In industry I've witnessed a dramatic shift in how business leaders view supply chain management and growing importance placed on the supplier management function. The role of managing the supply base has become so much more than simply sourcing a part and placing orders. In a highly outsourced and globalized world, managing suppliers often means managing a significant portion of a company's overall business. To better elaborate the point I refer to the changing role of supplier management as a shift from buyer to business manager.
Most product companies typically own one or two links in long supply chain from raw materials to finished goods to satisfying end customers demand. A large portion of the cost and value added to the product occurs at suppliers, especially when product companies have outsourced so much of their manufacturing. In the consumer electronics industry, for example, it is not uncommon for a product company to never physically touch their own product.
Even at the outsourced manufacturer, 80% or more of the cost of the product is procured material, not value added by that manufacturer. Since a company may directly comprise only a small part of the entire chain, the ability to manage the value chain across company boundaries is critical. Responsibility that used to be the domain of a company's internal operations, manufacturing, or even engineering, or marketing, is now squarely on the shoulders of the supply chain management function.
With much of the inventory in the hands of suppliers, supply base management plays an important role in managing a company's working capital. Managers need to properly plan inventory not just at their own company, but at the supplier. Negotiation of inventory liability and well-managed payment terms drive financial risk and working capital requirements of the company, critically affecting the firms ROIC.
