Supply Management as Business Performance Driver Washington DC

Since the turn of the millennium, more than a quarter million U.S. businesses have filed for bankruptcy, an average of about 34,000 a year. And it's not just small businesses that are going under: Popular lore holds that were you to look at the Fortune 500 from 1980, you would find that some 200 of those companies, or 40 percent, do not exist today. And Robert Rudzki believes that many of today's leading businesses may be facing the same fate.

"Many of today's 'profitable' businesses gradually are liquidating themselves by not earning cost of capital," says Rudzki, formerly a top procurement executive at Bayer Corp. and Bethlehem Steel and currently president of Greybeard Advisors (www.greybeardadvisors.com), a procurement and strategic sourcing consultancy based in Pittsburgh. At both Bayer and Bethlehem, Rudzki led major transformation initiatives that resulted in considerable savings and improvements in working capital. His experience on these projects has convinced Rudzki that the supply management function can be a significant driver of superior business performance for the enterprise as a whole, and he has devoted his consulting practice to helping supply organizations have a greater impact on key business performance drivers.

"There are two drivers to improving return on invested capital and cash flow: One is the profit side of the equation and the other is the capital intensity of the business," Rudzki says. "And there are things that supply management executives can and should be doing to help drive both profit improvement and capital-intensity improvement, thereby having a compounding affect on both cash flow and return on invested capital." In particular, he continues, procurement can undertake initiatives that enhance revenue (e.g., by working more closely with suppliers to accelerate new product development), reduce costs (procurement's traditional role), improve working capital (e.g., by working with suppliers to improve payment terms) and reduce capital expenditures (e.g., by improving the redeployment of used assets through "asset recovery" programs).

Unfortunately, too few supply organizations have the opportunity to affect all those different areas. Oftentimes, senior management simply is not aware of how supply chain can positively affect revenues and working capital. Rudzki therefore believes that it is incumbent on procurement executives to educate their senior leadership on the strategic role that supply management can play in helping meet their companies' overall business goals and in affecting those metrics that senior management cares about most. And to do that, those procurement executives must be willing and able to take risks.

"A leader in any function," Rudzki explains, "has to be willing to say, 'This is what my group can achieve in terms of cost reductions, revenue enhancements and working capital improvements. And in exchange for that commitment by us, we would like this type of support from our internal clients and senior management.' The quid pro quo is a very easy conversation if you approach it in a manner that senior executives can respect, where you've done your homework, you've developed a vision with bold objectives that relate directly to what they care about — earnings, risk management, etc. — you've laid out a transformation plan and a roadmap, you have a defined role for technology as an enabler of that transformation, and you've built a fairly well-quantified business case, incorporating what you expect to deliver as head of the function in exchange for resources and budget from senior management."

In the final analysis, Rudzki concludes, the head of a supply chain function must be willing to step up and make a commitment. Someone who is not comfortable making that commitment is not going to be a transformation agent for his or her company — and ultimately may not have a company to transform for much longer.

What are they key business performance drivers that your senior leadership cares about most, and how are you helping to improve those drivers? What risks are you willing to take to elevate supply chain's status at your organization? As always, please feel free to send your thoughts to me at areese@sdcexec.com. I'll look forward to hearing from you.