A previous blog highlighted the need to differentiate between world-class and best-in-class sourcing practices.
Our extensive benchmarking studies, using our PSCM Index, have allowed us to arrive at an understanding of why certain organisations in particular sectors tend to be seen as exemplar cases of good practice.
It is a combination of a number of factors. Organisations that achieve scores close to ‘world-class’ performance tend to operate in process-based industrial sectors, where high volume and frequent demand allows the adoption of leading edge demand and supply management practices. They also tend to be organisations that are heavily outsourced and make relatively low returns.
In quadrant A in the figure above, adopting ‘world-class’ PSCM processes & systems is unlikely to be seen by senior managers as of much value. Complex PSCM tools and techniques are not high on the agenda, as profits are normally high and the need to reduce costs is low.
This contrasts sharply with the situation in quadrant D where profit margins tend to be low, and most of what is provided to customers is sourced from external suppliers. In these organisations the role of PSCM is critical to corporate success and it is hardly surprising, therefore, that most of the organisations that tend towards ‘world-class’ are to be found here. The Automotive, Retail & Consumer Goods/FMCG sectors tend towards ‘world-class’ performance in procurement because they must leverage external resources for competitive advantage and as a matter of survival, not just because they are better managed than others.
Our benchmarking studies show, therefore, that not every organisation can, or needs to, adopt the same practices as others. Given this, while it is sensible to know where an organisation stands in relation to current ‘world-class’ best practice (the ideal), managers need to understand which practices are ‘best-in-class’ and feasible and appropriate within the sectors in which they operate.
All of the arguments presented in this blog are fully explained in the IIAPS Whitepaper Beyond Kraljic.