Cost of Control: The Real Price of Cost Cutting

A Call to Arms It is no secret that supply chains are core to strategic competitive advantage. We’ve known this to be true for decades and across many industries we’ve witnessed com- panies with the best supply chains prevailing over their less-capable rivals. However, the recent economic upheavals mean that improving your supply chains is no longer an option but a necessity. Improving your supply chain is no longer a task to be left for sometime in the future, but something that needs attention right now. Perhaps most importantly, modern business dynamics have moved from company versus company competition to supply chain versus supply chain, so you can no longer gamble that your competitors are not honing their supply chain at this very moment. Our research since the start of the new millennium has taken a close look at many strong and weak companies. In the faltering ones we have almost always found organi- sations saddled with debt and sluggish customer service, and isolated from their up and downstream supply chain partners. At the other end of the spectrum – what keeps a company strong in today’s uncertain business climate? A common theme across most sectors is superior and improving supply chain management that transcends traditional functional silo company structures. It is because of this that we at IESE Business School and Indiana University have teamed-up with Basware to undertake a series of studies investigating the complex yet fundamental relationship between the CFO controllers of the corporate purse strings and the CPO gatekeepers to the external supply chain. These are the frst studies we are aware of that grapple with these issues, and what follows is a groundbreaking report. For us supply chains are not just about inventories, warehouses, and transportation (important though these are); but the profound trans- formation in business dynamics which is taking place before our eyes. In the new economic reality tough decisions that managers are making today will de- termine the success of businesses around the world. While we have seen some battles lost in recent months, as the doom and gloom of bankruptcies, government takeovers, and stock market uncertainties fade the more serious campaign being launched is about sustainable business transformation. While not every manager interviewed recognised the supply chain as having a signifcant impact up to now, a resounding majority have woken up to the negative realities of supply chain risk and the crucial positive role sup- ply chains will have in transforming their businesses for years to come. Clearly, such changes to the business landscape will require a coordinated and collaborative response between functional departments – in particular fnance and procurement, as well as the intelligent implementation of appropriate integrative knowledge sharing tools and sys- tems. This is something we must all prepare for. The message is clear, supply chains are affecting the business world as we know it and will continue to do so. This report explores the process, the drivers fuelling business uptake, the obstacles still inhibiting supply chain development, and the benefts compa- nies can expect. We have set out a number of recommendations for managers. These are not intended to change the world, but together with the analysis presented, we hope that they will provoke a crucial debate on the evolution of supply chain practice – especially regarding the fundamental relationships between fnance and procurement professionals. We are all embarked upon a journey triggered by recent events in the economy and we hope that all readers in management, government, and academia fnd this report informative and compelling. A true call to arms.