Following legal issues related to supply chain management.

Thursday, November 12, 2009

Article discusses the importance of supply chain mapping

In a recent article, Supply Chain Digest offers thoughts on Supplier Relationship Management that echo comments made to the Triad Business Journal regarding the important first step of mapping your supply chain.

The Digest article states that there are 6 key steps to Supplier Relationship Management, with the first being “to segment supplies and identify a subset of those as ‘strategic.’ The most frequently used segmentation criteria, according to Webb and Hughes, are spend (historic, forecast or both), value opportunities, dependency, risk and business impact, account attractiveness and relationship complexity.”

In a nutshell, this is mapping based on the items a company actually buys, and triaging them based on “strategic” criteria – which items are mission critical to production, which items have a high per-unit cost, which items are a big-ticket expense (even if per-unit cost is low), etc.
The article stresses that after such analysis, appropriate changes in the supply chain itself will capture the savings by changing “existing supply chains and processes. The fundamental redesign of cost drivers has repeatedly unlocked savings in the range of 10-30 percent for leading organizations.”

The resulting relationship strategy depends on formalizing and managing key suppliers. These changes will typically require modification to or creation of key supply agreements that appropriately capture the Supplier Relationship Management results, and provide flexibility for future adjustments. Hence the reason legal counsel must be sensitive to and knowledgably of Supply Chain Management issues and concepts.

- - Greg Chabon


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