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PURCHASING
MANAGEMENT By Victoria
Damato November 2003 Inside Supply
Management®, Vol. 14, No. 11, page 10. A supplier's technical capability or
"non-capability" affects your organization and its ability to do
business. According to Andrew Heller, the renowned
IBM leader, "Technology is like fish: the longer it stays on the shelf,
the less desirable it becomes." So then, how does one in a strategic
sourcing role go about evaluating any supplier's technology (beyond even those
that supply technology solutions) so as to reap the benefits and minimize the
risks? The complexity of the item or service being considered will likely
dictate the time and effort spent on answering this question. Whether you are
looking to source raw materials or services to support your business,
technology will play a role.
Why
Consider a Supplier's Current Tech Capabilities? In a nutshell, you need to know where
your supplier is headed and what is important to it as an organization. If the
supplier is a manufacturer, the level of technology will drive processes,
customer service support, inventory, supply chain, quality control, logistics,
etc. Therefore, the supply manager should ask if all of the internal systems
are integrated, and if so, to what level. If the systems are outdated, the
supply manager needs to weigh the risks involved in everything from executing
day-to-day business transactions to the disaster recovery program. Is the
technology that supports the business changing rapidly (like desktop PCs did in
the mid- to late '90s), or is it a five- or 10-year strategic investment (such
as claim systems)? What matters these days, according to
Michael Dell, CEO of Dell Computer, is not delivering technology per se so much
as value and productivity. In today's tight economic climate, priorities have
shifted. Supply managers are using their leverage to ask for more than price
concessions. They seek purchasing terms in which the initial cost of
acquisition is limited or even eliminated, or even sharing risk and reward. An example can be seen in a recent
transaction between Johnson Controls, Inc. and Ikon Office Solutions. Instead
of paying a flat fee to buy or lease 750 multifunctional machines scattered
throughout 250 offices, Johnson Controls is paying per use — getting charged
each time employees copy, print, fax or scan documents. This type of pricing
scheme has reduced usage costs by 35 percent. It has also replaced a
significant capital investment with an operating expense. The flexibility of your supplier to
offer alternatives and meet the needs of your organization is essential.
Why do some suppliers succeed in markets where others struggle? Southwest
Airlines, Dell Computer, Fidelity Investments and Wal-Mart have remained viable
with increased revenue and/or market share — while facing wide and diverse
challenges. Fortune magazine cites that after a two-year assessment,
these organizations and others like them place their customers at the center of
their business. The pattern was remarkably consistent — these companies provide
value propositions that their competitors provide poorly or not at all.
A
Supplier's Tech Capability: The Impact on You Whether you are dealing with an existing
supplier or evaluating a potential supplier, its technical capability or
"non-capability" affects your organization and its ability to do
business. You might discover that a supplier relies heavily upon a
labor-intensive process to support your business or operates at a level of
automation that does not truly benefit your business. In either case, you may
be paying too much — but how do you go about determining whether you are a good
technological fit with your supplier? Before you can effectively evaluate a
supplier's technical capabilities, everyone on the team needs to understand the
buying organization's objectives and priorities. Define success of the project
(whether it be technology or any other project in which the supplier may be
involved with your organization) in business terms and not in technical terms.
Will the result of this evaluation provide a competitive-advantage cost
reduction or advance a business objective?
How to Determine
a Supplier's Tech Capabilities Just the word "technology"
invokes something intangible and subjective. Technology is the practical
application of knowledge, especially in a particular area. Although technology
is an ever-changing phenomenon, the methods used to evaluate a supplier's
technical capability have remained relatively unchanged over the years. The key
steps involve:
Questions
to Ask Ideally, the following types of
questions should be asked prior to any formal engagement — when leverage is at
its peak and risk is minimal.
Be sure you are pursuing a technology
that is truly needed by your business and not simply succumbing to perceptions
that the latest is the greatest. This affliction is sometimes referred to as
"technophilia" by authors Brad L. Peterson and Diane M. Carco of the
book, The Smart Way to Buy Information Technology. Insightful sourcing
managers should be leery of "technophiles" or those whose love of
technology can cloud their ability to seriously consider alternative solutions.
Just remember: technophiles can exist both within your own organization as well
as in your supplier's organization. Furthermore, you should seek assistance
from your information technology resources, particularly if the evaluation
involves a highly technical product or service. For larger projects, assembling
a cross-functional team may be appropriate. An effective team will have the
right skills to identify and resolve issues. If your project involves an outsource or
insource decision, the cyclical trends in business require supply managers to
consider what will happen when/if a decision is made to take the opposite
action. Supply managers should address these issues with suppliers in contracts
to ensure that any transitions with regard to technologies and responsibilities
are addressed upfront. Finally, a common way to identify
emerging technology trends is to follow the trails of strategic partnerships
between companies. These relationships can often result in the implementation
of a new technology and can enhance a technology that, in turn, augments a service
to some customer within the supply chain. These partnerships enable
organizations to reach new customers and increase efficiency in working with
suppliers. In summary, before you can effectively
evaluate a supplier's technology, be prepared to compare the terms of your deal
(including total costs and risk level) with the best alternative. Moving
forward with a supplier that inhibits your business can cost time and money and
cause negative attitudes. The best way for a sourcing manager to proceed with these
types of evaluations is to "know what you don't know." You should be
prepared, know your supplier, work with your team and your supplier, and fight
for what is right within your organization. "Box page 12"
To contact the author or sources mentioned
in this article, please send an e-mail to
author@ism.ws. ISM - P.O.Box 22160 Tempe, AZ 85285-2160
480-752-6276 / 800-888-6276 - Fax: 480-752-7890
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