Belgian-American Shahriar Broumand has an MBA and MIS from Switzerland’s European University. From 1999 to 2007 he helped build FreeMarkets in EMEA and Ariba’s BPO business in the US. He then moved to Edinburgh to advise RBS on supply chain risk from 2009 to 2010. Today, Shahriar is Managing Partner of BrainNet Supply Management Group (www.brainnet.com) in North America, the number one supply chain and procurement firm. A self-declared nomad who speaks five languages, Shahriar gave this exclusive interview to Victor Fic.
What is supply chain management?
Supply Chain Management is broad and defined as the planning and operational management of all third party companies necessary to run your business regarding sourcing, procurement, conversion and logistics management. It also spans the crucial components of coordination and collaboration with channel partners, such as suppliers, intermediaries, thirdparty service provider and customers. It integrates supply and demand management within and across companies.
Does it appear on small or larger, global firms?
As large companies ventured into international markets, so did their supply chain. Today most corporations have worldwide suppliers. But globalization is also a focus for mid-sizers to keep costs low. They are increasingly internationalizing. In the car industry, for example, the depth of added value is only about 20 percent with components from many countries.
But the practice of having a supply chain dates back earlier, does it not?
Yes. When companies started to operationalize in the early 1900s, they had to create two functions: people who managed materials for production and those who bought the materials. This was the birth of the procurement and operations functions. Both functions were considered “back office” roles that were necessary but not strategic.
Then its importance grew?
Not right away. Between the 1940s and 1970s, companies focused on research and development, sales and marketing, so the supply chain functions were left behind. This changed in the 1970s as competition from Japanese electronics and automotive industries forced Western counterparts to examine key metrics like operational efficiency, speed, quality and cost. In the 1980s and early 1990s consulting firms took a more strategic approach to advising companies on how to buy. ‘Strategic sourcing’ became a buzzword. Consultants developed ‘sourcing process’ to yield better results than traditional negotiation and this became a competitive advantage.
Cite a concrete example of a company where this strategic approach really helped it.
Recall the story of Jose Ignacio Lopez at GM in the 1980s. He developed the modern strategic sourcing and supply chain organization, then rival Volkswagen recruited him. A lengthy court case determined cardinal trade secrets were passed on to VW by Lopez. It started the craze of strategic sourcing in major corporations. Siemens, Emerson Electric and United Technologies Corporation are leading examples here.
Where do we stand now?
The late 1990s and early 2000s witnessed the introduction of technology. Companies invested heavily in eProcurement and eSourcing software tools to take out cost, increase efficiency, and gain better spending control. Some Fortune 500 companies are considered fairly mature, but most are still building best practices around technology, process and people. Also, the same period was a time of globalization for supply chain management. As cheap labor markets became available to Western companies, many set up production facilities in Asia and other low cost countries.
Is there a risk here? How can you know whom you are dealing with?
Yes, many challenges exist like quality and risk. Companies understand it is not enough to avoid high labor costs, but to build local relations and processes, and to incorporate all relevant cost factors like sustainability, risk, innovation and process management. So it’s more than low cost country sourcing. At BrainNet we call this Best Value Country Sourcing. A good example is how select companies have moved their procurement and supply chain teams to Asia near their supply base.
Some experts on Boeing say that it over-outsourced and encountered huge delays and quality control problems that crippled its development of its advanced jet liner. Could you comment on this?
I cannot comment on Boeing but maybe this is exactly my earlier point. Take all relevant factors into account before outsourcing.
If you source globally, you also expose yourself to political risks, natural disasters and other factors, correct?
The financial crash of 2008 has changed how companies manage supply chain management today. Before, it was unthinkable that AIG or GM could collapse. The regulators, investors, management, unions and even the employees were wrong. Credit dries up, companies run out of money. We had taken cost reduction too far and entire supply chains were at risk. The main focus was on cost over the past 20 years. But now there is equal need to manage supply chain risk. The world’s best companies are developing vendor management strategies for their supply chain. Natural disasters like Fukushima in Japan accentuate the need to understand and manage risk. Without flexibility in your supply chain, your entire company is at risk. At BrainNet we call this breathing supply chains.
What are some of these strategies to minimize risk?
First, it requires new thinking paradigm – build scenarios and increase the organizational ability to cope with different futures. Also, install breathing supply chains. Moreover, you must monitor the whole supply chain, not just the next level suppliers. This requires a strategic approach to Vendor Management with the right people and skill sets. You need tools, methods and competencies to manage complex systems.
What does the future portend?
Companies must be more strategic about managing supply chains. Top management must lead. We must focus not merely on cost but “total cost of ownership.” It means more emphasis on quality, risk and intangibles like better relationships with suppliers. Companies are more dependent on their suppliers than they admit. This demands more collaboration inside and outside the company (R&D, supply chain, business owner) in managing suppliers.
Which companies stand out positively here?
It is too early to name specific companies but financial services and food companies are first movers.
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