This week’s webinar notes are from a recent Directworks webinar titled ‘Creating Shareholder Value from Supplier Relationships’. The webinar and slides are available on demand on Directworks’ site or you can download a whitepaper with the same title that builds on the content of the webinar.
In the webinar, Greg Anderson (Directworks’ President) and Michael Cross (Directworks’ Product Marketing Manager) present five ways two create shareholder value, and the whitepaper adds five more.
The five value creation methods from the webinar are:
- Increase collaboration with suppliers… for real.
- Improve your understanding of every supplier, including their motivations.
- Require full visibility into total cost.
- Understand each supplier’s impact on your working capital costs.
- Become a master of risk assessment.
I could go into greater detail on the best practices here, but since the content is so easily accessible in multiple formats, I won’t go into that level of detail. What I will do instead is share three take-aways, observations I made after reviewing all of the content, that bridge all ten of their value creation approaches.
The big-picture goal is to create shareholder value, but in many cases not diminishing existing value is every bit as important.
Making bad decisions may even destroy value faster than good decisions can create it. This point was clearest in the discussion of demand planning. Forget collaboration with suppliers or clever cost modeling, if you run out of the components required to fill orders and meet demand, you are unlikely to meet the minimum expectations of anyone with an interest in the profitability of the company.
The best practices that create shareholder value are highly intertwined.
While listening to the webinar, I started to recognize the second five best practices in the explanations and illustrations of the first five. At first I thought Directworks was being clever about condensing their content for the webinar length, but the more I thought about it, you can’t really be effective at one best practice without investing in some of the others in parallel. For example, in order to be a master of supply chain risk assessment (#5), you must also ‘right-size’ your supplier network (#8). The high-level objective should be neither to diversify nor consolidate the supply base, but to have the right number of suppliers across all categories of spend so that volume is consolidated but alternate sources of supply are available.
No technology solution is really a solution, but rather an enabler – an interesting point coming from a technology provider.
“Trust, but verify” as they quoted Ronald Regan several times in the webinar. Don’t just ask your suppliers about their capacity constraints and contingency plans – collect the component information and calculate or estimate their capabilities for yourself. Gather the information about their equipment, throughput, sifts/employees, etc. and benchmark them against their competition. The same is true for contingency plans. Suppliers may have alternate sources of supply, but that does not eliminate the need for a company to have their own plans should a disruption arise.
Shareholder value is ultimately created through a combination of profitability and return on capital. Any and all supply management efforts present the opportunity to improve upon at least one of these performance drivers – particularly if the need to do so is an explicit part of each project and overall mission of the group whether they are in procurement or operations.