supplyassessment questions based on experience withworldwide firms over the past 10 years. These 350questions were modified and reduced so as to provide22 strategically focused supply strategy questions andtwo questions focused on performance. For each of the24 assessment questions, specific attributes wereincluded that describe leading-edge practices. Theseattributes provide the basis for rating the current stateof the strategy for strategic importance to the firm anddegree of implementation. From these ratings, gaps canbe determined between importance andimplementation.

Transformation progress can also be measured over timethrough comparison between past, current, and futureassessments. In addition, supply and firm performancequestions were also included. An assessment questionexample is shown in Chapter 2, including rating scales.

This EAS report also provides respondents with acapability to compare themselves with other firms. Inaddition to the information provided in the report, eachparticipating company receives additional EAS data,enabling comparative analysis across the 119 respondingcompanies organized by various industry segments.

Supply Strategies Included in EAS

The following purchasing/supply strategies wereincluded in the 2011 CAPS Executive Assessment ofSupply and were meant to be strategically, rather thantactically, focused.

! Vision, Mission and the Strategic Plan! Strategic Insourcing/Outsourcing! Commodity & Supplier Strategy Process! Structuring & Maintaining the Supply Base! Supplier Assessment, Measurement &

Communications! Supplier Integration into New

Product/Process/Service Development! Supplier Integration into Customer Order

Fulfillment! Strategic Supplier Alliances! Collaborative Buyer/Supplier Development &

Continuous Improvement

! Establishing World-Class Supplier Quality! Global Sourcing & Supply Strategy! Strategic Cost Management! Total Cost of Ownership! Standardization of Products, Services,

Components & Design Specifications! Environmentally Sustainable Supply Chain

Management! Procurement & Supply Organization Structure &

Governance! Cross-Functional/-Location Teaming! Measurement & Evaluation! E-Sourcing & Supply Chain Strategies! Human Resource Development! Engagement by Corporate Executives & Business

Unit Leaders! Accelerated Change Management

In addition, data related to Competitive Performancewas also collected.

Each strategy area includes a definition, all of which areshown in Appendix A.

EAS and Value-Add to Company Competitiveness

The value of the EAS is twofold. First, an industrywidereport (backed by more detailed data) is provided sothat an individual firm’s transformation progress can bebenchmarked. Second, a firm can determine its currentstate through EAS deployment and establish the go-forward transformation plan to achieve an “ideal state.”This “ideal state” should provide overall company valuecreation through enhanced supply strategies. Inaddition, by applying the EAS findings across strategicbusiness units and key facilities on a worldwide basis, afirm can establish where change is taking place anddetermine what may have led to improvements inperformance. Conducting an EAS may also be a keyelement in supply strategy development andimplementation, and help to “level-up” the entiresupply organization.

Figure 1.2 illustrates the application of EAS. Theapplication can be both companywide (one responseper company) or tailor-made (conducted across multiplebusiness units and supply locations within a firm). Thisreport is based upon the worldwide assessment acrossfirms, which includes only one response per firm (i.e.,where multiple responses were received, they wereaveraged into a single response for this report).

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Research Approach

Approximately 1,100 companies were asked toparticipate in the 2011 EAS study. Companies solicitedincluded CAPS Research sponsoring companies, selectedmembers of the Institute of Supply Management™, andfirms that have participated in prior CAPS Researchprojects. The request to participate in EAS was generallysent to supply management executives. Once acompany agreed to participate, information aboutaccessing a web-based EAS tool was emailed toparticipants.

Data collection took place between February and May2011.

Respondent Profile

Completed assessments were received from 119companies (approximately 11 percent of those that wereoriginally asked to participate).

The current state of supply strategy importance andimplementation is based on the 119 companiesresponding to the CAPS Executive Assessment ofSupply. Twenty-eight percent of respondents were fromthe discrete manufacturing industry, 35 percent ofrespondents were from the process manufacturingindustry, and 37 percent of respondents were from theservice industry.


Figure 1.2EAS Application

The respondent profile is also characterized by thefollowing:

• Twenty-five industries were included, as shown inFigure 1.4.

• Fifty-five percent of the firms had sales over $5billion. Thirty-seven percent had sales between $1billion and $5 billion. The remaining 8 percent offirms had sales less than $1 billion.

• The annual direct and indirect spend of thesefirms were:

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Figure 1.3Responding Company Profile

Figure 1.4EAS Participating Industries

Annual Spend Direct IndirectGreater than $5 billion 21% 16%$1 billion to $5 billion 47% 35%Less than $1 billion 32% 49%

• Just over 71 percent of respondents represented acompanywide view, while slightly more than 21percent represented a strategic businessunit/division view. Just under 7 percent ofrespondents represented a geographic view.

• About 84 percent of the responses reflectedresponsibility for both direct and indirect purchases,with direct and indirect approximately equal.

Overall Research Framework

Figure 1.5 shows the overall Supply Leadership Modeldriving supply transformation and the critical strategyareas around which the EAS was developed.

Report Organization

The remainder of the report includes the followingsections:

Chapter 2 — Supply Strategies: Importance,Implementation, and Gaps

• Introduction• Example Question• Overall EAS Findings• Supply Strategy Importance Ratings and Rankings• Supply Strategy Implementation Ratings and

Rankings• Supply Strategy Gap Analysis• Overall Importance/Implementation Gap Analysis• Comparison Between High and Low

Implementation Firms• Observations: High and Low Implementation

Firms• Conclusions: Current State of Supply Strategies

Chapter 3 — Industry Analysis• Introduction• Industry Sector Difference Findings• Industry Difference Conclusions• Average Ratings by Industry Sectors

Chapter 4 — Strategy Implementation and SupplyPerformance

• Introduction• Supply Performance


Figure 1.5Supply Leadership Model

• 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

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Introduction

Supply and other executives regularly raise thequestion, “How are we doing compared to other leadingfirms?” This report provides answers. The data collectedfrom 119 worldwide firms provides insights into thecurrent state of importance, implementation, and gapsfor 22 critical-to-success supply strategies. In addition,this chapter includes discussion of the strategy ratingsand rankings for the highest and lowest rated firms.

Example Question

An assessment question example and rating scale, withdefinitions, is shown in Figure 2.1 to assist in theinterpretation of the findings. This examples is from thesupply strategy of: Commodity & Supplier StrategyProcess.

Overall EAS Findings

Figure 2.2 shows the range of average ratings across allcompanies for the 22 supply strategies for “importance,”“implementation,” and the resulting “gaps” betweenimplementation and importance. A “gap” is thedifference in ratings between “importance” and“implementation” for a specific strategy.

The following overall 2011 findings are mostinteresting:

1. Importance ratings are at least 1.25 higher thanimplementation at both the high and low ends.

2. The gap range is large, from a low of -1.13 to ahigh of -2.63 between implementation andimportance.

3. Average importance, implementation, and gapratings were 7.53 (high importance), 5.50(moderate implementation), and 2.02 (majorgap), respectively.

When compared to the 2009 data, the followingobservations are significant:

1. Average importance in 2011 is similar to 2009.2. Average implementation is slightly lower than

2009.3. The average gap is larger than 2009 by 0.13.

When 2011 data is compared to the 2007 data, thefollowing observations are especially notable:

1. Overall importance is somewhat less than in2007.

2. Overall implementation is somewhat higher thanin 2007.

3. Overall gap is smaller than 2007 by 0.4.

A number of conclusions can be drawn from the overalldata. First, we are seeing a greater degree of supplystrategy implementation in 2011 than in 2007, with asmall decrease when compared to 2009. There was areduction in the gap between importance andimplementation from 2007 (both as a product ofdecreasing importance of some strategies and increasedimplementation of the same or other strategies), but anincrease in the gap compared to 2009. This may be theresult of reduced resources available for strategy/practiceimprovement and implementation due to the severeeconomic recession. Second, even though the averagegap has been reduced from 2007, overall implementationis far lower than the corresponding importance change,as can be seen by rating ranges and averages.

Chapter 2: Suppy Strategies:Importance, Implementation, and Gaps


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Figure 2.1Assessment Example with Rating Scales

In addition, firms likely rated supply strategies morehighly on importance, as many strategies can bestrategically important to the success of the firm.However, implementation may lag because a firm is justbeginning or is partially along its transformationaljourney; resources have been limited in support of thetransformations, especially in difficult economic times;some strategies are not the focus of the implementation;and strategies that are being implemented have takenconsiderable time and resources to complete.

Supply Strategy Importance Ratings andRankings

Table 2.1 provides insight into the overall ratings andrankings for the 22 strategy areas by “importance.” Inaddition, a difference in the average rating score of morethan 0.47 between strategies is statistically significant.For example, the group of six strategies most highlyrated is significantly different than the 11 lowest ratedstrategies. (See Appendix B for a description ofmethodology used to determine statistical significance.)


Figure 2.1Assessment Example with Rating Scales (continued)

Figure 2.2Overall 2011 EAS Findings

A number of observations can be drawn from the“importance” ratings, including:

• The overall average strategy ratings range around“high/critical” (operational necessity; required foroperational effectiveness; necessary to gain marketleadership; achieves competitive viability — anecessary consideration to compete)

• The top six rated strategies all focus on the initialbuilding blocks of an effective supply function(enablers) and/or are critical to achieving costimprovement.

• Engagement by Corporate Executives & Business Unit Leaders

• Vision, Mission and the Strategic Plan• Commodity & Supplier Strategy Process• Strategic Cost Management• Procurement & Supply Organization

Structure & Governance• Human Resource Development

• In addition, these six most highly rated strategiesall revolve around supply management leadership

and building appropriate governance and strategyto carry out the Vision, Mission and the StrategicPlan, which is rated highest of all strategies.Clearly, having the best possible human resourcetalent is an enabler to success in all 22 supplystrategy areas.

• The seven lowest rated strategies requireengagement of executives and key personsworking collaboratively across functions, which isfrequently more difficult to do as more functionsneed to be aligned to achieve measurable results.

• Supplier Integration into Customer Order Fulfillment

• Environmentally Sustainable Supply Chain Management

• Global Sourcing & Supply Strategy• E-Sourcing & Supply Chain Strategies• Standardization of Products, Services,

Components & Design Specifications• Strategic Insourcing/Outsourcing• Supplier Integration into New Product/

Process/Service Development

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Table 2.1Overall Importance Strategy Ratings

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

Supply Strategy Implementation Ratings andRankings

Table 2.2 provides the overall ratings and rankings forthe 22 strategy areas by degree of “implementation.” Adifference in average rating greater than 0.47 means thatone strategy is significantly different than another. (SeeAppendix B for the description of methodology used todetermine statistical significance.) For example, the twomost commonly implemented strategies are significantlydifferent than the two least implemented strategies.

A number of observations can be drawn from the“implementation” ratings:

• The overall average strategy ratings range from“moderate” to somewhat less than “extensive,”which suggests limited implementation.

• The most frequently implemented strategies wereprimarily focused on establishing the foundationfor effective supply strategies and commodity andsupplier strategy development, and weresomewhat aligned with the importance rankings.

• The lower implemented strategies generally focusaround strategies requiring significant investmentor those that require true cross-functionalimplementation, and are similar to the strategieslowest rated in importance.

• Strategies associated with extended supply chains,aligning and linking organizations, and achievingcollaboration with suppliers were “moderately”implemented. Other cross-functional and cross-enterprise strategies also lagged inimplementation.

• Environmentally Sustainable Supply ChainManagement was substantially less implemented,probably due to the significant financial and costreduction pressures firms were under due to theeconomic downturn, as well as the fact that it is arelative newcomer to the set of available supplystrategies. Further, the linkage betweenenvironmentally sustainable strategies andorganizational performance outcomes is still notwell understood.


Table 2.2Overall Implementation Strategy Ratings

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

Supply Strategy Gap Analysis

The ratings data was also analyzed to determine the“gaps” between strategy importance and implementation.On average, the overall “gaps” across all 22 strategyareas were between -1.13 and -2.63 (negative numbersreflect greater importance than implementation). Therankings for all gaps are shown in Table 2.3.

The largest gaps were for:2

! Human Resource Development (8.21/5.58)! Supplier Assessment, Measurement &

Communications (7.61/5.01)! Accelerated Change Management (7.13/4.64)! Establishing World-Class Supplier Quality

(7.72/5.32)! Collaborative Buyer/Supplier Development &

Continuous Improvement (7.18/4.83)! Standardization of Products, Services,

Components & Design Specifications (7.08/4.73)

The smallest gaps were for:

! Procurement & Supply Organization Structure &Governance (8.21/7.08)

! Strategic Insourcing/Outsourcing (7.10/5.71)! Cross-Functional/-Location Teaming (7.58/6.09)! Global Sourcing & Supply Strategy (6.98/5.30)! Engagement by Corporate Executives & Business

Unit Leaders (8.36/6.63)

The data suggest that the largest gaps were driven by”high to critical” importance ratings withimplementation only being achieved to a moderatedegree. The smallest gaps had ratings approaching“extensive” for implementation, with importance being“high to more critical.”

Overall Importance/Implementation GapAnalysis

Additional analysis was done to compare the “gaps”with importance and implementation to assist firms incomparing themselves against all respondents and forpriority setting.

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Table 2.3Overall Strategy Ratings — Gaps

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

2Numbers in parentheses show the importance and implementation ratings.

Figure 2.3 establishes quadrants by taking the mean of“importance” ratings and mean of “gap” ratings andthen plots where the strategies fall. From Figure 2.3,Strategic Cost Management, Human ResourceDevelopment, Total Cost of Ownership, Measurement &Evaluation, and Establish World-Class Supplier Qualityclearly fall in Quadrant 2 — higher importance andlarger gaps. In addition, Supplier Assessment,Measurement & Communications; Commodity &Supplier Strategy Process; and Structuring &Maintaining the Supply Base fall on the margins ofQuadrant 2. These strategies are a potentialtransformation priority and can be characterized as aPriority 1, with a “must do” focus.

In addition, Quadrant 3 in Figure 2.3 shows a numberof strategies that are somewhat lower in importance butstill have larger gaps. They include:

! Environmentally Sustainable Supply ChainManagement

! Collaborative Buyer/Supplier Development &Continuous Improvement

! Standardization of Products, Services,Components & Design Specifications

! Accelerated Change Management

These strategies require priority consideration byorganizations, depending on their currenttransformation focus and industry competitiverequirements.

Quadrant 1 strategies in Figure 2.3 require a continuingfocus, looking for opportunities to enhance. Dependingon the firm’s focus and strategy implementation, thestrategies in Quadrant 4 may be currently viewed asappropriate and a lower priority.

Overall, establishing the supply strategy transformationpriority focus at a firm depends upon its position on thematurity curve and the anticipated and quantifiedbenefits from further implementation of a specificstrategy(s) in a specific industry sector. Detailed analysisof the potential return and the logic supportinganticipated benefits is required to establish clearpriorities for each firm.


Figure 2.3Strategy Segmentation Analysis: Importance/Gap

A given firm’s supply strategies by quadrant may not bethe same as the overall set of respondents and shouldreflect its actual current state. However, applying similaranalyses, combined with anticipated benefits andimplementation complexity, can assist in developing afirm’s supply strategy implementation path.

Comparison Between High and LowImplementation Firms

A comparison was also done of the top and bottom 25firms based on implementation ratings to determine the

magnitude of the rating differences and relative rankingof each strategy between the two groups. The results areshown in Tables 2.4 and 2.5.

Observations: High and Low ImplementationFirms

• The implementation range for the top 25companies was from a high of 8.8 forProcurement & Supply Organization Structure &Governance to a low of 6.0 for Standardization ofProducts, Services, Components & Design

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Table 2.4Implementation: Highest 25 Companies versus Lowest 25 Companies

Specifications. This was considerably higher thanthe overall range for all companies of 7.08 to 4.29for implementation, as would be expected. Thebottom 25 company implementation range wasfrom 2.3 for Collaborative Buyer/SupplierDevelopment & Continuous Improvement to 4.7for Vision, Mission and the Strategic Plan,substantially lower than the top 25.

• Substantial differences exist for all strategiesbetween the highest and lowest companies,ranging from a difference of 4.9 to 2.8.

• The 25 highest ranked companies have mosttypically implemented Procurement & SupplyOrganization Structure & Governance;Engagement by Corporate Executives & BusinessUnit Leaders; Vision, Mission and the StrategicPlan; Strategic Cost Management; and Total Costof Ownership. In the highest implementedcompanies, these strategies have been extensivelyimplemented, while the lowest 25 companies

have achieved moderate implementation at best.The overall strategy implementation differencesranged from 4.9 to 2.8 across the 22 strategies.

• The largest implementation differences werebetween Global Sourcing & Supply Strategy; TotalCost of Ownership; Establishing World-ClassSupplier Quality; Collaborative Buyer/SupplierDevelopment & Continuous Improvement; andSupplier Assessment, Measurement &Communications.

• For the top and bottom 25 firms, Procurement &Supply Organization Structure & Governance;Engagement by Corporate Executives & BusinessUnit Leaders; and Vision, Mission & StrategicPlan were commonly among both groups’ top fivemost implemented strategies.

• In addition, further analysis was done comparingthe highest and lowest 25 firms based on averageimplementation ratings for all 22 strategies. The


Table 2.5Overall Implementation Ratings for Top/Bottom 25 Firms

Highest 25 Lowest 25Companies CompaniesRank Average Rank Average

1 9.6 1 1.62 9.1 2 2.23 8.5 3 2.34 8.0 4 2.35 7.8 5 2.66 7.6 6 2.67 7.5 7 2.88 7.5 8 3.19 7.4 9 3.210 7.3 10 3.411 7.3 11 3.512 7.3 12 3.613 7.2 13 3.814 7.0 14 3.815 7.0 15 3.816 7.0 16 3.917 7.0 17 4.018 6.9 18 4.019 6.9 19 4.120 6.9 20 4.121 6.9 21 4.122 6.8 22 4.123 6.8 23 4.224 6.8 24 4.325 6.7 25 4.3

Average 7.4 Average 3.4

results are shown in Table 2.5. The highestranked firms have an average implementationrating of 7.4, while the lowest ranked firms havean average of 3.4, indicating significant differencesin strategy implementation. On average, the firmswith the highest degree of supply strategyimplementation are far ahead of theircounterparts.

Conclusions: Current State of Supply Strategies

The strategic importance of 22 critical supply strategieswas, on average, rated as “High: Operational necessity;required for operational effectiveness; necessary to gainmarket leadership; achieves competitive viability — anecessary condition to complete.” Implementation,however, was on average scored between “Moderate:Multiple attributes implemented and becomingaccepted as effective means of doing business in at leastone business unit, site, or organization” and “Extensive:Most attributes implemented across multiple businessunits, sites, or organizations; attributes demonstrated asthe best way of doing business; results are beginning toshow improvement in line with plans.” The maximumrating for strategic importance is “critical”; forimplementation, the maximum is “complete.”

It appears that there is considerable need for firms tofurther implement supply strategies critical to theiroverall competitiveness than has been achieved to date.However, the data also suggests that considerableprogress has been made in implementation of supplystrategies since 2007 and 2009.

Additional analyses also indicated a number of keystrategies that should be considered as priority areasbased on combining the magnitude of gaps and thestrategic importance of the strategies. These include:

! 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 prioritiesand transformation strategies.

All firms should also consider how they can acceleratetheir supply transformation efforts and goalachievements. By comparing the top and bottom 25firms based on implementation, we found large strategyimplementation differences between these two groups,both overall and by strategy area. Laggingimplementation, lack of a transformation focus, and toofew resources could prove costly to firms over time,given the reported achievements of the variousorganizations most implemented.

Finally, in our opinion, the strategies that are generallyrated less important are relatively harder to implementand companies may be focusing on easier to implementstrategies. On the other hand, for some companies therelative importance is lower because they haveimplemented these strategies and have now moved onto implementing new higher priority strategies. Inaddition, the least implemented strategies require thelongest view and generally require integration acrossfunctions and cross-functional collaboration. Thesestrategies may offer the greatest contribution to supplyvalue creation during the next one to five years. Forexample, a continuing focus on e-supply systems as acritical enabler will be required. Without e-systems toprovide important data and a means to communicateand collaborate within and across organizations, supplyvalue creation may be limited. Innovation andaccelerated change management also need to be anintegral part of supply transformation efforts, as doesenhancing talent.

This analysis of more than 119 respondents providesinsight into the current state of supply strategyimportance, implementation and gaps. The informationalso provides the opportunity for firms to compare theirsupply strategy ratings against other firms and deployEAS worldwide so as to measure change over timeresulting from supply transformation strategies beingimplemented at their firm.

27CAPS Research

Introduction

This chapter provides findings that show differencesbetween three industry sectors: discrete manufacturing,process manufacturing, and services. The results areorganized by industry sector and then by importance,implementation, and gap. In addition, differences inimplementation by industry sector are also provided.

This chapter provides data in the following sequence:

1. Industry differences for importance2. Industry differences for implementation3. Discrete, process, and service data for importance,

implementation, gaps, and top/bottom 10company ratings

4. Conclusions

Industry Sector Difference Findings

A few differences in implementation and importancewere found between discrete, process, and serviceindustry firms. Those differences by strategy area andby industry sector are shown in Tables 3.1 and 3.2.

Industry Difference Conclusions

• There is a high degree of similarity in strategyimportance ratings between the discrete, process,and service sectors.

• Discrete manufacturing firms are further along the“implementation” transformation journey andhave higher “importance” ratings.

• Generally, discrete manufacturing had higherimportance (7 strategies) or implementation (10strategies) ratings than process or service as

shown. However, meaningful conclusions versushypothesis would only be conjecture.

• “Implementation” rated lower than “importance”across all industry sectors.

• In addition, statistically significant differencesbetween industry sectors were not found for anyof the supply strategy areas. Even though therewere absolute differences, they were not found tobe statistically significant. However, they may beof practical interest when reviewing the industrytables in Appendix C.

Average Ratings by Industry Sectors

Following are the cross-industry sector comparisons foraverage importance, implementation, and gap ratingsacross the 22 supply strategy areas. Appendix Cprovides more detailed tables regarding survey results asthey pertain to specific industries. In that section,ratings are then provided by each strategy area. Thetables are organized by industry sector to assist readerswho are most interested in their own industry.

Tables 3.3 and 3.4 provide some interesting data:

• The discrete industry has an overall higher averageimportance rating than either process or service.

• Implementation of supply strategies is lowest, onaverage, in the service industry sector, which alsohas the largest gap.

• The implementation difference between the topand lowest 10 firms across industry sectors isquite large, indicating there are truly leading andlagging firms within all industries.

• The discrete industry appears to be further alongin strategy implementation, at least compared toservice.

Chapter 3: Industry Analysis


29CAPS Research

Table 3.2Strategy Impementation Differences by Industry

Strategy Area Significant Differences*D > P & S** D > P D > S P > S S > D or P

! Vision, Mission & the XStrategic Plan! Commodity & Supplier X XStrategy Process! Structuring and Maintaining Xthe Supply Base! Supplier Assessment,

Measurement & XCommunications

! Supplier Integration into New Product/Process/Service XDevelopment

! Collaborative Buyer/Supplier Development & Continuous XImprovement

! Establishing World-Class Supplier Quality X X

! Global Sourcing & Supply Strategy X X

! Measurement & Evaluation X X! Accelerated Change

Management X

* Differences significant at the 0.05 level (see Appendix B)** D = Discrete industry; P = Process industry; S = Service industry

Table 3.1Strategy 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 XDevelopment

! Collaborative Buyer/Supplier Development & Continuous XImprovement

! Establishing World-Class Supplier Quality X X

! Global Sourcing & Supply Strategy X X

! Standardization of Products, Services, Components & XDesign Specifications

* Differences significant at the 0.05 level (see Appendix B)** D = Discrete industry; P = Process industry; S = Service industry

Table 3.3Average Ratings by Industry Sector

Industry Sector Importance Implementation GapDiscrete 7.84 5.91 -1.92Process 7.48 5.73 -1.75Service 7.34 4.98 -2.36Overall 7.53 5.50 -2.02

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

Industry Sector Top 10 Bottom 10 DifferenceDiscrete 7.3 4.6 2.7Process 7.7 3.6 4.1Service 6.6 3.0 3.6

Table 3.5Top Six Strategy Gaps by Industry Sector

Rank Discrete Process Service1 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 & ContinuousImprovement (-1.98) Improvement

(-2.21) (-2.77)

Supply Strategy Implementation: Current State and Future Opportunities 2001130

Table 3.5 shows the supply strategies with the biggestgaps by industry sector. They were somewhat differentacross the industries.

CAPS Research 31

Chapter 4: Strategy Implementationand Supply Performance

Introduction

What supply performance improvements have firmsbeen achieving? Are there apparent relationshipsbetween supply strategy implementation andperformance? These two questions are the focus ofChapter 4.

Supply Performance

Each respondent was asked to provide supplyperformance information for 11 performance areas.Specifically, they were directed:

“For your most important purchases (80/20 rule) overthe past twelve (12) months, indicate the magnitude ofmeasurable performance improvements and/orbusiness unit contribution achieved through sourcingand supply chain strategies at your business unit.”

The 11 performance areas and results are shown inTable 4.1 and include 2007, 2009, and 2011.

Conclusions

• Supply performance improvements in 2011 werelimited compared to 2009, likely due to thesevere economic recession and upward pricepressure on commodities.

• Unit purchase price; transportation and logisticscosts; and total cost of ownership all improved by3.65 percent, 2.83 percent, and 3.55 percentrespectively over the “past 12 months.” However,purchase price improvement was less than thatachieved in 2009 and 2007.

• Improvements were also achieved in all otherperformance areas, including supplier paymentterms, quality, order cycle times, on-time delivery,

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

responsiveness/flexibility, and achievement ofsupplier diversity.

• The ranges between maximum improvement andworsening were quite large, indicating significantvariability between firms and industries.

• For 2011, the rate of improvement across allperformance measures was similar or less than in2007.

In addition, performance rating responses wererequested for the 22 performance areas shown in Table4.2, which shows rating results for 2011, 2009, and2007. The question asked whether performance stayedthe same, got better, or became worse. Theseperformance areas are organized by three majorcategories: overall sourcing and supply chain processimprovements, overall supply value-add, and overallrelationships and satisfaction. These ratings wererespondent perceptions.

Over the 22 performance areas, measured based onqualitative ratings, there was small slippage in the rateof performance improvement. The largest improvementswere with “executive satisfaction with supply” and“standardization or consistency in the sourcing process,”although this increase was less than those seen in 2007and/or 2009. Smallest rates of improvement were for“processes to systematically obtain, evaluate, andrespond to supplier ideas” and “inventory cost forpurchase items.”

Overall, significant performance improvements were notevident.

Industry Performance Differences

Statistical analyses were performed to determinewhether there were significant industry sectordifferences for both the objective and qualitativeperformance measures. The results of the analysesshowed a number of differences between industrysectors, including:


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

• The service sector achieved the greatest purchaseprice improvement (5.1 percent) with discrete(4.1 percent) and process (1.8 percent) following.

• The discrete industry led the way for rate ofimprovement for transportation and logistics cost,total cost of ownership, performing to purchaseprice/ cost objectives, supplierresponsiveness/flexibility, and supplier quality.

• The service sector achieved the highestimprovement in supplier diversity.

• For qualitative rating performance change,discrete manufacturing had greater improvementin transportation/logistics transaction efficiency,performing to purchase price/cost objectives, andpayment terms with suppliers than did theprocess and service sectors.

Tables 4.3 and 4.4 show the actual reportedperformance averages and performance improvementratings by each performance area overall and for theindustry sectors.

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Table 4.3Actual Performance: Overall and by Industry Sector

Overall Discrete Process ServicePerformance 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 Objectives 2.9% 5.7% 0.6% 2.7%

Inventory Investment Cost for Purchased Goods 1.1% 1.3% 0.9% 1.0%

Payment Terms With Suppliers (# Days) 0.8 0.2 0.3 1.9Supplier 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%

Table 4.4Performance Improvement: Overall and by Industry Sector

Supply Strategy Implementation: Current State and Future Opportunities 2001134

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Chapter 5: What Has Changed?2007 to 2011

Introduction

This chapter highlights differences between 2007, 2009,and 2011 EAS responses and includes:

• Overall strategy importance, implementation, andresulting gap differences

• Differences in rank order for importance andimplementation ratings

• Differences in performance: actual andperceptions

• Differences in ratings by companies thatparticipated in the 2007, 2009, and 2011Executive Assessments of Supply

Overall Changes: 2007, 2009, and 2011

Tables 5.1, 5.2, and 5.3 provide insights about thesupply strategy importance, implementation, and gapchanges that have occurred between 2007, 2009, and2011.

The overall gap reduction between 2007 and 2009 was0.5, which is significant. However, between 2009 and2011, the average gap then increased by 0.1. Only sixgap reductions were achieved between 2009 and 2011:

! Procurement & Supply Organization Structure &Governance

! E-Sourcing & Supply Chain Strategies! Supplier Integration Into New Product/Process/

Service Development! Structuring & Maintaining the Supply Base! Global Sourcing & Supply Strategy! Cross-Functional/-Location Teaming

The most significant decreases in strategyimplementation between 2009 and 2011 were for:

! Innovation & Accelerated Change Management(as it was labeled in 2007, 2009), AcceleratedChange Management (as it was labeled in 2011)

! Environmentally Sustainable Supply ChainManagement

! Human Resource Development! Measurement & Evaluation! Standardization of Products, Services,

Components & Design Specifications! Global Sourcing & Supply Strategy

Overall, it appears that supply strategy implementationgenerally lagged between 2009 and 2011, decreasing by0.16, probably due to the start and continuation of thesevere economic recession. However, implementationincreased on average by 0.31 between 2007 and 2011.Progress was made, but was ultimately slowed due tothe economy.

Tables 5.2 and 5.3 show difference rankings of ratingsfor the 22 strategy areas by implementation andimportance. These tables may provide the readeradditional insights.

The decrease in importance ratings may be explained bythe relative transformation focus on selected strategiesand/or different responding companies between 2007,2009, and 2011.

Supply Strategy Changes: Firms Common among2007, 2009, and 2011

Analysis was also conducted to determine supplystrategy changes for firms that participated in all threeassessments -the 2007, 2009, and 2011 EAS. Sixteencompanies participated in all three assessments. Resultsare shown in Table 5.4 and are ranked by the largestgap between 2009 and 2011.

As can be seen, the top nine strategy gap reductionsbetween 2011 and 2009 were for the followingstrategies and undoubtedly were a focus ofimprovement efforts over the past two years:

! Procurement & Supply Organization Structure &Governance (1.21)

! Total Cost of Ownership (0.82)! Supplier Assessment, Measurement &

Communications (0.76)! Engagement by Corporate Executives & Business

Unit Leaders (0.65)! Structuring & Maintaining the Supply Base (0.60)! Establishing World-Class Supplier Quality (0.57)! Vision, Mission and the Strategic Plan (0.55)! Strategic Supplier Alliances (0.54)! Supplier Integration into New Product/Process/

Service Development (0.51)

A number of the strategies with the most sizeable gapclosure require significant company and supplyleadership and cross-functional focus across theextended supply or value chain. They are also generallymore complex to implement and require additionalinvestment, but their implementation may result insignificant returns. Compared with the overall pool ofrespondents, Procurement & Supply OrganizationStructure & Governance, Supplier Integration into NewProduct/Process/Service Development, and Structuring

and Maintaining the Supply Base were the onlystrategies that showed gap closure for both groupsbetween 2009 and 2011.

For 21 of the 22 supply strategies, there was aconsistent increase in implementation between 2007and 2011, with some dips in 2009, presumably due tothe severe recession. Importance also increased, but lessconsistently. Supplier Integration into Customer OrderFulfillment; Cross-Functional/-Location Teaming;Standardization of Products, Services, Components &Design Specifications; and E-Sourcing & Supply ChainStrategies saw minor decreases in importance.

Overall, both strategy implementation and importanceincreased between 2007 and 2011. On average,implementation increased by 0.93 and importance by0.28. In addition, there was a reduction in the overallgap between Supply Strategy Importance &Implementation from 2.41 in 2007 to 1.66 in 2011, asignificant improvement at these 16 companies.

These 16 firms, when compared to the overall sample(Table 5.1) were markedly superior. Theirimplementation was 6.44 versus 5.5, their gap was 1.66versus 2.0, and gap closure for 2011 versus 2007 was0.75, compared to the total sample 2007-2011 gap,which improved by 0.40 from 2.4 to 2.0.


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

It appears that these 16 firms placed significantemphasis on the transformational journey. These 16firms also regularly and systematically participated inthe CAPS Executive Assessment of Supply.

The largest increases in supply strategy implementationbetween 2011 and 2009 for the 16 companies and thetotal sample were:

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

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 supplymanagement, even in difficult economic times. Thedifferences in implementation and gap improvementwith the overall sample is marked.

It should be noted that the companies participating in2007, 2009, and 2011 likely had different individualrespondents to our research study. Individual differencesmay therefore explain some of the rating differences. Inaddition, implementation is “moderate,” indicating thejourney continues.


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

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

3Number of firms participating in 2007, 2009, and 2011 = 16.

Introduction

This chapter provides findings resulting from responsesto the following question asked of respondents:

“Please identify three (3) emerging supply strategiesthat will be most critical to improving your company’scompetitive performance areas the next 3-5 years. Inaddition, for each strategy, please identify and describethe major drivers (reasons why) for this strategy.”

More than 350 strategies were identified, with a feweliminated from consideration because of limited clarity.Major drivers of the strategies were not specificallyidentified. However, the supply strategies themselvesprovide insight into the drivers.

Emerging Supply Strategy Findings

Each supply strategy was classified into one of 19strategy areas based on the authors’ judgment. In somecases, the strategies could be placed in more than onecategory but were assigned to a particular categorybased on the primary emphasis of the strategy.

Table 6.1 shows the overall results. Based on ourcontent analysis of the 19 strategy areas, we found that:

1. Supply strategies could be grouped into threemajor groups.

• Strategic supply strategies• Critical supply strategy enablers• Strategies with limited emphasis

2. The strategic supply strategies and criticalsupply strategy enablers categories were

predominant and made up 84 percent of thesupply strategies identified.

• Strategic supply strategies made up 48 percent(166/344) of the strategies submitted andincluded Supply Management, Commodity/Purchase Category Strategy Development,Strategic Cost Management, and Global Sourcingand Supply. Also, included in SupplyManagement were numerous comments about“risk,” indicating the growing importance ofSupplier Risk Management.

• Critical Supply Strategy Enablers, making up 36percent (123/344) of the strategies, included: E-Systems; Talent; Supplier and CustomerIntegration; Organization, Governance andProcess; and Strategic Supplier Alliances.

• The “limited emphasis” strategies making up 16percent (55/344) of responses consisted of the 10remaining strategies, with the top two beingStandardization and Complexity Reduction ofProducts/Services and EnvironmentalSustainability.

• In addition, if Total Cost of Ownership strategieswere added to Strategic Cost Management, andStrategic Supplier Alliances were added toSupplier Management, 56 percent (194/344) ofthe strategies would be in the Strategic SupplyStrategy classification.

3. Critical strategy industry differences wereminimal.Analysis of the 19 strategy areas by the discrete,process, and service industries for critical strategyfocus showed:

• No major differences among industries for the topfour strategic supply strategies, except that GlobalSourcing and Supply was far less frequentlymentioned in the service industry.

Chapter 6: Critical Supply Strategies: 2011to 2015


• Major differences were not found in the enablersexcept for Supplier Integration, which was moreemphasized in the discrete industry.

Conclusions

The following conclusions are based on the emergingsupply strategies that respondents provided.

1. The emerging strategies for 2011 to 2015 followtraditional patterns that focus on SupplierManagement, Global Supply, Purchase CategoryStrategy Development, and Cost Management,and the enabling strategies dominated by

E-Systems and Talent. It appears that thesestrategies are focused on incrementalimprovements compared to overall best-in-classstandards. However, these enhancement strategiesmay be considered breakthrough at specificorganizations.

2. E-Supply Systems and Talent are viewed as criticalenabling strategies to achieve cost and otherperformance improvements.

3. Supplier integration and the overall integration ofthe supply chain and processes appear to be ofincreasing importance to organizations comparedto prior years — and could provide significantbenefits if alignment and linkages can be achievedacross the supply chain.

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Table 6.1Critical Supply Strategy Focus Areas

4. Environmental sustainability still is not achievingfrequent mentions by responding firms,suggesting a limited focus. This finding agreeswith the ratings data of importance andimplementation shown in Chapter 2.

5. Strategies that were mentioned as “most criticalemerging strategies” have significant gaps betweenimportance and implementation and will takefocused effort and investment to achieveimplementation.

In addition, Appendix C provides non-attributed andselected examples of the most critical supply strategiesthat respondents provided.


Introduction

This chapter provides a summary of the key findingsand broadly discusses a “path forward” to be consideredby supply executives to aid in their continuoustransformational journey.

Summary: Key Findings

Supply organizations are continuing theirtransformational efforts, but are currently achieving aslightly lower level of supply strategy implementationthan in 2009. There is also an increase in the gapbetween supply strategy importance and implementation,with significant gaps existing across a number ofstrategy areas. Even at those firms with the highestdegree of implementation, there are opportunities tofurther enhance and implement supply strategies. Inaddition, it appears that the recent severe recessionslowed supply strategy implementation.

The largest supply strategy gaps between importanceand implementation were for Human ResourceDevelopment; Supplier Assessment, Measurement &Communications; Accelerated Change Management;World-Class Supplier Quality; Collaborative Buyer/Supplier Development & Continuous Improvement;Standardization of Products, Services, Components &Design Specifications; Environmentally SustainableSupply Chain Management; and Strategic CostManagement. Total Cost of Ownership, Measurement &Evaluation, Commodity & Supplier Strategy Process,Supplier Integration Into New Product/Process/ServiceDevelopment, and Structuring and Maintaining theSupply Base followed closely.

The 10 most important supply strategies were:

1. Engagement by Corporate Executives & BusinessUnit Leaders

2. Vision, Mission and the Strategic Plan3. Commodity & Supplier Strategy Process4. Strategic Cost Management5. Procurement & Supply Organization Structure &

Governance6. Human Resource Development7. Total Cost of Ownership8. Structuring & Maintaining the Supply Base9. Measurement & Evaluation10. Establishing World-Class Supplier Quality

The 10 most implemented strategies were:

1. Procurement & Supply Organization Structure &Governance

2. Engagement by Corporate Executives & BusinessUnit Leaders

3. Vision, Mission and the Strategic Plan4. Commodity & Supplier Strategy Process5. Strategic Cost Management6. Cross-Functional/-Location Teaming7. Structuring & Maintaining the Supply Base8. Total Cost of Ownership9. Strategic Insourcing/Outsourcing10. Measurement & Evaluation

Comparisons between the 25 firms that had the highestand lowest implementation ratings on average showedthat:

• Procurement & Supply Organization Structure &Governance; Engagement by Corporate Executivesand Business Unit Leaders; and Vision, Missionand the Strategic Plan were in the top five mostimplemented strategies for both groups. However,the average implementation rating for these three

Chapter 7: Summary and the PathForward

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strategies was more than four points higher forfirms that had the most implemented strategies.

• The rank order of the least implemented strategieswas similar for both groups except forStandardization of Products, Services, Component& Design Specifications, which was ranked lowerby the firms that had a higher degree of strategyimplementation. The most implementedcompanies had an average implementation ratingof 7.4 versus 3.4 for the least implemented firms.This clearly reflects significant differences in thematurity stages between the most and leastimplemented firms.

Industry comparisons were also made for theimplementation and importance ratings between thediscrete, process, and service industries. The ratingswere generally similar, with the discrete industry sectorgiving hire ratings in terms of both importance andimplementation compared to the process and servicesectors.

The research findings also show that the mostimplemented strategies are critical enablers to world-class supply strategies. These strategies includeProcurement & Supply Organization Structure &Governance; Engagement by Corporate Executives &Business Unit Leaders; and Vision, Mission and theStrategic Plan. In addition, the least implementedsupply strategies generally include those that requiresignificant investment and considerable cross-functionalalignment and linkage of goals, strategies, and resources(Environmentally Sustainable Supply ChainManagement; Supplier Integration into New Product/Process/Service Development; Standardization ofProducts, Services, Components & Design Specifications;and Environmentally Sustainable Supply ChainManagement).

In addition, supply achieved positive improvements for2011, although performance improvement slowed andwas less than had been achieved in 2009. There wasabsolute improvement, but the rate of improvement wasless. For example, average unit price improvementswere reduced from 4.0 percent in 2009 to 3.65 percentin 2011.

Given these findings and recognition that firms are atdifferent stages of maturity, two transformationobservations are important. First, there is a need toensure high implementation and effectiveness for corestrategies such as category and supplier strategydevelopment (with risk management), structuring thesupply base, total cost of ownership, supplier selection,strategic cost management with total cost of ownership,

and high talent people acquisition and development.These strategies need to deliver supply performancetoday.

Second, leading supply organization and business unitleaders need to further invest in their long-term successby accelerating the transformation of e-systems, betterintegrating suppliers into both new productdevelopment and customer order fulfillment,standardizing specifications and purchases to reducecomplexity, achieving supplier innovation througheffective collaboration, and establishing environmentallysustainable supply chains. These strategies are necessaryto deliver future performance improvements.

The Path Forward: Supply Transformation 2011 to2015

Based on the research, the supply transformationjourney can be long and perilous. However, ourongoing research and prior experience suggests anumber of elements critical to success, including:

• Clearly articulated goals important to the business• Transformation priorities• The resources and capabilities to implement

significant change• A transformation process

In addition, due to the economic crisis of 2008-2009and slow growth, priority setting and goal clarity(especially related to cost reductions) become moreimportant as resources for transformation have become,and will continue to be, limited. New emerging supplystrategies, such as risk management, environmentalsustainability, and innovation sourcing, also requiregreater executive focus, engagement, and investment.

Clear GoalsIt is important to create and clearly articulate the valuecontribution to be achieved from a supply“transformation” and its specific elements. For example,supply organizations are focusing on various approachesto achieve cost reduction such as negotiation, pricereduction based on raw material price decreases,achieving supplier cost reduction ideas, cost modeling,best country sourcing, and so forth. In addition, somefirms are also increasing their longer term focus onobtaining supplier innovations.

For any of these initiatives, capital, people, and timeinvestments may be required. Increasingly, firms arerequiring that the return on investment from these typesof initiatives be measured, including personnel capacity


and capabilities to implement the transformation. To beeffective, clear-cut goals and how they will be achievedneed to be well thought through and effectivelycommunicated throughout the firm.

Figure 7.1 illustrates different value contributions thatcan be made through effective supply management andtransformations.

Supply transformation results must focus on the overallfinancial and customer market contributions to be madeto the firm and not be limited by functionally drivenobjectives. The linkages between supply transformationsand revenue, cost, and asset improvement must beclear, logical, and supported by the CFO.

Establish PrioritiesBased on the three EAS Assessment findings and priorexperience, the strategy areas shown in Figure 7.2should be clearly evaluated for transformation priorities.Priorities will be established based on an organization’scurrent state and potential short- and longer termbenefits from the transformation. Figure 7.2 has beenmodified since 2007 and continues to be relevant.

Even though many firms are implementing some or allof these strategies, they are only partially implementedagainst the attributes shown for each of the 22 strategyareas. This was again confirmed by our 2011 researchfindings. Therefore, these strategies should beprioritized for implementation based on anticipatedresults compared to costs and complexity to implement.

In addition, we earlier discussed those strategies withthe largest gaps. These strategies can be characterized asa top priority.

Resources and CapabilitiesFirms undertaking supply transformations must ensurethat they have the resources and capabilities to executethe transformation. Figure 7.3 provides a framework tohelp evaluate implementation capabilities for prioritytransformations. Strategy complexity and the capabilityof the firm to actually implement specific strategiesmust be established.

Supply Transformation Process and EASApplicationSupply transformations will sometimes fail. To minimizefailures, a critical success factor is a process to achievesuccessful supply transformations, centered onmaintaining a tight focus. Figure 7.4 shows a 10-stepimplementation process that can help achieve successfulsupply transformations. (This process is the same as theone we outlined in the 2009 EAS report.)

The “Decade Ahead”: Supply StrategyImplementation

This section builds on the data gathered in the EAS,other research, and consulting experience combinedwith the findings of Succeeding in a Dynamic World:Supply Management in the Decade Ahead. This

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Figure 7.1Improving Economic Value-Add (EVA)

discussion is similar to that from our 2009 study,recognizing that supply strategy implementationprogress has been achieved to some degree but thatconsiderable progress overall is still required.

Figure 7.5 illustrates the likely next wave of supplystrategies to be the focus of innovation at leading-edgecompanies. A brief discussion follows.

These strategies combine further enhancement of thecritical enablers and the development of supplystrategies that increasingly require cross-functional andcross-enterprise collaboration with a holistic supplychain and customer focus. The “function only”perspective will fade as they are adopted.

Strategy Enhancement

An expanded supply strategy vision with center-ledapproaches will be required to achieve maximumsupply performance in the future. Supply will beexpected to not only contribute to cost reduction, butalso to help improve asset utilization and enhancerevenue. This can be seen based on the increasedemphasis on obtaining supplier innovations and “openinnovation” approaches.

People acquisition, development, and retentionstrategies will require transformation. Salary grades and

people capabilities will increase given the capabilitiesrequired in an increasingly complex and competitiveworld with extended supply lines. Recruitment andpeople location at all levels will be worldwide, with afocus on creating strategic, challenging jobs,establishing a “best place to work” environment andrecognizing generation differences. Highly talentedpeople will also have to be hired and developed inemerging regions. Initiatives to further transfer supplystrategy approaches and processes from mature to lessmature regions will require implementation.

E-sourcing without human touch will be achieved. Theproportion of time supply people spend on clerical,administrative, and routine tasks will continue to bereduced. Procure-to-pay interfaces with suppliers willbecome automated.

Supplier-Focused Strategies

A number of supply strategies that primarily focus onsuppliers and supply networks will be enhanced andtake on greater importance in the future. These includetrue cross-functional teams developing value-drivencategory strategies. For example, at one firm revenueswere enhanced because supply determined that therewould be insufficient capacity to meet demand for aproduct with a very long lead time, so it created a newsupply chain capable of providing the product. The firm


Figure 7.2Building Blocks for Supply Transformation*

also bought out capacity and was able to provide itsbusiness customers with needed products earlier thanthe competition, thereby gaining high-value orders. (Formore information on this case, see the CAPS Researchreport entitled Value Focused Supply: Linking Supply toCompetitive Business Strategies.)

Category strategy development will be resourced withhighly capable people with high-level representationsacross functions for the most important purchasecategories. Key category strategies will aim to providevalue, going far beyond traditional cost reduction goals.

Increasing collaboration with strategic supply partnersand networks will be required and achieved due to theglobal scope of business, limited investment capability,and the scale and know-how that external firms maypossess. Firms will have to enhance trust with suppliersand more effectively share risk and rewards. OtherCAPS Research studies have demonstrated that trustand “risk/reward” sharing are critical elements tosuccessful collaboration.

Supplier development activities will also increase. Asworldwide sourcing is being implemented, especially inemerging markets, some suppliers may not have the fullmanufacturing or operations capabilities required. Forexample, automotive OEMs are utilizing hundreds oftechnical and other non-supply personnel in supplierdevelopment.

Value and demand analyses will also be more fullyutilized at the product or service design stage.Standardization and product/service complexityreduction efforts will increase. At one manufacturingfirm, engineering and supply are working closelytogether in teams with executive engagement andsupport to reduce product complexity at the rawmaterial, systems, and component levels.

Environmental sustainability efforts and results willincrease. Firms in the automotive, electronics,computer, energy, and many other industries areimplementing significant initiatives, such as IBM’sGlobal Supply Social and Environmental ManagementSystem.

Greater emphasis will also be placed on supply riskmanagement strategies. These strategies will bothprotect supply and be a means to achieve competitiveadvantage.

Supplier-focused activities are required to providegreater value to customers by providing differentiatedfeatures while controlling costs. Implementation to datehas been relatively low for these strategies.

Supply/Value Chain Integration

The integration of functions and firms making up thesupply value chains is one of the last frontiers. How

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Figure 7.3Strategic Supply Strategy Priorities and Capabilities Assessment Framework


Figure 7.4Supply Strategy Transformation Process

well suppliers and customers are aligned and linkedwith a company will influence future success. Strategiesto better integrate the value chain are the most complexbecause they include so many functions andorganizations. However, alignment and linkagestrategies across the value chain and networks will beincreasingly important once supply strategy buildingblocks are in place. These strategies will drive alignmentamong functions and firms focused on collaborativeinnovation efforts, shared resources, standardization andcomplexity reduction, and environmental sustainability.

In addition, firms such as IBM, Cisco, Whirlpool, andmany others are driving toward end-to-end supplychain integration. Those that are first and that focus onholistic company rather than narrow “function only”goals will likely achieve competitive advantage.

Concluding Comments

This report provides insights to firms about the supplystrategies most important to the strategic success of theoverall firm. The findings also suggest that firms aresomewhat lagging with respect to full implementation ofimportant supply strategies.

The “building block” strategies shown in Figure 7.5 arethe focus of Stages II and III in the Maturity Modelpresented in Chapter 1. To move to Stage IV, firms willimplement supply strategies and their enablers thatrequire additional collaboration, integration, andcustomer-focused rather than functional metrics.

Each firm requires a supply transformation strategy thatis regularly updated and executed to achieve highsupply performance in a fast-changing and increasinglycomplex world. Those dozen or so supply strategies afirm identifies as “critical to success” require completeimplementation to move to the next level ofperformance.

Although the recent economic crisis may have slowedthe rate of implementation, the lessons learned can helpfirms prioritize those supply strategies most importantin the new economy. For example, risk managementwill be of increasingly significant importance as part ofcategory and supplier strategy development. Companieswill have to reexamine their focus and ensure that thecorrect supply strategies are targeted for implementationto provide maximum future benefits.

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Figure 7.5Critical Supply Strategies: 2011 and Beyond


A P P E N D I XA

Vision, Mission and the Strategic Plan

DefinitionThis strategy sets direction for the development andmanagement of a supply network that creates value andleads to competitive advantage. Vision and missionarticulates how the supply network will create value,and the strategic plan provides a “blueprint” forimplementation and execution. The vision, mission andstrategic plan are documented.

Strategic Insourcing/Outsourcing

DefinitionA “strategic sourcing” process to evaluate internalcapabilities, competencies, and capacity versus externalsources and capabilities to identify opportunities tobetter focus on core competencies, improve product/service differentiation, and develop and sustaincompetitive advantage.

Commodity & Supplier Strategy Process

DefinitionA written, systematic plan to achieve both short- andlong-term commodity/purchase family goals over atleast a one- to three-year horizon. Strategies aredeveloped for the important commodities/categories.Elements include supply base structuring, sourcing,contracting, supplier development, product/processdesign/specifications characteristics, and value chainconsiderations. The strategy combines various elementsinto an executable plan with timelines, accountabilities,and measurable performance expectations. The viewincludes the total supply chain or network.

Structuring & Maintaining the Supply Base

DefinitionA properly structured supply base includes theappropriate number and quality of suppliers tosignificantly contribute to companywide economicvalue-add and maintain a competitive sourcingadvantage. Suppliers are categorized as strategic,preferred, improve, eliminate, and other categoriesdeemed appropriate. The maintenance of the supplybase reflects changing external economic risk andmarket/competitive conditions worldwide, and alignswith the overall current and future sourcing programand specific commodity/purchase family strategies tomeet companywide requirements.

Supplier Assessment, Measurement &Communications

DefinitionThis strategy encompasses the process of continuouslymeasuring and providing feedback to suppliers aboutperformance to ensure that the supply base is a sourceof competitive advantage. The objectives are to identifyoutstanding suppliers and reward them with additionalbusiness; identify substandard suppliers and eliminateor strengthen them through development efforts; alignsupplier/buyer goals through joint metrics; and establisha performance baseline to track trends.

Supplier Integration into NewProduct/Process/Service Development

DefinitionThe systematic process of involving external suppliers inthe design, development, and introduction of new

Supply Strategy Definitions

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A P P E N D I X Aproducts, processes, or services as well as innovationsaround them. Integration occurs at any stage in theprocess and supplier responsibilities range from “blackbox,” in which a supplier owns primary responsibilityfor the process, to “white box,” in which the suppliermay be consulted.

Supplier Integration into Customer OrderFulfillment

DefinitionCustomer-driven synchronization of supply chainphysical, financial, and information flows fromcustomer needs through post-sales service and disposalto enhance asset velocity, value creation, andcompetitive advantage. The cross-enterprise supplychain versus a single business unit is the competitiveunit; the objective is to optimize capability of the totalvalue chain.

Strategic Supplier Alliances

DefinitionStrategic supplier alliances are long-term, cooperativerelationships designed to leverage the strategic andoperational capabilities of individual participatingcompanies to achieve significant ongoing benefits toeach party. The relationship is based on mutual businessinterest and does not involve the formation of a separatelegal entity. Successful alliances require high levels ofcoordination, trust, information sharing, creativity, andsenior management support to fully exploit jointopportunities.

Collaborative Buyer/Supplier Development &Continuous Improvement

DefinitionA strategy for developing and improving strategic andtactical processes and relationships with key suppliersto maximize cross-enterprise performance. Formalizeddevelopment efforts and continuous improvementprocesses ensure performance targets are establishedwith appropriate metrics and progress reporting forcritical value chain processes. World-class efforts will becharacterized by greater focus on bilateralimprovements, commitment of joint resources todevelopment activities, and more risk/reward sharing.Lean practices are applied.

Establishing World-Class Supplier Quality

DefinitionWorld-class supplier quality management is the processof managing the entire supply chain to obtaincomprehensive quality process controls utilizingtraditional and innovative quality managementstrategies. These strategies are both internal andexternal, at every stage of the supply chain process,with the objective of attaining a competitive advantageand long-term success through customer satisfactionand overall stakeholder loyalty.

Global Sourcing & Supply Strategy

DefinitionGlobal sourcing and supply strategy includes strategiesand practices enabling firms to effectively coordinateinformation and decisions about customers, companyneeds, commodities/purchase families, and suppliers ona worldwide basis. Globalization of a firm’s procurement/sourcing and supply chain strategy requires globalleveraging of suppliers and internal resources andprocesses.

Strategic Cost Management

DefinitionThe identification and proactive management of all costsand associated cost drivers throughout the product/service supply chain. Requires development,prioritization, and implementation of strategies andprocesses to control, reduce, or eliminate costs duringeach phase of the life cycle. Cost categories include butare not limited to design, purchase item costs, quality,inventory, delivery, and end-of-life costs.

Total Cost of Ownership

DefinitionTotal Cost of Ownership (TCO) is a cost-analysistechnique utilized in support of a company’s strategiccost management strategies. TCO analysis involves theidentification and categorization of all cost elements andassociated cost drivers related to a sourcing/procurementdecision. TCO includes all costs, direct and indirect,incurred throughout the life cycle of an asset, includingacquisition and procurement, operations andmaintenance, and end-of-life management.


A P P E N D I XAStandardization of Products, Services,Components & Design Specifications

DefinitionStandardization strategies include companywidedetermination of those products, services, components,or technologies that can be defined to company orindustry standards for simplification and cost savings.Differentiation is only applied when it provides value tothe ultimate customer and justifies higher pricing andgreater margins. Differentiation is commonly establishedaround core competencies.

Environmentally Sustainable Supply ChainManagement

DefinitionA written, systematic set of supply managementstrategies that incorporate environmentally sustainableprocesses to make both short- and long-termperformance improvements in supply management atthe firm level and/or across the supply network.

Procurement & Supply Organization Structure &Governance

DefinitionFirms operate in a globally coordinated environmentwith companywide or strategic business unit (SBU)center-led leadership with purchasing authority andcoordination, combined with decentralized purchasingexecution. Purchasing or supply reports to a top-levelexecutive. Much of the sourcing/supply strategydevelopment is increasingly done by global commodityteams recognizing the direct needs of customer facingorganizations and ultimate customers.

Cross-Functional/-Location Teaming

DefinitionWorld-class teaming involves proactively forming,managing, and supporting cross-functional/-locationteams with the objective of achieving competitiveadvantage through purchasing/supply strategies. Teamspursue tasks and assignments that link to and directlysupport the attainment of business and/or corporateobjectives. Teams are the correct organizational responsewhen faced with complex or large-scale decisions ortasks that span functions, geographies, product/servicelines, etc.

Measurement & Evaluation

DefinitionStrategic and supply chain performance measurementsinclude metrics for commodity/purchase family sourcingeffectiveness that can also be used to gauge supplierperformance; overall functional strategies and processes;cross-functional team performance; and cross-enterpriseperformance. Metrics are utilized within a balancedscorecard performance measurement and evaluationmethodology against specific measures and objectives;they are integrated with the company/business unitperformance evaluation system.

E-Sourcing & Supply Chain Strategies

DefinitionE-sourcing and supply chain strategies are a series ofpractices that involve automating supply chain processand/or conducting supply chain activities electronicallyand via the internet to optimize inherent efficiencies. E-sourcing and supply chain streamlines processes,including procurement, supply/demand planning, andlogistics, as well as supplier relationship management,design/development, and customer relationshipmanagement. E-systems are substituted for tacticaloperations where possible.

Human Resource Development

DefinitionHuman resource development is a continuous processof attracting, acquiring, developing, and retainingknowledgeable and skilled personnel to achieveincreasing competitive advantage worldwide. Theevolution to a “virtual organization” makes highlyeffective human resource development practicesimperative as personnel are provided with significant“place and time flexibility.” Ongoing knowledgemanagement and development is a priority.

Engagement by Corporate Executives &Business Unit Leaders

DefinitionExecutive engagement includes company executivesparticipating in (sometimes leading) and providingorganizational and budgetary support for criticalsourcing and supply chain strategies and initiatives.This engagement signals to the organization the strategiccriticality of sourcing and supply to sustaining thecompetitive advantage of the firm.

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A P P E N D I X AAccelerated Change Management

DefinitionAccelerated change management is a process thatenables rapid, innovative change from the existing stateto a new paradigm. The new paradigm, which becomesthe existing environment, is again shifted to a newparadigm with increasing speed. This continuousimprovement process combines an organization’ssystem, structures, and culture. Project and processimplementation speed are measured, communicated,and reinforced throughout the organization.

Competitive Performance

DefinitionStrategic sourcing and supply chain strategies achievecompetitive performance by creating and enabling a

competitive network of supplying firms that producesuperior results. Key elements of competitiveperformance include direct and measurable economicvalue-add (EVA) or return on invested capital (ROIC)contributions to the overall business unit performanceand for specific sourcing and supply chain metrics.

Instructions

For your most important purchases (80/20 rule) overthe past twelve (12) months, indicate the magnitude ofmeasurable performance improvements and/or businessunit contribution achieved through sourcing & supplychain strategies at your business unit. NA=NotApplicable.


A P P E N D I XAInstructions

Please indicate the overall results achieved by yourbusiness unit over the past 12 months from yourbusiness unit’s strategic sourcing and supply chainstrategies for each of the following:

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A P P E N D I X A


A P P E N D I XB

22 Strategy Area Calculations

The statistics provided for each of the 22 strategies arebased on simple averages of strategy implementationand strategy importance for all of the respondents orgroups of respondents (i.e., discrete manufacturing,process manufacturing, and service). The “gap” scoresprovided are calculated as the average implementationscore for a specific strategy area minus the averageimportance score for a specific strategy area. Therefore,positive scores indicate that implementation exceedsimportance and negative scores indicate that importanceexceeds implementation (the more common case).

Strategy Area Difference Tests

For each of the 22 strategy areas, estimates ofstatistically significant (paired t-test) differences areindicated by a box drawn around a group of eitherimportance or implementation strategy areas. Todetermine the box that represents the approximatedifferences, statistical difference tests (paired t-tests)were calculated between each of the averages for aspecific strategy area (implementation or average) witheach of the other 21 averages, yielding 231 differencetests ((22 * 21)/2). The differences were then rankordered from largest to smallest absolute difference. Aninspection of this rank ordering was used to determinethe smallest absolute difference, where all largerabsolute differences were statistically significant. Theboxes were then created by subtracting this smalleststatistically significant absolute difference value from thelargest of the average values (average implementation oraverage importance). All of the values that were lessthan this value were included in the box that is reflectedon each of the rank-ordered strategy importance andstrategy implementation tables.

Performance Difference by Industry

Chapter 3 of the report includes a section that examinesthe difference between each of the dimensions ofperformance (unit purchase price, transportation &logistics cost, etc.) between each of the three industrygroupings (discrete, process, and service). Thesecalculations were done using a one-way analysis ofvariance (ANOVA). The ANOVA statistical procedureexamines the difference in the mean for each group andthen forms a confidence interval around the mean (inthis case) of 95 percent probability. Each mean iscompared and, based on the 95 percent confidencelevel, a determination is made as to whether thedifference in the means is statistically significant (at a 95percent level of confidence).

Correlation Analysis

Chapter 4 of the report provides a written discussion ofa correlation analysis between each of the strategy areasand each dimension of performance (unit purchaseprice, transportation & logistics, etc.) overall and by thediscrete manufacturing, process manufacturing, andservice industry grouping. The correlations werecalculated as simple “Pearson product moments.”

Statistical Analysis

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A P P E N D I X C

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

Discrete Manufacturing Ratings/Rankings

Supply Strategy Comparisons by Industry Sector

Table A3.1Discrete Manufacturing Importance Strategy Rankings/Ratings

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


A P P E N D I XC

Cross-Functional/-Location Teaming 5.79 7.30 -1.52Supplier Integration into Customer Order 4.15 6.79 -2.64FulfillmentE-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64Environmentally Sustainable Supply Chain 4.30 6.52 -2.21Management

Average 5.91 7.84 -1.92

Table A3.2Discrete Manufacturing Implementation Strategy Rankings/Ratings

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

Average 5.91 7.84 -1.92

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

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A P P E N D I X CTable A3.3

Discrete Manufacturing Strategy Gap Rankings/Ratings

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

Average 5.91 7.84 -1.92


A P P E N D I XCTable A3.4

Implementation: Highest 10 Discrete Manufacturing Companies versus Lowest 10 Discrete Manufacturing Companies

Table A3.5Discrete Manufacturing: Implementation Ratings for Top/Bottom 10 Firms

Highest 10 Lowest 10Companies Companies

Rank Average Rank Average1 9.09 1 3.362 7.77 2 4.003 7.64 3 4.054 7.45 4 4.685 7.18 5 4.736 7.00 6 4.777 7.00 7 4.778 6.82 8 5.059 6.82 9 5.1810 6.59 10 5.36


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A P P E N D I X CProcess Manufacturing Rating/Rankings

Table A3.6Process Manufacturing Importance Strategy Rankings/Ratings

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

Average 5.73 7.48 -1.75



Process Manufacturing Implementation Strategy Rankings/Ratings

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

Average 5.73 7.48 -1.75

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Process Manufacturing Strategy Gap Rankings/Ratings

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

Average 5.73 7.48 -1.75



Implementation: Highest 10 Process Manufacturing Companies versus Lowest 10 Process Manufacturing Companies

Table A3.10Process Manufacturing: Implementation Ranking/Ratings for Top/Bottom 10 Firms




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A P P E N D I X CService Rating/Rankings

Table A3.11Service Importance Strategy Rankings/Ratings

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

Average 4.98 7.34 -2.36



Service Implementation Strategy Rankings/Ratings

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

Average 4.98 7.34 -2.36

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Service Strategy Gap Rankings/Ratings

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

Average 4.98 7.34 -2.36



Implementation: Highest 10 Service Companies vs. Lowest 10 Service Companies

Table A3.15Service Implementation Ranking/Ratings for Top/Bottom 10 Firms




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A P P E N D I X D

Appendix D provides non-attributed selected supplystrategies from respondents to provide insights intothose strategies that will likely be the focus of supplytransformation efforts over the next few years. Thesestrategies are presented for the discrete, process, andservice industries.

Discrete Industry

Purchasing must maximize savings opportunities byconsolidating requirements to leverage spend inorder to maximize sub-tier supplier efficiencies andcompetition. Purchasing must strive to evaluate rawmaterial pricing and understand the impact on materialcosts. Purchasing must analyze industry, supplier, andraw material commodity markets to assess sourcingopportunities and bargaining positions. Purchasingmust leverage the corporate spend and determine theopportune time to place orders to achieve maximumcost savings while ensuring that production schedulesare not placed at risk.

Refine a new methodology to project the future costof material for use in proposals to customers.Methodology must reflect the cost impact of rawmaterial and non-material costs on sub-tier supplierprices. Methodology must be clearly defined for use inprojecting costs and acceptable to customer base for usein forecasting cost and proposal development.

First is the sophistication of our suppliersegmentation strategy. We segment suppliers today,but we do not “break them down” into groups thatmerit executive interaction, more intense scorecardingand supplier relationship management overall. By theend of the year, we will have assessed and super-segmented the supply base to concentrate supplierrelationship management on the correct companies.

Supplier risk management/supplier improvement.The driver is extensive new product developmentactivity along with moderate rate increases in legacybusiness that will compound capacity concerns. Higherlevel of supplier partnering extends greater risk outsideof direct control.

Strategic enterprise aligned commodity strategies.This optimizes the supply base across the enterprise byestablishing a preferred supplier base with the best ofthe best. Should see continued improvement in totalcost of ownership.

Our market growth and thus the manufacturingfootprint associated is going to be coming a lot fromER regions (China — India). Thus the need todevelop a local competitive supply base to serve thosemarkets. This base will also be used for other markets ifthe total landed cost shows a benefit for that. For thisstrategic drive, we will rely heavily on one of our mainassets, a team of supplier quality and developmentspecialists with a heavy presence in those ER regionswhose task is to participate in the screening of newsuppliers and develop these.

High-velocity supply chain. For the lower end portionof the product portfolio, exceptional serviceability toour end clients and consistent delivery performance areour critical success factors. The company is driving anew high-velocity supply chain to reengineer theplanning, manufacturing, procurement, and fulfillmentprocesses for this portion of the portfolio. For the highend of the company’s product portfolio, the attributes ofthe supply chain are quite different. Productcustomization and optimized workload performance arecritical. As such, a supply chain setup with uniqueattributes from a “high-velocity” supply chain is needed.

China + 1 strategy. Diversify sourcing of key productcategories outside of China. In some cases this could

Selected Emerging Supply Strategies


A P P E N D I XDmean bringing products back to North America. Thereason is offset inflationary trends in China. Mitigatepotential supply chain disruptions/shortages in China.

Establish risk assessment for all purchasedcomponent parts. (We are a medical devicemanufacturer and this is patient risk. If a part fails, whatis the risk to the patient?) The suppliers of componentswith the highest risk ratings will be subject to higherscrutiny, more frequent audits, more extensive supplierqualifications, ongoing monitoring of qualityperformance levels, etc. The goal is to ensure thehighest level of quality in all of our finished devices.

Supply strategy: improve, standardize and leveragecategory and supplier management across thecompany. Drivers/reasons: Leverage larger amounts ofspend across a smaller, focused supply base to driveimproved performance. Standardized best practices todrive best-in-class performance, efficiency and riskmanagement.

Blended strategy best cost for major raw materialsusing cost driver analysis for the end product/materialcosts, using VAVE and effective sourcing mix.

Increase sourcing in lower cost countries, andlocalize sourcing in those countries when we havean industrial presence there. Do not rely ontraditional western suppliers in case on technologytransfer.

Security of supply and capacity growth. Ourcompany forecasts indicate significant growth duringthe next decade. Our supply chain must be ready torespond to this growth which has three significantelements: 1) organic portfolio growth; 2) new productintroduction; 3) domestic manufacture to transfer toexternal supply chain.

Increasing asset utilization to drive increased returnon investment. This is a commodity business so costwins; key supply chain function will be effectivelysourcing and implementing new high-dollar-value,high-speed equipment so can drive down productionvariable costs.

Procurement productivity tools. Given thecompetitiveness of our business, we can no longerafford to have large purchasing organizations. Tools thatpromote productivity enable sourcing personnel towork more on supplier development and be less tied totheir desks completing transactions.

Developing effective shared services forprocurement across our business. 1) Drive efficienciesthat keeps pace with competitors. 2) Leverage ERPsystems and e-commerce tools to drive cost out of thebusiness that improves internal customer service andsupport. 3) Standardization and common processes willdrive further integration of our business PM&E. 4) Facilitates spend management and corporatewidedeals to improve our competitive position.

Raising the expertise and capability of the supplychain staff. New skill sets are required to compete inan increasingly competitive market. We need to learnand perform at a global best practice level. The parentcompany’s supply chain staff is much more mature andprofessional and we need to take on their best practicesand procedures.

Improved integration of sourcing into new productdevelopment earlier in the process to drive growth.Drivers/reasons: Better leverage supplier innovation todrive top-line growth, improve processes and businessmodels.

Strategic alliances with select suppliers. This is toreduce costs and increase innovation, improverelationship, move from transactional-based to strategic-based relationship, share market intelligence, buildtrust.

Early supplier involvement in the productdevelopment process. Key drivers/reasons: Need forinnovation/speed to innovation and ability to meetcustomer needs with products at price pointsdemanded.

Talent pipelines and cross-business movement oftalent. Establishing reliable talent pipelines, especiallyin emerging market regions and moving talent acrossbusinesses to create leaders with a broader view of thecompany. This is important because we are constantlybeing asked to do more with less and rapid businessgrowth is creating the need for a deeper bench of talent.

Capturing supplier innovation in the productdevelopment process and cost reduction process.This is to expand our capability to drive a sustainablecost advantage in input costs.

To build a set of unified item code. Currently, wehave 20 different operation units in Taiwan andMainland; however, we do not have a set of unified itemcode while purchasing. We are not able to do furtherand deeper spend analysis if we cannot unify item codeinternally.

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A P P E N D I X DStandardization of products, services, componentsand design specs. Custom designs continue to drivecosts, extend manufacturing and material lead times,and limit our ability to be competitive and exceedcustomer expectations.

Advance a powerful commitment to sustainabilityand corporate social responsibility. Major drivers: 1) The right thing to do and consistent with our longhistory of responsible citizenship; 2) Meeting changingexpectations on the part of customers, consumers, andthe Investment community.

Process Industry

Identification of low-cost country sourcing andeffective use in other regions when a competitiveadvantage can be achieved.

Best cost country sourcing. Establish lower cost forraw materials and technical goods. Increase sourcingone-third of total coming from low-cost regions.

Key raw material sourcing. Opportunity to reducesupply risk for key raw materials and improveeconomics through strategic sourcing arrangementssuch as licensing technology, JVs, M&A, and capitalprojects, in addition to cross-functional purchasingapproaches for qualifying new sources.

Localization of purchasing requirements in emergingregions. This is important in order to optimize supplychain costs and reduce import duties as well astransportation costs.

Take a more holistic approach and strategic thinkingto risk mitigation. Recognize external factors/eventsthat could potentially have a high impact if they occurand cause a large impact to the business. Initiatethinking to develop contingencies, even if it’s at a veryhigh level.

Risk management. Establishing a comprehensive riskmanagement program to mitigate supply risks andensure consistent supply and quality of product, whileexpanding reach into emerging markets.

Global expansion. Need to build strong procurementteam in Asia, India, and Brazil. Seeing healthy growthacross the globe.

Standardization. With the consolidation of three legacyprocurement organizations, there needs to be a singularway of engaging our internal stakeholders and oneprocess for our external suppliers.

Increased market assessment expertise in technicalpurchasing. Must become the experts and go-to group.

Management of human capital will be essential inthe upcoming years. Management rotations to cross-train and broaden management knowledge will betterposition our company to prepare for upcomingretirements and minimize turnover.

Supplier relationship management — enterpriserisk-focused model. With increased reliance on thirdparties for key business operations, it is absolutelycritical that we have robust supplier relationshipmanagement practices in place with a globalprogrammatic view to ensure appropriate riskmitigation and risk response. Additionally, suppliercollaboration and innovation will absolutely be requiredfor us to continually advance our business model anddrive year-over-year productivity and innovation.

Improve supplier relationship/performancemanagement program and tangible benefit delivery.Drivers include revenue and profit erosion due to genericcompetition, pipeline challenges, political environment,worldwide demographics, etc. and resultant focus oncost reductions, supplier innovation, and total value.We will partner with suppliers that successfullycollaborate to deliver against all facets of AQSCI(assurance of supply, quality, service, cost, innovation),year-on-year cost reductions, and total value.

Standardization of technical goods. Drivers: supplierportfolio reduction, reduction in working capital,harmonization of MRO practices.

Team building. Our overall executive team has notbeen effective nor stable. Turnover at the highestlevels of the company has had a negative effect on bothcompany financials and employee morale. As acompany, we have to do a significantly better job ofdefining what we need in our executives and executiveteam, and develop a rigorous process of recruiting andretaining true world-class executives to lead andmanage this company. “All stars” at each position are anabsolute necessity, as well as collaborative teamwork inthe best sense of the term. We are currently not wherewe need to be for the long haul.

Ensure continued high impact from procurementintegration in business/cash improvementopportunities. Company focus is on significantimprovement in earnings. Company focus is onsignificant ROCE improvements across several keyregional operating envelopes. Incentive compensationhas value creation and superior cost management as keycomponents.


A P P E N D I XDEnvironmental, social, governance challenges.1) Governmental, social, and nongovernmentalpressures challenge brand name preservation; 2) Compliance requires process, systems, andbehavioral changes across corporation requiringinvestment and time; 3) Separation of focus challengesthe delivery of sourcing and procurement strategiesversus compliance.

Service Industry

Support company revenue growth. Through “balanceof trade” initiatives; by joint calling on customer’sprocurement individuals with sales force; by providing“procurement” insight and tips to sales force via formalpresentations; by meeting external customerrequirements for small and disadvantaged vendor data, and by achieving other certification recognition, i.e., ISO.

Develop more accurate and extensive “should cost”models. We are looking to be much more efficient withmarket penetration in unfamiliar areas formanufacturing and project execution. Time pressures tomeet our end customer demand are shortening; we donot have adequate time to estimate costs as we havedone traditionally; looking for a better solution.

Distributed execution. This strategy focuses on thelabor cost savings that may be realized by conductingprocurement execution activities from our establishedoffices in India and the Philippines. The three strategiesas noted above are specifically driven by therequirement to seek additional avenues of costreduction in order to remain competitive with firms thathave emerged from nontraditional EPC executionmarkets such as China and South Korea. While thesefirms are gaining increasing acceptance by the Westernclient base due to their ultra cost competitiveness andimproved execution capabilities, we seek to maintaincompetitive advantage through strategic sourcing andprocurement initiatives that both decrease cost andprovide value add differentiation to our clients.

Supplier management framework. Roll out aframework of governance, processes, and tools tomanage enterprise supplier risk and performance. Aframework of governance, processes, and tools tomanage enterprise supplier risk and performanceannually for tier 1 and tier 2 suppliers is key to long-term viability with strategic suppliers. Supply managersand suppliers submit program deliverables that enableour ability to assess, manage, and mitigate supplierperformance and risk issues in a timely manner. This isneeded not just at the global level, but at the regionaland local level as well.

Globalization of relationships with importantsuppliers. Transformation of the procurement functioninto a strategic sourcing function has progressed well.Now at the stage where the opportunities lie inleveraging our global footprint with large monopoly oroligopoly suppliers of technology and technologyservices.

Implementation of corporate supplier managementprogram and process. Again as a part of an overalltransformation of the function, we are implementing acorporate supplier performance management processwith supplier segmentation, performance measurementand communication, periodic business reviews, namedexecutive sponsors, and strategic plans and roadmaps.

Development of robust category strategies. This willresult in a very targeted supply base for eachcategory/subcategory. Supply base tiering andrightsizing becomes a part of this category strategydevelopment. Drivers include 1) better leverage throughconsolidation of supply base; 2) better supplierperformance management because of significantreduction of supply base and identification of preferredsuppliers to focus on; and 3) increased ability to drivesupplier innovation and speed to market.

Advanced supplier risk management. Drivers: 1) minimize risk; 2) protect brand and reputation.

Work with key suppliers to have more of theircompensation at risk/pay for performance.Drivers/reasons: 1) The future of health care in the USwill be on a pay-for-performance basis. 2) Under healthcare reform, hospitals will be paid for successfuloutcomes, not simply paid on volume.

Attain an improved supplier behavior model basedon mutual respect and win-win. Drivers/reasons: 1) Health care industry supplier behavior is basedalmost exclusively on pricing. 2) Suppliers in the healthcare space are conditioned to provide a price only, andbecause of this, suppliers do not traditionally offer additional value to their customers outside of pure price.

Supplier management, risk management, andcompliance. Enforce policies with required diligenceand documentation in fair and consistent businesspractices. Grow processes to qualify suppliers andensure compliance with standards, plans, andregulations. Increase use of internal auditors to assessand evaluate risks, facilitate risk discussions, anddevelop and support risk mitigation enhancements.

Long-term cost reduction is critical to ensureviability. A number of strategies are in place to

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A P P E N D I X Daccomplish this, but one of the first will be toconsolidate and reduce the number of suppliers forboth services and materials. This will reduce thenumber of contracts to manage and speed up theordering and fulfillment process. Vendor-managed-inventory through a long-term blanket purchase orderwill be a component of this evolution.

Supply chain/supplier risk management. Ever-changing world events, from EMEA instability to naturaldisasters, have a profound impact on supply availabilityand pricing. This is true of commodities, finished orpartially finished goods as well as logistics to obtaineither. Supply chain’s ability to identify and managethrough these risks in a rapidly changing world andeconomic environment is arguably the most criticalstrategy currently being discussed.

Implementation of a supply chain risk process.Limited view of true risk across supply chain. Robust,comprehensive process needed to identify “holes” inexisting supply chain, where the company could beexposed to risk. Support development of secondsources/ additional resources. Need proactive process tomonitor financial health of key/critical suppliers.

Supplier collaboration. Developing supplierrelationships with full transparency to costs and growthstrategies so we implement initiatives that are mutuallybeneficial and we receive preferred treatment to supply,innovation, cost reductions, and other benefits. Thiswill be especially important as the economy starts torecover and demand outpaces supply.

Small country solution. This means effectivelyaddressing smaller non-hub locations around the worldfrom a technology, process, assisted buy deskperspective to address controls and governance issuessurrounding how the organization spends money.Currently, most global organizations address these issuesfor the larger countries and ignore smaller spendcountries. 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 barrierto this will be convincing financial regulators that thereare no security or data privacy issues in doing so.

Source to pay. Transforming the end-to-end purchasingand payment process to move beyond the vertical, fixedmodel to a horizontal, global model for providingcritical 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 theright time; 3) increase focus on strategic planning and

supply management; 4) improve speed to market; 5) Better manage risks (operating costs, technologyexpertise).

National strategy for sustainable business practicesto increase energy efficiency, reduce environmentalimpact, and measure and report sustainabilityperformance.

Standardization of key equipment to leverage spendand reduce inventory. The standardization team plansto work on: 1) Update or creating standards for selectedengineered equipment used across our company. 2) Investigate adoption of standard processes and best-in-class technologies. 3) Develop purchasing agreementswith selected suppliers and producing best total cost ofownership pricing. 4) Realize improved quality andsuperior service. 5) Develop a better understanding of“hidden” purchasing activity (that done on our behalfby third parties) in selected areas for future sourcingleveraging. The drivers were operating costs, quality,and future implementation of value-added technologies.

CAPS Research was established in November 1986 as the result of an affiliation agreement between the W. P. CareySchool of Business at Arizona State University and the Institute for Supply ManagementTM. It is located at theArizona State University Research Park, 2055 East Centennial Circle, P.O. Box 22160, Tempe, Arizona 85285-2160,telephone 480-752-2277.

The Mission Statement: CAPS Research, working in partnership with its global network of executives and academics,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 asbenchmarking 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 fromorganizations and individuals who want to make a difference in the state of purchasing and supply chainmanagement knowledge. Policy guidance is provided by the Board of Trustees, consisting of:

Christine Breves, C.P.M., Alcoa, Inc.Kevin Brown, Dell Inc.Susan Brownell, U.S. Postal ServicePhillip L. Carter, D.B.A., CAPS Research, Arizona State UniversityTimothy 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 TrusteesBeverly Gaskin, Rolls-Royce CorporationJohn S. Gundersen, CPSM, Emerson Process ManagementBradley J. Holcomb, Dean FoodsThomas K. LintonLeo Lonergan, Chevron CorporationFarryn Melton, C.P.M., Amgen, Inc.Vince Messimer, Royal Dutch Shell plc.Robert Mittelstaedt, Jr., Arizona State UniversityRobert Monczka, Ph.D., C.P.M., CAPS Research, Arizona State UniversityPaul Novak, CPSM, C.P.M., Institute for Supply ManagementKevin Petrie, NestléDan Rooker, IBMJames A. Scotti, Fluor CorporationMichael E. Slomke, C.P.M., HoneywellDeborah Stanton, MasterCard WorldwideShelley Stewart, Jr., Tyco InternationalJames A. Ward, Eli Lilly and CompanyKeith P. Weber, 3M CompanyJeffrey M. Wood, Schneider Electric North America

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