Proxima — See the change

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3 ways Dutch businesses can get more value from suppliers

Sep 25, 2013 4:53:00 AM

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maximizing supplier value

Business has already changed –- our research is clear that the cost base has been largely externalized in the Dutch AEX25, as it has in the UK FTSE350, the US Fortune 500 and in other markets around the world.

Thanks to specialization and globalization, suppliers are frequently better placed to meet particular business needs than the company is itself. They are more efficient, more productive, and more agile, generate better innovation, and are cheaper.

However, a deeper and broader supply base has made operations more complex. And yet it is not clear whether Dutch businesses have the capabilities in place to effectively drive out maximum value from third parties.

A new mind set is needed –- a new way of looking at the role suppliers now play how they’'re managed and what they can contribute. But where to start?

The supply base is now a strategic imperative, cultural change is essential for success

No strategy –- whether it’'s business-as-usual or a radical shift –- can now be implemented without listening to, and working with, third party suppliers.  We'’ve seen how they fulfil the majority of a corporation’s needs.  How well they are mobilized will determine how well the organization can execute on its strategy.

A great example of the implications and strategic impact that suppliers can have on your business was seen earlier this year around the Dutch/Belgian railway debacle.

Dutch railway operator, NS, announced it was cancelling an order of more high-speed Fyra trains (provided by Italian firm Finmeccanica’s subsidiary AnsaldoBreda) due to defects around coping with extreme levels of cold -– resulting in reputational and financial damage for NS, in the order of €€200m+.

In the short term, NS chose the most cost effective option (i.e. the traditional business spend mind set shaped by EU tendering policies). However, as a result of a failing on the supplier side, this option has now flipped into the more expensive option -– taking into account the operational costs and judicial costs associated with a potential 7 year court case.

Making smarter decisions about business supply, no matter how big or small, starts at the top.

Cultural change starts with a change in leadership’'s behavior first then a change in the rest of the populous across the organization. Getting executives to understand the implications of  smarter sourcing, not just the same for less, is crucial to the success of effective supply management as corporate objectives will begin to integrate this shift in why and how the business spends its revenues.

Once a change in spend culture has been established at the top, the next task is understanding how current suppliers fit in with the strategic goals and operational performance of the company:

  • Are they aligned with internal activity?
  • Do they challenge business rules and long-held beliefs and ways of working?
  • Can they help improve policies and processes?
  • What levels of innovation do they bring into the business?
  • Can they enable cross-functional working? and so on.

Only when a change in a company’s mind set has been made will the business truly start thinking strategically about how the supply base can empower them to proactively achieve their aims and objectives –- not scrambling around for a solution in response to a supplier-led catastrophe.
Proxima research | New rules of cost management

 Jeroen Huisman

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