Fit for Growth

12Strategic Supply ManagementExtract More Value from Your Purchases

Strategic supply management drives savings in nonlabor third-party expenditures, which can represent as much as 60 percent of costs at some companies. This fact alone makes strategic supply management an essential lever for any broad-based cost transformation. But it does more than simply reduce nonlabor costs; unlike traditional sourcing methods predominantly focused on price and supplier negotiations, strategic supply management aims to maximize value in procurement activities across the organization. This cross-organizational quest for value puts strategic supply management at the center of sustainable, strategic Fit for Growth transformations.

What Is Strategic Supply Management?

Vast nonlabor expenses are perennial targets for cost-reduction campaigns. Yet many procurement organizations have already consolidated suppliers, centralized purchasing, renegotiated prices, and pursued other supply-side measures to drive down this “spend” (as managers typically refer to a stream of expenditures). Successful as these efforts often are, most of them fall short of delivering all potentially achievable costs savings. The reason is that they are tactical, focused narrowly on competitive price and cost inputs, and overlook other levers and the impact of demand on procurement costs.

Strategic supply management, by contrast, is a comprehensive, holistic approach that addresses all price, cost, demand, and value levers ...