Beyond Buying
Supply-chain managers used to have one main job: purchasing stuff cheaply. They need a whole new skill set now.


A rapidly changing marketplace is forcing suppliers and their clients to work more closely than ever before. And it's forcing supply-chain managers to do their jobs in a whole new way.

Traditionally, these managers have been little more than purchasing officers. They dealt with a relatively small group of familiar suppliers, and had few overall goals beyond squeezing out as many price cuts as possible.


Now, as companies globalize and outsourcing spreads, supply-chain managers must make decisions involving networks of partners in far-flung corners of the world. Meanwhile, a fierce competitive marketplace is driving companies to collaborate with suppliers to help them develop products more quickly and reduce waste in the supply chain. Technology is also pushing suppliers and clients closer, making it easier to keep tabs on orders and share information.

All of which means supply-chain managers are shouldering a lot more responsibility -- and need a new set of skills. To figure out what those new skills are, we held focus groups with top executives from 41 companies. In these discussions, several key themes emerged.

Specifically, supply-chain managers must be able to handle increasingly complex and critical technology. They must know how to source jobs globally, and be familiar with the ins and outs of various markets. They must have strong management skills, to handle everything from building relationships with suppliers to creating in-house teams to solve problems. And they must be trained in making crucial strategic decisions, such as when to turn to suppliers for help in lowering the total cost of a product.

Here's a closer look at those necessary skills and what they mean to an organization.


Standard Practice: Traditionally, supply-chain managers have been little more than purchasing officers -- dealing with a handful of familiar suppliers and doing little strategic planning.

Growing Complications: As outsourcing spreads and companies globalize, these managers must deal with suppliers around the world -- and often must work closely with them to help design new products and eliminate waste in the supply chain.

New Approach: Supply-chain managers must develop a new set of skills to meet these challenges, such as immersing themselves in technology, learning the nuances of vital markets around the world and figuring out the best ways to build crucial relationships inside and outside their companies.


In the past, supply-chain management was seen as a silo -- a job cut off from the rest of the organization. Now technology is putting supply-chain managers at the hub of many crucial company processes, and managers must understand that technology and be able to implement it effectively.

Inventory-control software, for instance, is a common tool for supply-chain managers, allowing them to track parts and products as they move from suppliers to company warehouses and beyond. But the information that software gathers ends up being used by many departments inside the company. So the supply-chain manager must be able to integrate the inventory software with the rest of the company's computer systems. Moreover, as companies collaborate more closely with suppliers, supply-chain managers are often responsible for making sure their computer systems communicate properly with their partners' hardware.


Over the past decade, swarms of companies have turned to offshore suppliers, lured by big price savings and new technologies that let them easily stay in contact with their remote partners. In this new environment, supply-chain managers must be able to source materials, components and services on a global basis. And that requires a broad skill set that many managers simply don't have right now. Managers must develop deep "market intelligence" about global suppliers, regional market conditions, factors that drive cost and supply-and-demand dynamics - and they must be able to communicate all that to key stakeholders in the company.

For an idea of how important supply technology has become, consider the auto industry. Since the North American Free Trade Agreement took effect in 1994, supply chains have stretched north and south of the U.S. border. Auto makers have adopted a host of technologies - everything from bar codes to Global Positioning System tools -- that allow them and their suppliers to track shipments.

The car makers' planners and supply-chain managers use the tracking information to keep production running smoothly. But a host of other groups inside the companies also rely on the data. Marketing and sales staffs, for instance, find the tracking information vital for customer service, since they can check schedules and provide more accurate assessments of delivery dates.


The percentage of surveyed supply-chain managers saying the following skills or approaches are required by the rapid transformation of their field
Electronic procurement/reverse auctions 39%
Integrated systems and collaboration 38
Integrated systems and collaboration 36
Strategic relationship management 85%
Cross-functional/virtual teams 43
Customer relationship building (internal/external) 33
Outsourcing services 40%
Global sourcing strategies 23
Training approaches for global environment 21
Strategic cost reduction 63%
Customer relationship building (internal/external) 46
Strategic vs. tactical orientation 42
Broader general business skills 35
Supply-chain business process focus 34
Managers must know, for example, the differences in legal and economic environments and trade practices in different countries, and they must have the ability to communicate across cultural barriers. Or, if they can't do all that themselves, they must hire people who can do the job for them. For instance, many managers are hiring Chinese students who get M.B.A.s in the U.S. to return home and negotiate deals with key suppliers. A number of consulting companies have also sprung up to supply this global market intelligence.

Furthermore, supply-chain managers must understand individual countries' sourcing strengths and logistics infrastructures -- and figure out how all of that affects the cost of products. China, for instance, has low labor prices but poor logistical infrastructure, which can raise the total cost and time required to get a product to market. Moreover, the quality of Chinese products -- and the problems of tracking who is producing what in the supply chain -- have become major problems for companies that outsource there. See, for instance, the recent concerns about the purity of the drug heparin.

A supplier from a higher-wage country might be a better bet than a Chinese company when all of those factors are tallied up. Because of difficulties like these, some U.S. companies are even bringing some of their Chinese operations back to the States.

Supply-chain managers must also learn to look at how currencies factor into the equation. Some currencies, such as the euro, fluctuate freely against the dollar, while others, such as the yuan, are maintained at a fixed rate against the dollar. So, for instance, a supply-chain manager must know enough about global economics to weigh the odds that the currency in a supplier's country will rise or fall -- and thus raise or lower the cost of a deal.


As the job of supply-chain management gets more complex, managers must be trained to think of overall company strategy -- and shareholder value -- as they do their job. They must resist the temptation to make decisions that satisfy short-term needs at the expense of long-term organizational goals.

In particular, they must learn that price savings are not the holy grail. Usually, supply-chain managers have focused on getting the lowest price when picking suppliers. But increasingly, the managers in our focus groups said, it's more important to examine the total cost of the deal. Purchasing from suppliers with a lower price may not be the smartest move.

Think about the costs associated with purchasing a vehicle. If you're just looking at the purchase price, a gas guzzler may seem like a better deal than a hybrid. But over the long term, associated costs -- such as fuel and maintenance -- may be higher for the gas guzzler, making the hybrid a better investment. Similarly, purchasing from a supplier with a lower price may not be the best move if that supplier ends up bringing in higher additional costs, including waste in the production process, or high expenses for storage, transportation and packaging.

Supply managers must also be able to understand -- and take advantage of -- the benefits they can derive from supplier relationships to achieve organizational goals. For instance, they must know when to turn to suppliers for help with developing new products and standardizing parts and processes to lower production costs.

"We can no longer support all the resources necessary to design and implement solutions, and so we need the expertise of a key group of suppliers," said one executive we interviewed. "Bringing them into the design process early enough so they can see the parameters of a particular piece of equipment, understand what the cost issues are, understand what our target pricing is and what we have to do to get to that target cost can free up a great deal of creative energy from the suppliers in terms of contributing to solutions that can reduce costs."

As part of that, supply-chain managers must learn to be more transparent in their dealings with suppliers -- a big change from the days of keeping critical information close to the vest to get leverage for price cuts. For example, managers should be frank with potential suppliers about the selection process, to give them a chance to lay out the best case for their services and build a lasting relationship.

Beyond implementing all those new approaches, supply-chain managers must sell these changes to the rest of their own organization, since the benefits don't always appear directly on the company's income statement. Supply managers must draw attention to a supplier's problem-solving efforts or higher level of service, for instance, even if the benefits can't be easily quantified.


Even as relationships with outside suppliers are getting more complicated, relationships inside companies are getting trickier, as well. As companies downsize and shed middle managers, the remaining bosses are left with more employees to oversee. Meanwhile, teams are becoming a favored method of dealing with the heavier workload, as employees from different parts of a company are brought together to handle a task, and then sent back to their respective departments.

So, supply managers must become more adept at traditional managerial functions. Planning, communications, team-building and relationship-management skills are necessary for success. Managers must also learn how to integrate outside suppliers into internal teams -- a critical move as companies and partners collaborate more closely.

Finally, and perhaps most important, supply-chain managers must always keep learning. They must consciously pursue their career development, building knowledge and skills that will enable them to excel and create competitive advantage for their companies.
--Dr. Giunipero is professor of marketing and supplychain management at Florida State University's College of Business. Dr. Handfield is Bank of America university distinguished professor of supply-chain management at North Carolina State University's College of Management and director of the Supply Chain Resource Cooperative. Mr. Johansen is a doctoral student at Florida State University's College of Business. This has been reprinted under licensing with the Wall Street Journal.
Look for the next edition of the GSCLG Update in May!
The edition will include:
I. "The Global Supply Chain Leaders Group (GSCLG) 2008 Supply Chain Excellency Award goes to……. "

The Global Supply Chain Leaders Group (GSCLG), which serves the senior leaders of supply chain management in business, government, and industry on a worldwide basis, will publish the winner of the 2008 Supply Chain Excellency Award.

The award, which was created to honor CEOs who have made a significant contribution to the advancement of the Supply Chain Industry, will be presented on an annual basis to one or more individuals. The 2008 recipient will be awarded during the Annual Global Supply Chain Leaders Group Dinner on June 5 in San Francisco.
II. The Top 25 Supply Chain Executives Award will be announced in our May GSCLG Update.
March 2008
See the recipients of the 2009 Top 25 Supply Chain Executives Award.