Supply Strategy Implementation:

Current and Future

Opportunities 2011

Robert M. Monczka, Ph.D.

Director, Strategic Sourcing and
Supply Chain Research
CAPS Research
and
Distinguished Research Professor of
Supply Chain Management
W. P. Carey School of Business
Arizona State University

Kenneth J. Petersen, Ph.D.

John H. Dove Professor of Logistics
Department of Marketing and Logistics
University of Tennessee

CAPS Research

October, 2011
Supply Strategy Implementation: Current and Future
Opportunities 2011

Robert M. Monczka, Ph.D.

Director, Strategic Sourcing and
Supply Chain Research
CAPS Research
and
Distinguished Research Professor of
Supply Chain Management
W. P. Carey School of Business
Arizona State University

Kenneth J. Petersen, Ph.D.

John H. Dove Professor of Logistics
Department of Marketing and Logistics
University of Tennessee

CAPS Research

October, 2011

Copyright © 2011 Institute for Supply Management™

and W. P. Carey School of Business at Arizona State University.
All rights reserved.
Contents may not be reproduced in whole or in part without the express permission of CAPS Research.
 Acknowledgements

The lead researchers for this study would like to acknowledge and thank the
following individuals for their contributions to this effort.

• Kathleen A. Chester of the Institute for Supply Management™ (ISM) provided

general administrative support and draft report development to the research
team.

• Debbie Maciejewski, Research/Marketing Manager at CAPS Research, managed

the solicitation process for the Web survey and administered the ongoing
communications with survey respondents.

• Steve Koch, Director of Information Technology Services at CAPS Research,

developed the database and web-based assessment application and provided
data analysis and reporting tools.

• Tammy Schwerman, IS Administrator and Web Master at CAPS Research,

supported the design and testing of the web-based assessment application and
reporting tools.

• Steve Gozdecki of Expressive Editorial Services provided editorial guidance for

the final report.

ISBN 0-945968-86-8

2 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Author Biographies

Robert M. Monczka, Ph.D., is Director of Strategic Sourcing and Supply Chain

Strategy Research at CAPS Research. He is also Distinguished Research Professor of
Supply Chain Management at Arizona State University’s W. P. Carey School of
Business. Dr. Monczka focuses on sourcing and supply strategy development and
implementation and provides leadership for major supply strategy research
initiatives at CAPS Research. He has authored more than 100 articles and books and
has consulted with numerous Fortune 500 firms. He is also Professor Emeritus, Eli
Broad College of Business at Michigan State University and was awarded the
J. Shipman Gold Medal Award in 2008, the Institute for Supply Management™’s
highest recognition.

Kenneth J. Petersen, Ph.D., is the John H. Dove Professor of Logistics in the

Department of Marketing and Logistics at the University of Tennessee and Visiting
Senior Fellow at Manchester Business School in Manchester, England. He has
authored more than 50 articles, reports, and book chapters and has consulted with
numerous firms in strategic sourcing and supply management. Dr. Petersen also
serves as an associate editor for the Journal of Operations Management, Journal of
Supply Chain Management and Journal of Business Logistics.

CAPS Research 3
 Table of Contents

Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Author Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Index of Figures and Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Research Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Changes: 2011 vs. 2009 and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Guidance for Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Chapter 1: Introduction and Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Transforming Purchasing/Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
What Will the Next 10 Years Look Like? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
CAPS Executive Assessment of Supply (EAS): Development and Objectives . . 13
Supply Strategies Included in EAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
EAS and Value-Add to Company Competitiveness . . . . . . . . . . . . . . . . . . . . . . 13
Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Respondent Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Overall Research Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Report Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Chapter 2: Supply Strategies: Importance, Implementation, and Gaps. . . . . . . . . . 18
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Example Question . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Overall EAS Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Supply Strategy Importance Ratings and Rankings . . . . . . . . . . . . . . . . . . . . . . 22
Supply Strategy Implementation Ratings and Rankings . . . . . . . . . . . . . . . . . . 20
Supply Strategy Gap Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Overall Importance/Implementation Gap Analysis . . . . . . . . . . . . . . . . . . . . . . 23
Comparison Between High and Low Implementation Firms . . . . . . . . . . . . . . 23
Observations: High and Low Implementation Firms . . . . . . . . . . . . . . . . . . . . 25
Conclusions: Current State of Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . 25
Chapter 3: Industry Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Industry Sector Difference Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Industry Difference Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Average Ratings by Industry Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Chapter 4: Strategy Implementation and Supply Performance . . . . . . . . . . . . . . . . 31
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

4 Supply Strategy Implementation: Current State and Future Opportunities 2011

 Supply Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Industry Performance Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Chapter 5: What Has Changed? 2007 to 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Overall Changes: 2007, 2009, and 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Supply Strategy Changes: Firms Common among 2007, 2009, and 2011 . . . . 35
Chapter 6: Critical Supply Strategies: 2011 to 2015. . . . . . . . . . . . . . . . . . . . . . . . 40
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Emerging Supply Strategy Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Chapter 7: Summary and the Path Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Summary: Key Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
The Path Forward: Supply Transformation 2011 to 2015. . . . . . . . . . . . . . . . . 44
Clear Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Establish Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Resources and Capabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Supply Transformation Process and EAS Application. . . . . . . . . . . . . . . . . . 45
The “Decade Ahead”: Supply Strategy Imlementation. . . . . . . . . . . . . . . . . . . . 45
Strategy Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Supplier-Focused Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Supply/Value Chain Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Concluding Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Appendix A: Supply Strategy Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Appendix B: Statistical Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Appendix C: Supply Strategy Comparisons by Industry Sector . . . . . . . . . . . . . . . 57
Appendix D: Selected Emerging Supply Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 69

CAPS Research 5
 Index of Figures and Tables
Figure 1.1 Sourcing and Supply Chain Maturity
Model . . . . . . . . . . . . . . . . . . . . . . . 11
Figure 1.2 EAS Application . . . . . . . . . . . . . . 14
Figure 1.3 Responding Company Profile . . . . 15
Figure 1.4 EAS Participating Industries . . . . . 15
Figure 1.5 Supply Leadership Model . . . . . . . 16
Figure 2.1 Assessment Example with Rating
Scales . . . . . . . . . . . . . . . . . . . . . . 19
Figure 2.2 Overall 2011 EAS Findings . . . . . . 20
Figure 2.3 Strategy Segmentation Analysis:
Importance/Gap . . . . . . . . . . . . . . 24
Figure 7.1 Improving Economic Value-Add
(EVA) . . . . . . . . . . . . . . . . . . . . . . 45
Figure 7.2 Building Blocks for Supply
Transformation . . . . . . . . . . . . . . . 46
Figure 7.3 Strategic Supply Strategy Priorities
and Capabilities Assessment
Framework . . . . . . . . . . . . . . . . . . 47
Figure 7.4 Supply Strategy Transformation
Process . . . . . . . . . . . . . . . . . . . . . 48
Figure 7.5 Critical Supply Strategies: 2011
and Beyond . . . . . . . . . . . . . . . . . . 49
6 Supply Strategy Implementation: Current State and Future Opportunities 2011
Table 2.1 Overall Importance Strategy
Ratings . . . . . . . . . . . . . . . . . . . . . 21
Table 2.2 Overall Implementation Strategy
Ratings . . . . . . . . . . . . . . . . . . . . . 22
Table 2.3 Overall Strategy Ratings — Gaps. . 23
Table 2.4 Implementation: Highest 25
Companies versus Lowest 25
Companies . . . . . . . . . . . . . . . . . . 25
Table 2.5 Overall Implementation Ratings
for Top/Bottom 25 Firms. . . . . . . . 26
Table 3.1 Strategy Importance Differences
by Industry . . . . . . . . . . . . . . . . . . 29
Table 3.2 Strategy Implementation
Differences by Industry . . . . . . . . . 29
Table 3.3 Average Ratings by Industry
Sector . . . . . . . . . . . . . . . . . . . . . . 30
Table 3.4 Implementation Ratings for Top/
Bottom Firms by Industry Sector
for 22 Strategies . . . . . . . . . . . . . . 30
Table 3.5 Top Six Strategy Gaps by Industry
Sector . . . . . . . . . . . . . . . . . . . . . . 30
Table 4.1 Supply Performance Results
(2007, 2009, and 2011) . . . . . . . . 31
Table 4.2 Performance Ratings (2007, 2009,
and 2011) . . . . . . . . . . . . . . . . . . . 32
Table 4.3 Actual Performance: Overall and
by Industry Sector. . . . . . . . . . . . . 33
Table 4.4 Performance Improvement:
Overall and by Industry Sector . . . 34
Table 5.1 Comparison of 2007, 2009, and
2011 Implementation/Importance
Gaps . . . . . . . . . . . . . . . . . . . . . . . 36
Table 5.2 Differences in Overall
Implementation between 2007,
2009, and 2011. . . . . . . . . . . . . . . 37
Table 5.3 Differences in Overall Importance
between 2007, 2009, and 2011 . . 38
Table 5.4 Importance, Implementation, and
Gap Strategy Ratings for Companies
Participating in 2007, 2009, and
2011 . . . . . . . . . . . . . . . . . . . . . . . 39
Table A3.9 Implementation: Highest 10 Process
Manufacturing Companies versus
Lowest 10 Process Manufacturing
Companies . . . . . . . . . . . . . . . . . . 64
Table A3.10 Process Manufacturing
Implementation Ranking/Ratings
for Top/Bottom 10 Firms. . . . . . . . 64
Table A3.11 Service Importance Strategy
Ranking/Ratings . . . . . . . . . . . . . . 65
Table A3.12 Service Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 66
Table A3.13 Service Strategy Gap Ranking/
Ratings . . . . . . . . . . . . . . . . . . . . . 67
Table A3.14 Implementation: Highest 10
Service Companies vs. Lowest
10 Service Companies . . . . . . . . . . 68

Table 6.1 Critical Supply Strategy Focus
Areas . . . . . . . . . . . . . . . . . . . . . . . 41
Table A3.1 Discrete Manufacturing Importance
Strategy Rankings/Ratings . . . . . . . 57
Table A3.15 Service Implementation
Ranking/Ratings for Top/Bottom
10 Firms . . . . . . . . . . . . . . . . . . . . 68

Table A3.2 Discrete Manufacturing

Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 58

Table A3.3 Discrete Manufacturing Strategy

Gap Ranking/Ratings . . . . . . . . . . . 59

Table A3.4 Implementation: Highest 10

Discrete Manufacturing Companies
versus Lowest 10 Discrete
Manufacturing Companies . . . . . . 60

Table A3.5 Discrete Manufacturing:

Implementation Ratings for
Top/Bottom 10 Firms . . . . . . . . . . 60

Table A3.6 Process Manufacturing Importance

Strategy Ranking/Ratings . . . . . . . . 61

Table A3.7 Process Manufacturing

Implementation Strategy
Ranking/Ratings . . . . . . . . . . . . . . 62

Table A3.8 Process Manufacturing Strategy

Gap Ranking/Ratings . . . . . . . . . . . 63

CAPS Research 7
 Executive Summary
Research Background
Over the past 20 years, supply management has evolved
from an administrative function to become a strategic
contributor to organizational competitiveness. The
success or failure of supply management to establish
and lead a competitive supply base and work with other
functions can drastically impact a firm’s success. Supply
management positively or negatively affects cost, assets,
and revenue generation, all of which are critical to
creating company value and to the financial
performance of the firm.
Currently, the strategic direction of many firms is being
supported by supply strategies. Consider, for example,
P&G’s “Connect and Develop” open innovation focus;
the purchasing function’s savings contribution presented
to Wall Street analysts by a number of companies;
General Mills’ “Holistic Margin Management” program
that requires significant contribution from supply;
globalization of the supply base across industries;
increasing collaboration with suppliers; and the
dramatic efforts undertaken by firms during and after
the recent economic downturn to reduce costs while
further globalizing the supply base and reducing risk.
To achieve supply transformations that provide overall
value creation, firms worldwide need to regularly assess
the degree of implementation of supply strategies they
consider most important to the success of their
organization. With this in mind, and armed with the
experience we have gained over the past decade in
developing, providing, and conducting supply
assessments, CAPS Research executed the 2011
Executive Assessment of Supply (EAS).
The primary objective of the 2011 EAS was to
determine what importance organizations on a
worldwide basis place on critical supply strategies, their
8 Supply Strategy Implementation: Current State and Future Opportunities 2011
level of implementation, and the performance resulting
from these strategies. Data was collected from 119
supply organizations across 25 industries regarding 22
supply strategies and performance results in order to
further develop a baseline for current and future
analyses. The 2011 EAS is the third in a series; prior
study results were published in 2007 and 2009.
Key Findings
The 2011 EAS shows that firms are still lagging in
implementing supply strategies considered important to
the competitive success of their firms. Firms rated the
importance of the 22 strategies from between
“functionally required” to “an operational necessity to
compete.” Implementation of the strategies was not
complete. For all organizations, the supply strategies
were implemented at a “limited number of supply
locations and were being accepted as best practice with
initial positive results.”
In addition, there was a large gap between the reported
importance of each strategy and its actual
implementation. There was also a large implementation
difference between those firms where supply strategies
were most and least implemented.
The 10 most important and implemented supply
strategies were:
❑ Engagement by Corporate Executives and
Business Unit Leaders
❑ Vision, Mission and the Strategic Plan
❑ Commodity & Supplier Strategy Process
❑ Strategic Cost Management
❑ Procurement & Supply Organization Structure &
Governance
❑ Human Resource Development
 ❑ Total Cost of Ownership
❑ Structuring & Maintaining the Supply Base and
Cross-Functional/-Location Teaming
❑ Measurement & Evaluation
❑ Establishing World-Class Supplier Quality
These strategies focus on the building blocks required
to achieve an effective supply organization and strategy
as well as the specific supply and supplier strategies
critical to achieving year-over-year supply performance
improvement. However, implementation of these
strategies also lags behind their strategic importance.
Overall, the largest gaps between those strategies
considered to be most important, but least
implemented, were:
❑ Commodity & Supplier Strategy Process
❑ Strategic Cost Management
❑ Human Resource Development
❑ Total Cost of Ownership
❑ Supplier Assessment, Measurement &
Communications
❑ Establishing World-Class Supplier Quality
❑ Structuring & Maintaining the Supply Base
These strategies should provide an implementation
focus at most firms.
In addition, analysis of the differences among industry
sectors showed that they were quite limited. However,
the discrete manufacturing industry sector had a
somewhat higher degree of implementation overall than
the process and service sectors.
Supply performance, on average, showed improvement
for key performance areas. Purchase prices were
reduced by 3.7 percent on average; transportation and
logistics costs were reduced by 2.8 percent, and total
cost of ownership reduced by 3.6 percent. Compared to
2009, price improvements were somewhat less (2009
figures were 4.0 percent, 5.1 percent, and 4.3 percent,
respectively). Supplier flexibility and responsiveness was
also somewhat improved in 2009 and 2011.
Changes: 2011 vs. 2009 and 2007
• The overall “gap” between strategy importance
and implementation for 2011 and 2009 were
similar, -2.0 vs. -1.9, with both being less than
the 2007 gap of -2.4, generally indicating an
increased degree of supply strategy
implementation since 2007.
• For strategy implementation overall,
implementation was slightly less in 2011 (5.50)
than 2009 (5.68) but higher than in 2007 (5.27),
possibly reflecting the recent economic distress.
• Procurement & Supply Organization Structure &
Governance; Cross-Functional/-Location Teaming;
Structuring & Maintaining the Supply Base;
Strategic Insourcing/Outsourcing; and E-Sourcing
& Supply Chain Strategies all, at least minimally,
saw increased implementation in 2011 from 2007
and 2009.
• The most significant decreases in strategy
implementation between 2009 and 2011 were for
Accelerated Change Management;
Environmentally Sustainable Supply Chain
Management; Human Resource Development;
Measurement & Evaluation; and Standardization
of Products, Services, Components & Design
Specifications — although increasing from 2007.
• For firms participating in the 2007, 2009, and
2011 iterations of the EAS, gap reductions
between importance and implementation were
achieved for all strategies. Major gap reductions
between 2009 and 2011 were for Procurement &
Supply Organization Structure & Governance;
Total Cost of Ownership; Supplier Assessment,
Measurement & Communications; Engagement by
Corporate Executives & Business Unit Leaders;
Structuring & Maintaining the Supply Base; and
Establishing World-Class Supplier Quality.
Guidance for Senior Management
Although supply is becoming more strategic at firms
worldwide, implementation of critical supply strategies
is still lagging. We also found that those supply
strategies that have longer implementation timeframes
and require more resources and cross-functional
support were not viewed as being most important, nor
were they most implemented. However, these more
robust strategies, such as standardization of purchases
to reduce complexity and cross-functional and cross-
enterprise collaboration, will likely be very important to
the future success of many organizations.
Based on this research, we believe that firms should be
working two “supply buckets” concurrently. First, there
is a need to ensure a high level of implementation and
effectiveness for core strategies, such as purchase
category and supplier strategy development, including
risk management, structuring the supply base, total cost
CAPS Research 9
of ownership, strategic cost management, and people
acquisition and development. These strategies deliver
supply performance today and tomorrow. Second,
leading supply organizations and their supply and
business unit leaders need to invest in the their firms’
long-term success by accelerating the transformation of
e-systems for supply, integrating suppliers into both
new product development and customer order
fulfillment, standardizing specifications and purchases
to reduce complexity, attaining supplier innovation
through effective collaboration, and establishing
environmentally sustainable supply chains. These
strategies will be necessary to deliver future value and
performance improvements.

Overall, this suggests that increasing emphasis on cross-

functional and cross-enterprise will be required for
supply and supplier networks to become an integral
part of customer focused value chains. These value
chains will require improved integration between
company functions and external customers and
suppliers that will be achieved through a strategic value
chain vision and leadership, combined with metrics that
measure customer satisfaction with value provided and
supply and supplier contributions. Supply strategies
that can make major contributions to company
performance must be implemented worldwide.

10 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 1: Introduction and Research
Approach

What supply strategies are viewed as most important by
supply organizations? To what extent have these
strategies been implemented? How do supply strategies
relate to supply performance? What supply strategies
are likely to be the focus of future transformation
efforts? This research provides answers to these
questions.
function to become a critical part of a firm’s competitive
strategy. This transformation process began with Xerox
gaining insight into “new” purchasing and supply
strategies from its Japanese counterpart, Canon,
followed by transformations in the automotive,
appliance, electronics, computer, and other industry
segments worldwide.

This transformation can be illustrated by the maturity

Transforming Purchasing/Supply model shown in Figure 1.1.

Beginning in the early to mid-1980s, purchasing began This multi-decade transformational journey has
to transform from a back-office, transaction-focused frequently been characterized as price-focused. Strategic

Figure 1.1
Sourcing and Supply Chain Maturity Model

CAPS Research 11
sourcing, low-cost-country sourcing, reverse e-auctions,
and supplier consolidation to gain scale advantage have
had price improvement as a major objective. It appears
that most firms are in Stage II or III of the maturity
model, with a limited number of firms in Stage IV.
Firms are typically positioned at Stage II or III because
they were price focused; had only recently begun the
supply transformation journey; focused on shorter-term
improvement objectives that reflected company and
functional executive directions; or failed to make the
sizeable and challenging investment required to
transform supply strategies, practices, structures, and
supplier working relationships across functions and the
extended supply chain.
In addition, there is anecdotal information that
corporate purchasing and supply transformations may
have stalled due to the challenges of adjusting to the
realities of a more complex environment. This reduced
pace of transformation may again be caused by narrow
price-focused rather than value-driven supply
objectives, limited e-system integration, and difficulties
in achieving cross-functional integration and company
reorganizations. Over the recent past, the severe
worldwide economic recession has also slowed supply
transformation initiatives. However, firms are again
focusing on developing world-class supply management
as risk (e.g., typhoons, nuclear accidents, financial
distress, and geopolitical disruptions) and lack of
innovation have negatively affected supply chain and
firm performance.
What Will the Next 10 Years Look Like?
For a firm to achieve progress toward attaining Stage IV
status, it must identify supply strategies that are critical
to its success, understand the current state of
importance and implementation, and work toward
appropriate alignment. A transformation strategy must
then be established, supported by required investments
and measurement of implementation progress and
results.
To position this report in terms of the future
competitive environment and resulting desired state, we
continue to draw on the 2007 CAPS Research report
Succeeding in a Dynamic World: Supply Management in the
Decade Ahead,1 which suggests that we will face
turbulent times in the future. Significant forces of
change will impact organizations. Some of these forces
Succeeding in a Dynamic World: Supply Management in the Decade Ahead, CAPS Research Report, 2007.
1
12 Supply Strategy Implementation: Current State and Future Opportunities 20011
include globalization, changes in worldwide
consumption patterns, demographic changes, regulation
and activism across countries throughout the world,
and increasing pressure to maintain natural resources
and the environment. In addition, there will be
significant changes in technology and increasing
requirements for innovation. “Wildcards” that cannot be
generally predicted will also come into play. All of these
changes will drive business models and strategies to
change, and innovation will strongly impact a firm’s
supply mission, goals, and performance expectations.
In addition, as firms look for ways to improve their
revenue streams, they will likely move up the value
chain, enrich customer relationships, and embrace
emerging markets. From a cost perspective, the
structural cost of conducting the business will have to
be addressed and optimized while firms pursue ongoing
variable cost reduction. On the balance sheet, more
efficient and effective use of fixed assets will be
required. There will also be a need to increase cash flow.
These requirements will impact the business models
and all functionally driven strategies, including supply.
These drivers have a cascading effect on the supply
mission, goals, and performance expectations. The
above-mentioned research study concluded that more
innovation will be required from suppliers, there will be
an increased need to contribute to revenue generation
through effective sourcing and supply, and supply
strategies will require further risk mitigation and an
expanded cost management focus. Overall, the
strategies and processes that have worked in the past
will require significant transformation to be effective in
a changing world in the future.
Even though the ideas presented in the above
paragraphs were written in 2007, they still ring true
today. Therefore, every supply organization worldwide
must continually examine itself and the transformation
strategies being employed to ensure effective world-class
supply organizations over the next five, 10, and 15
years. Continuous change and transformation is
required, although not necessarily natural to all
organizations. Therefore, supply organizations must
develop a mindset to embrace change and then develop
the processes to drive continuous — and sometimes
breakthrough — renewal.
CAPS Executive Assessment of Supply (EAS): ❑ Establishing World-Class Supplier Quality
❑ Global Sourcing & Supply Strategy
Development and Objectives
❑ Strategic Cost Management
❑ Total Cost of Ownership
The CAPS Executive Assessment of Supply (EAS) was
❑ Standardization of Products, Services,
developed to help firms address the changing world of
Components & Design Specifications
supply management. EAS builds on the knowledge
❑ Environmentally Sustainable Supply Chain
gained in deploying Project 10X at CAPS Research and
Management
follows the development of approximately 350 supply
❑ Procurement & Supply Organization Structure &
assessment questions based on experience with
Governance
worldwide firms over the past 10 years. These 350
❑ Cross-Functional/-Location Teaming
questions were modified and reduced so as to provide
❑ Measurement & Evaluation
22 strategically focused supply strategy questions and
❑ E-Sourcing & Supply Chain Strategies
two questions focused on performance. For each of the
❑ Human Resource Development
24 assessment questions, specific attributes were
❑ Engagement by Corporate Executives & Business
included that describe leading-edge practices. These
Unit Leaders
attributes provide the basis for rating the current state
❑ Accelerated Change Management
of the strategy for strategic importance to the firm and
degree of implementation. From these ratings, gaps can
In addition, data related to Competitive Performance
be determined between importance and
was also collected.
implementation.
Each strategy area includes a definition, all of which are
Transformation progress can also be measured over time
shown in Appendix A.
through comparison between past, current, and future
assessments. In addition, supply and firm performance
questions were also included. An assessment question
example is shown in Chapter 2, including rating scales. EAS and Value-Add to Company Competitiveness

This EAS report also provides respondents with a The value of the EAS is twofold. First, an industrywide
capability to compare themselves with other firms. In report (backed by more detailed data) is provided so
addition to the information provided in the report, each that an individual firm’s transformation progress can be
participating company receives additional EAS data, benchmarked. Second, a firm can determine its current
enabling comparative analysis across the 119 responding state through EAS deployment and establish the go-
companies organized by various industry segments. forward transformation plan to achieve an “ideal state.”
This “ideal state” should provide overall company value
creation through enhanced supply strategies. In
addition, by applying the EAS findings across strategic
Supply Strategies Included in EAS
business units and key facilities on a worldwide basis, a
firm can establish where change is taking place and
The following purchasing/supply strategies were
determine what may have led to improvements in
included in the 2011 CAPS Executive Assessment of
performance. Conducting an EAS may also be a key
Supply and were meant to be strategically, rather than
element in supply strategy development and
tactically, focused.
implementation, and help to “level-up” the entire
supply organization.
❑ Vision, Mission and the Strategic Plan
❑ Strategic Insourcing/Outsourcing
Figure 1.2 illustrates the application of EAS. The
❑ Commodity & Supplier Strategy Process
application can be both companywide (one response
❑ Structuring & Maintaining the Supply Base
per company) or tailor-made (conducted across multiple
❑ Supplier Assessment, Measurement &
business units and supply locations within a firm). This
Communications
report is based upon the worldwide assessment across
❑ Supplier Integration into New
firms, which includes only one response per firm (i.e.,
Product/Process/Service Development
where multiple responses were received, they were
❑ Supplier Integration into Customer Order
averaged into a single response for this report).
Fulfillment
❑ Strategic Supplier Alliances
❑ Collaborative Buyer/Supplier Development &
Continuous Improvement

CAPS Research 13
 Figure 1.2
EAS Application

Research Approach Respondent Profile

Approximately 1,100 companies were asked to
participate in the 2011 EAS study. Companies solicited
included CAPS Research sponsoring companies, selected
members of the Institute of Supply Management™, and
firms that have participated in prior CAPS Research
projects. The request to participate in EAS was generally
sent to supply management executives. Once a
company agreed to participate, information about
accessing a web-based EAS tool was emailed to
participants.
Data collection took place between February and May
2011.
Completed assessments were received from 119
companies (approximately 11 percent of those that were
originally asked to participate).
The current state of supply strategy importance and
implementation is based on the 119 companies
responding to the CAPS Executive Assessment of
Supply. Twenty-eight percent of respondents were from
the discrete manufacturing industry, 35 percent of
respondents were from the process manufacturing
industry, and 37 percent of respondents were from the
service industry.

14 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 1.3
Responding Company Profile

Figure 1.4
EAS Participating Industries

The respondent profile is also characterized by the
following:
• Twenty-five industries were included, as shown in
Figure 1.4.
• Fifty-five percent of the firms had sales over $5
billion. Thirty-seven percent had sales between $1
billion and $5 billion. The remaining 8 percent of
firms had sales less than $1 billion.
• The annual direct and indirect spend of these
firms were:

CAPS Research 15
 Annual Spend Direct Indirect Chapter 2 — Supply Strategies: Importance,
Greater than $5 billion 21% 16% Implementation, and Gaps
$1 billion to $5 billion 47% 35% • Introduction
Less than $1 billion 32% 49% • Example Question
• Overall EAS Findings
• Just over 71 percent of respondents represented a • Supply Strategy Importance Ratings and Rankings
companywide view, while slightly more than 21 • Supply Strategy Implementation Ratings and
percent represented a strategic business Rankings
unit/division view. Just under 7 percent of • Supply Strategy Gap Analysis
respondents represented a geographic view. • Overall Importance/Implementation Gap Analysis
• About 84 percent of the responses reflected • Comparison Between High and Low
responsibility for both direct and indirect purchases, Implementation Firms
with direct and indirect approximately equal. • Observations: High and Low Implementation
Firms
• Conclusions: Current State of Supply Strategies
Overall Research Framework
Chapter 3 — Industry Analysis
Figure 1.5 shows the overall Supply Leadership Model • Introduction
driving supply transformation and the critical strategy • Industry Sector Difference Findings
areas around which the EAS was developed. • Industry Difference Conclusions
• Average Ratings by Industry Sectors

Chapter 4 — Strategy Implementation and Supply

Report Organization Performance
• Introduction
The remainder of the report includes the following • Supply Performance
sections:

Figure 1.5
Supply Leadership Model

16 Supply Strategy Implementation: Current State and Future Opportunities 20011

 • Conclusions
• Industry Performance Differences

Chapter 5 — What Has Changed? 2007 to 2011

• Introduction
• Overall Changes: 2007, 2009, and 2011
• Supply Strategy Changes: Firms Common among
2007, 2009, and 2011

Chapter 6 — Critical Supply Strategies 2011 to 2015

• Introduction
• Emerging Supply Strategy Findings
• Conclusions

Chapter 7 — Summary and The Path Forward

• Introduction
• Summary: Key Findings
• The Path Forward: Supply Transformation 2011
to 2015
• Clear Goals
• Establish Priorities
• Resources & Capabilities
• Supply Transformation Process and EAS
Application
• The “Decade Ahead”: Supply Strategy
Implementation
• Strategy Enhancement
• Supplier-Focused Strategies
• Supply/Value Chain Integration
• Concluding Comments

Appendices
• Appendix A — Supply Strategy Definitions
• Appendix B — Statistical Analysis
• Appendix C — Supply Strategy Comparisons by
Industry Sector
• Appendix D — Selected Emerging Supply
Strategies

CAPS Research 17
 Chapter 2: Suppy Strategies:
Importance, Implementation, and Gaps
Introduction
Supply and other executives regularly raise the
question, “How are we doing compared to other leading
firms?” This report provides answers. The data collected
from 119 worldwide firms provides insights into the
current state of importance, implementation, and gaps
for 22 critical-to-success supply strategies. In addition,
this chapter includes discussion of the strategy ratings
and rankings for the highest and lowest rated firms.
Example Question
An assessment question example and rating scale, with
definitions, is shown in Figure 2.1 to assist in the
interpretation of the findings. This examples is from the
supply strategy of: Commodity & Supplier Strategy
Process.
Overall EAS Findings
Figure 2.2 shows the range of average ratings across all
companies for the 22 supply strategies for “importance,”
“implementation,” and the resulting “gaps” between
implementation and importance. A “gap” is the
difference in ratings between “importance” and
“implementation” for a specific strategy.
The following overall 2011 findings are most
interesting:
1. Importance ratings are at least 1.25 higher than
implementation at both the high and low ends.
2. The gap range is large, from a low of -1.13 to a
high of -2.63 between implementation and
importance.
18 Supply Strategy Implementation: Current State and Future Opportunities 2011
3. Average importance, implementation, and gap
ratings were 7.53 (high importance), 5.50
(moderate implementation), and 2.02 (major
gap), respectively.
When compared to the 2009 data, the following
observations are significant:
1. Average importance in 2011 is similar to 2009.
2. Average implementation is slightly lower than
2009.
3. The average gap is larger than 2009 by 0.13.
When 2011 data is compared to the 2007 data, the
following observations are especially notable:
1. Overall importance is somewhat less than in
2007.
2. Overall implementation is somewhat higher than
in 2007.
3. Overall gap is smaller than 2007 by 0.4.
A number of conclusions can be drawn from the overall
data. First, we are seeing a greater degree of supply
strategy implementation in 2011 than in 2007, with a
small decrease when compared to 2009. There was a
reduction in the gap between importance and
implementation from 2007 (both as a product of
decreasing importance of some strategies and increased
implementation of the same or other strategies), but an
increase in the gap compared to 2009. This may be the
result of reduced resources available for strategy/practice
improvement and implementation due to the severe
economic recession. Second, even though the average
gap has been reduced from 2007, overall implementation
is far lower than the corresponding importance change,
as can be seen by rating ranges and averages.
 Figure 2.1
Assessment Example with Rating Scales

CAPS Research 19
 Figure 2.1
Assessment Example with Rating Scales (continued)

Figure 2.2
Overall 2011 EAS Findings

In addition, firms likely rated supply strategies more Supply Strategy Importance Ratings and
highly on importance, as many strategies can be
Rankings
strategically important to the success of the firm.
However, implementation may lag because a firm is just
Table 2.1 provides insight into the overall ratings and
beginning or is partially along its transformational
rankings for the 22 strategy areas by “importance.” In
journey; resources have been limited in support of the
addition, a difference in the average rating score of more
transformations, especially in difficult economic times;
than 0.47 between strategies is statistically significant.
some strategies are not the focus of the implementation;
For example, the group of six strategies most highly
and strategies that are being implemented have taken
rated is significantly different than the 11 lowest rated
considerable time and resources to complete.
strategies. (See Appendix B for a description of
methodology used to determine statistical significance.)

20 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Table 2.1
Overall Importance Strategy Ratings

Strategy Area Importance

Engagement by Corporate Executives & Business Unit Leaders 8.36
Vision, Mission and the Strategic Plan 8.29
Commodity & Supplier Strategy Process 8.27
Strategic Cost Management 8.25
Procurement & Supply Organization Structure & Governance 8.21
Human Resource Development 8.21
Total Cost of Ownership 7.88
Structuring & Maintaining the Supply Base 7.80
Measurement & Evaluation 7.76
Establishing World-Class Supplier Quality 7.72
Supplier Assessment, Measurement & Communications 7.61
Cross-Functional/-Location Teaming 7.58
Strategic Supplier Alliances 7.26
Collaborative Buyer/Supplier Development & Continuous Improvement 7.18
Accelerated Change Management 7.13
Supplier Integration into New Product/Process/Service Development 7.11
Strategic Insourcing/Outsourcing 7.10
Standardization of Products, Services, Components & Design Specifications 7.08
E-Sourcing & Supply Chain Strategies 6.99
Global Sourcing & Supply Strategy 6.98
Environmentally Sustainable Supply Chain Management 6.65
Supplier Integration into Customer Order Fulfillment 6.19
Average Importance 7.53

A number of observations can be drawn from the
“importance” ratings, including:
• The overall average strategy ratings range around
“high/critical” (operational necessity; required for
operational effectiveness; necessary to gain market
leadership; achieves competitive viability — a
necessary consideration to compete)
• The top six rated strategies all focus on the initial
building blocks of an effective supply function
(enablers) and/or are critical to achieving cost
improvement.
• Engagement by Corporate Executives &
Business Unit Leaders
• Vision, Mission and the Strategic Plan
• Commodity & Supplier Strategy Process
• Strategic Cost Management
• Procurement & Supply Organization
Structure & Governance
• Human Resource Development
• In addition, these six most highly rated strategies
all revolve around supply management leadership
and building appropriate governance and strategy
to carry out the Vision, Mission and the Strategic
Plan, which is rated highest of all strategies.
Clearly, having the best possible human resource
talent is an enabler to success in all 22 supply
strategy areas.
• The seven lowest rated strategies require
engagement of executives and key persons
working collaboratively across functions, which is
frequently more difficult to do as more functions
need to be aligned to achieve measurable results.
• Supplier Integration into Customer Order
Fulfillment
• Environmentally Sustainable Supply Chain
Management
• Global Sourcing & Supply Strategy
• E-Sourcing & Supply Chain Strategies
• Standardization of Products, Services,
Components & Design Specifications
• Strategic Insourcing/Outsourcing
• Supplier Integration into New Product/
Process/Service Development

CAPS Research 21
Supply Strategy Implementation Ratings and • The lower implemented strategies generally focus
around strategies requiring significant investment
Rankings
or those that require true cross-functional
implementation, and are similar to the strategies
Table 2.2 provides the overall ratings and rankings for
lowest rated in importance.
the 22 strategy areas by degree of “implementation.” A
difference in average rating greater than 0.47 means that
• Strategies associated with extended supply chains,
one strategy is significantly different than another. (See
aligning and linking organizations, and achieving
Appendix B for the description of methodology used to
collaboration with suppliers were “moderately”
determine statistical significance.) For example, the two
implemented. Other cross-functional and cross-
most commonly implemented strategies are significantly
enterprise strategies also lagged in
different than the two least implemented strategies.
implementation.
A number of observations can be drawn from the
• Environmentally Sustainable Supply Chain
“implementation” ratings:
Management was substantially less implemented,
probably due to the significant financial and cost
• The overall average strategy ratings range from
reduction pressures firms were under due to the
“moderate” to somewhat less than “extensive,”
economic downturn, as well as the fact that it is a
which suggests limited implementation.
relative newcomer to the set of available supply
strategies. Further, the linkage between
• The most frequently implemented strategies were
environmentally sustainable strategies and
primarily focused on establishing the foundation
organizational performance outcomes is still not
for effective supply strategies and commodity and
well understood.
supplier strategy development, and were
somewhat aligned with the importance rankings.

Table 2.2
Overall Implementation Strategy Ratings

Strategy Area Impementation

Procurement & Supply Organization Structure & Governance 7.08
Engagement by Corporate Executives & Business Unit Leaders 6.63
Vision, Mission and the Strategic Plan 6.49
Commodity & Supplier Strategy Process 6.18
Strategic Cost Management 6.09
Cross-Functional/-Location Teaming 6.09
Structuring & Maintaining the Supply Base 5.77
Total Cost of Ownership 5.76
Strategic Insourcing/Outsourcing 5.71
Measurement & Evaluation 5.64
Human Resource Development 5.58
Strategic Supplier Alliances 5.36
Establishing World-Class Supplier Quality 5.32
Global Sourcing & Supply Strategy 5.30
E-Sourcing & Supply Chain Strategies 5.09
Supplier Integration into New Product/Process/Service Development 5.04
Supplier Assessment, Measurement & Communications 5.01
Collaborative Buyer/Supplier Development & Continuous Improvement 4.83
Standardization of Products, Services, Components & Design Specifications 4.73
Accelerated Change Management 4.64
Environmentally Sustainable Supply Chain Management 4.40
Supplier Integration into Customer Order Fulfillment 4.29
Average Implementation 5.50

22 Supply Strategy Implementation: Current State and Future Opportunities 20011

Supply Strategy Gap Analysis
The ratings data was also analyzed to determine the
“gaps” between strategy importance and implementation.
On average, the overall “gaps” across all 22 strategy
areas were between -1.13 and -2.63 (negative numbers
reflect greater importance than implementation). The
rankings for all gaps are shown in Table 2.3.
The largest gaps were for:2
❑ Human Resource Development (8.21/5.58)
❑ Supplier Assessment, Measurement &
Communications (7.61/5.01)
❑ Accelerated Change Management (7.13/4.64)
❑ Establishing World-Class Supplier Quality
(7.72/5.32)
❑ Collaborative Buyer/Supplier Development &
Continuous Improvement (7.18/4.83)
❑ Standardization of Products, Services,
Components & Design Specifications (7.08/4.73)
The smallest gaps were for:
❑ Procurement & Supply Organization Structure &
Governance (8.21/7.08)
❑ Strategic Insourcing/Outsourcing (7.10/5.71)
❑ Cross-Functional/-Location Teaming (7.58/6.09)
❑ Global Sourcing & Supply Strategy (6.98/5.30)
❑ Engagement by Corporate Executives & Business
Unit Leaders (8.36/6.63)
The data suggest that the largest gaps were driven by
”high to critical” importance ratings with
implementation only being achieved to a moderate
degree. The smallest gaps had ratings approaching
“extensive” for implementation, with importance being
“high to more critical.”
Overall Importance/Implementation Gap
Analysis
Additional analysis was done to compare the “gaps”
with importance and implementation to assist firms in
comparing themselves against all respondents and for
priority setting.

Table 2.3
Overall Strategy Ratings — Gaps

Strategy Area Gap

Human Resource Development -2.63
Supplier Assessment, Measurement & Communications -2.60
Accelerated Change Management -2.49
Establishing World-Class Supplier Quality -2.40
Collaborative Buyer/Supplier Development & Continuous Improvement -2.35
Standardization of Products, Services, Components & Design Specifications -2.35
Environmentally Sustainable Supply Chain Management -2.24
Strategic Cost Management -2.16
Total Cost of Ownership -2.12
Measurement & Evaluation -2.12
Commodity & Supplier Strategy Process -2.08
Supplier Integration into New Product/Process/Service Development -2.07
Structuring & Maintaining the Supply Base -2.03
Supplier Integration into Customer Order Fulfillment -1.90
Strategic Supplier Alliances -1.90
E-Sourcing & Supply Chain Strategies -1.90
Vision, Mission and the Strategic Plan -1.81
Engagement by Corporate Executives & Business Unit Leaders -1.73
Global Sourcing & Supply Strategy -1.68
Cross-Functional/-Location Teaming -1.49
Strategic Insourcing/Outsourcing -1.39
Procurement & Supply Organization Structure & Governance -1.13
Average Gap -2.02

Numbers in parentheses show the importance and implementation ratings.

2

CAPS Research 23
Figure 2.3 establishes quadrants by taking the mean of
“importance” ratings and mean of “gap” ratings and
then plots where the strategies fall. From Figure 2.3,
Strategic Cost Management, Human Resource
Development, Total Cost of Ownership, Measurement &
Evaluation, and Establish World-Class Supplier Quality
clearly fall in Quadrant 2 — higher importance and
larger gaps. In addition, Supplier Assessment,
Measurement & Communications; Commodity &
Supplier Strategy Process; and Structuring &
Maintaining the Supply Base fall on the margins of
Quadrant 2. These strategies are a potential
transformation priority and can be characterized as a
Priority 1, with a “must do” focus.
❑ Standardization of Products, Services,
Components & Design Specifications
❑ Accelerated Change Management
These strategies require priority consideration by
organizations, depending on their current
transformation focus and industry competitive
requirements.
Quadrant 1 strategies in Figure 2.3 require a continuing
focus, looking for opportunities to enhance. Depending
on the firm’s focus and strategy implementation, the
strategies in Quadrant 4 may be currently viewed as
appropriate and a lower priority.

In addition, Quadrant 3 in Figure 2.3 shows a number
of strategies that are somewhat lower in importance but
still have larger gaps. They include:
❑ Environmentally Sustainable Supply Chain
Management
❑ Collaborative Buyer/Supplier Development &
Continuous Improvement
Overall, establishing the supply strategy transformation
priority focus at a firm depends upon its position on the
maturity curve and the anticipated and quantified
benefits from further implementation of a specific
strategy(s) in a specific industry sector. Detailed analysis
of the potential return and the logic supporting
anticipated benefits is required to establish clear
priorities for each firm.

Figure 2.3
Strategy Segmentation Analysis: Importance/Gap

24 Supply Strategy Implementation: Current State and Future Opportunities 20011

A given firm’s supply strategies by quadrant may not be
the same as the overall set of respondents and should
reflect its actual current state. However, applying similar
analyses, combined with anticipated benefits and
implementation complexity, can assist in developing a
firm’s supply strategy implementation path.
Comparison Between High and Low
Implementation Firms
A comparison was also done of the top and bottom 25
firms based on implementation ratings to determine the
Table 2.4
Implementation: Highest 25 Companies versus Lowest 25 Companies
magnitude of the rating differences and relative ranking
of each strategy between the two groups. The results are
shown in Tables 2.4 and 2.5.
Observations: High and Low Implementation
Firms
• The implementation range for the top 25
companies was from a high of 8.8 for
Procurement & Supply Organization Structure &
Governance to a low of 6.0 for Standardization of
Products, Services, Components & Design
CAPS Research 25
 Table 2.5
Overall Implementation Ratings for Top/Bottom 25 Firms

Highest 25 Lowest 25
Companies Companies
Rank Average Rank Average
1 9.6 1 1.6
2 9.1 2 2.2
3 8.5 3 2.3
4 8.0 4 2.3
5 7.8 5 2.6
6 7.6 6 2.6
7 7.5 7 2.8
8 7.5 8 3.1
9 7.4 9 3.2
10 7.3 10 3.4
11 7.3 11 3.5
12 7.3 12 3.6
13 7.2 13 3.8
14 7.0 14 3.8
15 7.0 15 3.8
16 7.0 16 3.9
17 7.0 17 4.0
18 6.9 18 4.0
19 6.9 19 4.1
20 6.9 20 4.1
21 6.9 21 4.1
22 6.8 22 4.1
23 6.8 23 4.2
24 6.8 24 4.3
25 6.7 25 4.3
Average 7.4 Average 3.4

Specifications. This was considerably higher than
the overall range for all companies of 7.08 to 4.29
for implementation, as would be expected. The
bottom 25 company implementation range was
from 2.3 for Collaborative Buyer/Supplier
Development & Continuous Improvement to 4.7
for Vision, Mission and the Strategic Plan,
substantially lower than the top 25.
• Substantial differences exist for all strategies
between the highest and lowest companies,
ranging from a difference of 4.9 to 2.8.
• The 25 highest ranked companies have most
typically implemented Procurement & Supply
Organization Structure & Governance;
Engagement by Corporate Executives & Business
Unit Leaders; Vision, Mission and the Strategic
Plan; Strategic Cost Management; and Total Cost
of Ownership. In the highest implemented
companies, these strategies have been extensively
implemented, while the lowest 25 companies
have achieved moderate implementation at best.
The overall strategy implementation differences
ranged from 4.9 to 2.8 across the 22 strategies.
• The largest implementation differences were
between Global Sourcing & Supply Strategy; Total
Cost of Ownership; Establishing World-Class
Supplier Quality; Collaborative Buyer/Supplier
Development & Continuous Improvement; and
Supplier Assessment, Measurement &
Communications.
• For the top and bottom 25 firms, Procurement &
Supply Organization Structure & Governance;
Engagement by Corporate Executives & Business
Unit Leaders; and Vision, Mission & Strategic
Plan were commonly among both groups’ top five
most implemented strategies.
• In addition, further analysis was done comparing
the highest and lowest 25 firms based on average
implementation ratings for all 22 strategies. The

26 Supply Strategy Implementation: Current State and Future Opportunities 20011

 results are shown in Table 2.5. The highest
ranked firms have an average implementation
rating of 7.4, while the lowest ranked firms have
an average of 3.4, indicating significant differences
in strategy implementation. On average, the firms
with the highest degree of supply strategy
implementation are far ahead of their
counterparts.
Conclusions: Current State of Supply Strategies
The strategic importance of 22 critical supply strategies
was, on average, rated as “High: Operational necessity;
required for operational effectiveness; necessary to gain
market leadership; achieves competitive viability — a
necessary condition to complete.” Implementation,
however, was on average scored between “Moderate:
Multiple attributes implemented and becoming
accepted as effective means of doing business in at least
one business unit, site, or organization” and “Extensive:
Most attributes implemented across multiple business
units, sites, or organizations; attributes demonstrated as
the best way of doing business; results are beginning to
show improvement in line with plans.” The maximum
rating for strategic importance is “critical”; for
implementation, the maximum is “complete.”
It appears that there is considerable need for firms to
further implement supply strategies critical to their
overall competitiveness than has been achieved to date.
However, the data also suggests that considerable
progress has been made in implementation of supply
strategies since 2007 and 2009.
Additional analyses also indicated a number of key
strategies that should be considered as priority areas
based on combining the magnitude of gaps and the
strategic importance of the strategies. These include:
❑ Commodity & Supplier Strategy Process
❑ Strategic Cost Management
❑ Human Resource Development
❑ Structuring & Maintaining the Supply Base
❑ Measurement & Evaluation
❑ Supplier Assessment, Measurement &
Communications
❑ Total Cost of Ownership
❑ World-Class Quality
❑ Accelerated Change Management
Naturally, each firm will have to evaluate its own needs,
current state, and opportunities to establish priorities
and transformation strategies.
All firms should also consider how they can accelerate
their supply transformation efforts and goal
achievements. By comparing the top and bottom 25
firms based on implementation, we found large strategy
implementation differences between these two groups,
both overall and by strategy area. Lagging
implementation, lack of a transformation focus, and too
few resources could prove costly to firms over time,
given the reported achievements of the various
organizations most implemented.
Finally, in our opinion, the strategies that are generally
rated less important are relatively harder to implement
and companies may be focusing on easier to implement
strategies. On the other hand, for some companies the
relative importance is lower because they have
implemented these strategies and have now moved on
to implementing new higher priority strategies. In
addition, the least implemented strategies require the
longest view and generally require integration across
functions and cross-functional collaboration. These
strategies may offer the greatest contribution to supply
value creation during the next one to five years. For
example, a continuing focus on e-supply systems as a
critical enabler will be required. Without e-systems to
provide important data and a means to communicate
and collaborate within and across organizations, supply
value creation may be limited. Innovation and
accelerated change management also need to be an
integral part of supply transformation efforts, as does
enhancing talent.
This analysis of more than 119 respondents provides
insight into the current state of supply strategy
importance, implementation and gaps. The information
also provides the opportunity for firms to compare their
supply strategy ratings against other firms and deploy
EAS worldwide so as to measure change over time
resulting from supply transformation strategies being
implemented at their firm.
CAPS Research 27
 Chapter 3: Industry Analysis
Introduction
This chapter provides findings that show differences
between three industry sectors: discrete manufacturing,
process manufacturing, and services. The results are
organized by industry sector and then by importance,
implementation, and gap. In addition, differences in
implementation by industry sector are also provided.
This chapter provides data in the following sequence:
1. Industry differences for importance
2. Industry differences for implementation
3. Discrete, process, and service data for importance,
implementation, gaps, and top/bottom 10
company ratings
4. Conclusions
Industry Sector Difference Findings
A few differences in implementation and importance
were found between discrete, process, and service
industry firms. Those differences by strategy area and
by industry sector are shown in Tables 3.1 and 3.2.
Industry Difference Conclusions
• There is a high degree of similarity in strategy
importance ratings between the discrete, process,
and service sectors.
• Discrete manufacturing firms are further along the
“implementation” transformation journey and
have higher “importance” ratings.
• Generally, discrete manufacturing had higher
importance (7 strategies) or implementation (10
strategies) ratings than process or service as
28 Supply Strategy Implementation: Current State and Future Opportunities 2011
shown. However, meaningful conclusions versus
hypothesis would only be conjecture.
• “Implementation” rated lower than “importance”
across all industry sectors.
• In addition, statistically significant differences
between industry sectors were not found for any
of the supply strategy areas. Even though there
were absolute differences, they were not found to
be statistically significant. However, they may be
of practical interest when reviewing the industry
tables in Appendix C.
Average Ratings by Industry Sectors
Following are the cross-industry sector comparisons for
average importance, implementation, and gap ratings
across the 22 supply strategy areas. Appendix C
provides more detailed tables regarding survey results as
they pertain to specific industries. In that section,
ratings are then provided by each strategy area. The
tables are organized by industry sector to assist readers
who are most interested in their own industry.
Tables 3.3 and 3.4 provide some interesting data:
• The discrete industry has an overall higher average
importance rating than either process or service.
• Implementation of supply strategies is lowest, on
average, in the service industry sector, which also
has the largest gap.
• The implementation difference between the top
and lowest 10 firms across industry sectors is
quite large, indicating there are truly leading and
lagging firms within all industries.
• The discrete industry appears to be further along
in strategy implementation, at least compared to
service.
 Table 3.1
Strategy Importance Differences by Industry

Strategy Area Significant Differences*

D > P & S** D>P D>S P>S S > D or P
❑ Supplier Integration into New
Product/Process/Service X X
Development
❑ Collaborative Buyer/Supplier
Development & Continuous X
Improvement
❑ Establishing World-Class
X X
Supplier Quality
❑ Global Sourcing & Supply
X X
Strategy
❑ Standardization of Products,
Services, Components & X
Design Specifications
* Differences significant at the 0.05 level (see Appendix B)
** D = Discrete industry; P = Process industry; S = Service industry

Table 3.2
Strategy Impementation Differences by Industry

Strategy Area Significant Differences*

D > P & S** D>P D>S P>S S > D or P
❑ Vision, Mission & the
X
Strategic Plan
❑ Commodity & Supplier
X X
Strategy Process
❑ Structuring and Maintaining
X
the Supply Base
❑ Supplier Assessment,
Measurement & X
Communications
❑ Supplier Integration into New
Product/Process/Service X
Development
❑ Collaborative Buyer/Supplier
Development & Continuous X
Improvement
❑ Establishing World-Class
X X
Supplier Quality
❑ Global Sourcing & Supply
X X
Strategy
❑ Measurement & Evaluation X X
❑ Accelerated Change
X
Management
* Differences significant at the 0.05 level (see Appendix B)
** D = Discrete industry; P = Process industry; S = Service industry

CAPS Research 29
 Table 3.3
Average Ratings by Industry Sector

Industry Sector Importance Implementation Gap

Discrete 7.84 5.91 -1.92
Process 7.48 5.73 -1.75
Service 7.34 4.98 -2.36
Overall 7.53 5.50 -2.02

Table 3.4
Implementation Ratings for Top/Bottom Firms by Industry Sector for 22 Strategies

Industry Sector Top 10 Bottom 10 Difference

Discrete 7.3 4.6 2.7
Process 7.7 3.6 4.1
Service 6.6 3.0 3.6

Table 3.5 shows the supply strategies with the biggest

gaps by industry sector. They were somewhat different
across the industries.

Table 3.5
Top Six Strategy Gaps by Industry Sector

Rank Discrete Process Service

1 Standardization of Products, Supplier Assessment, Human Resource
Services, Components & Measurement & Development
Design Specifications Communication (-3.23)
(-2.97) (-2.31)
2 Supplier Integration into Environmentally Sustainable Supplier Assessment,
Customer Order Fulfillment Supply Chain Management Measurement &
(-2.64) (-2.21) Communications
(-3.18))
3 Human Resource Accelerated Change Establishing World-Class
Development Management Supplier Quality
(-2.52) (-2.17) (-3.14)
4 Accelerated Change Human Resource Accelerated Change
Management Development Management
(-2.39) (-2.10) (-2.86)
5 Supplier Integration into Standardization of Products, Measurement & Evaluation
New Product/Process/ Services, Components & (-2.82)
Service Development Design Specifications
(-2.36) (-2.07)
6 Collaborative Buyer/Supplier Establishing World-Class Collaborative Buyer/Supplier
Development & Continuous Supplier Quality Development & Continuous
Improvement (-1.98) Improvement
(-2.21) (-2.77)

30 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 4: Strategy Implementation
and Supply Performance
Introduction
What supply performance improvements have firms
been achieving? Are there apparent relationships
between supply strategy implementation and
performance? These two questions are the focus of
Chapter 4.
Supply Performance
Each respondent was asked to provide supply
performance information for 11 performance areas.
Specifically, they were directed:
“For your most important purchases (80/20 rule) over
the past twelve (12) months, indicate the magnitude of
measurable performance improvements and/or
business unit contribution achieved through sourcing
and supply chain strategies at your business unit.”
Table 4.1
Supply Performance Results (2007, 2009, and 2011)*
The 11 performance areas and results are shown in
Table 4.1 and include 2007, 2009, and 2011.
Conclusions
• Supply performance improvements in 2011 were
limited compared to 2009, likely due to the
severe economic recession and upward price
pressure on commodities.
• Unit purchase price; transportation and logistics
costs; and total cost of ownership all improved by
3.65 percent, 2.83 percent, and 3.55 percent
respectively over the “past 12 months.” However,
purchase price improvement was less than that
achieved in 2009 and 2007.
• Improvements were also achieved in all other
performance areas, including supplier payment
terms, quality, order cycle times, on-time delivery,
CAPS Research 31
 responsiveness/flexibility, and achievement of
supplier diversity.
• The ranges between maximum improvement and
worsening were quite large, indicating significant
variability between firms and industries.
• For 2011, the rate of improvement across all
performance measures was similar or less than in
2007.
Over the 22 performance areas, measured based on
qualitative ratings, there was small slippage in the rate
of performance improvement. The largest improvements
were with “executive satisfaction with supply” and
“standardization or consistency in the sourcing process,”
although this increase was less than those seen in 2007
and/or 2009. Smallest rates of improvement were for
“processes to systematically obtain, evaluate, and
respond to supplier ideas” and “inventory cost for
purchase items.”

In addition, performance rating responses were
requested for the 22 performance areas shown in Table
4.2, which shows rating results for 2011, 2009, and
2007. The question asked whether performance stayed
the same, got better, or became worse. These
performance areas are organized by three major
categories: overall sourcing and supply chain process
improvements, overall supply value-add, and overall
relationships and satisfaction. These ratings were
respondent perceptions.
Overall, significant performance improvements were not
evident.
Industry Performance Differences
Statistical analyses were performed to determine
whether there were significant industry sector
differences for both the objective and qualitative
performance measures. The results of the analyses
showed a number of differences between industry
sectors, including:

Table 4.2
Performance Results (2007, 2009, and 2011)*

32 Supply Strategy Implementation: Current State and Future Opportunities 20011

 • The service sector achieved the greatest purchase
price improvement (5.1 percent) with discrete
(4.1 percent) and process (1.8 percent) following.
• The discrete industry led the way for rate of
improvement for transportation and logistics cost,
total cost of ownership, performing to purchase
price/ cost objectives, supplier
responsiveness/flexibility, and supplier quality.
• The service sector achieved the highest
improvement in supplier diversity.
• For qualitative rating performance change,
discrete manufacturing had greater improvement
in transportation/logistics transaction efficiency,
performing to purchase price/cost objectives, and
payment terms with suppliers than did the
process and service sectors.
Tables 4.3 and 4.4 show the actual reported
performance averages and performance improvement
ratings by each performance area overall and for the
industry sectors.

Table 4.3
Actual Performance: Overall and by Industry Sector

Overall Discrete Process Service

Performance Area (N~85-107) (N~25-30) (N~34-39) (N~22-39)
Unit Purchase Price 3.7% 4.1% 1.8% 5.1%
Transportation & Logistics Costs 2.8% 4.3% 1.5% 3.2%
Total Cost of Ownership 3.6% 4.9% 2.5% 3.6%
Performing to Purchasing Price/Cost
2.9% 5.7% 0.6% 2.7%
Objectives
Inventory Investment Cost for Purchased
1.1% 1.3% 0.9% 1.0%
Goods
Payment Terms With Suppliers (# Days) 0.8 0.2 0.3 1.9
Supplier Quality 2.9% 5.6% 1.1% 2.7%
Supplier Technology Contribution 2.4% 2.9% 1.2% 3.3%
Supplier On-Time Delivery 0.8% 0.2% 0.3% 1.9%
Supplier Responsiveness/Flexibility 2.3% 4.4% 2.1% 1.2%
Supplier Diversity 4.6% 4.0% 3.2% 6.4%

CAPS Research 33
 Table 4.4
Performance Improvement: Overall and by Industry Sector

34 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 5: What Has Changed?
2007 to 2011
Introduction
This chapter highlights differences between 2007, 2009,
and 2011 EAS responses and includes:
• Overall strategy importance, implementation, and
resulting gap differences
• Differences in rank order for importance and
implementation ratings
• Differences in performance: actual and
perceptions
• Differences in ratings by companies that
participated in the 2007, 2009, and 2011
Executive Assessments of Supply
Overall Changes: 2007, 2009, and 2011
Tables 5.1, 5.2, and 5.3 provide insights about the
supply strategy importance, implementation, and gap
changes that have occurred between 2007, 2009, and
2011.
The overall gap reduction between 2007 and 2009 was
0.5, which is significant. However, between 2009 and
2011, the average gap then increased by 0.1. Only six
gap reductions were achieved between 2009 and 2011:
❑ Procurement & Supply Organization Structure &
Governance
❑ E-Sourcing & Supply Chain Strategies
❑ Supplier Integration Into New Product/Process/
Service Development
❑ Structuring & Maintaining the Supply Base
❑ Global Sourcing & Supply Strategy
❑ Cross-Functional/-Location Teaming
The most significant decreases in strategy
implementation between 2009 and 2011 were for:
❑ Innovation & Accelerated Change Management
(as it was labeled in 2007, 2009), Accelerated
Change Management (as it was labeled in 2011)
❑ Environmentally Sustainable Supply Chain
Management
❑ Human Resource Development
❑ Measurement & Evaluation
❑ Standardization of Products, Services,
Components & Design Specifications
❑ Global Sourcing & Supply Strategy
Overall, it appears that supply strategy implementation
generally lagged between 2009 and 2011, decreasing by
0.16, probably due to the start and continuation of the
severe economic recession. However, implementation
increased on average by 0.31 between 2007 and 2011.
Progress was made, but was ultimately slowed due to
the economy.
Tables 5.2 and 5.3 show difference rankings of ratings
for the 22 strategy areas by implementation and
importance. These tables may provide the reader
additional insights.
The decrease in importance ratings may be explained by
the relative transformation focus on selected strategies
and/or different responding companies between 2007,
2009, and 2011.
Supply Strategy Changes: Firms Common among
2007, 2009, and 2011
Analysis was also conducted to determine supply
strategy changes for firms that participated in all three
assessments -the 2007, 2009, and 2011 EAS. Sixteen
companies participated in all three assessments. Results
are shown in Table 5.4 and are ranked by the largest
gap between 2009 and 2011.
CAPS Research 35
 Table 5.1
Comparison of 2007, 2009, and 2011 Implementation/Importance Gaps
As can be seen, the top nine strategy gap reductions
between 2011 and 2009 were for the following
strategies and undoubtedly were a focus of
improvement efforts over the past two years:
❑ Procurement & Supply Organization Structure &
Governance (1.21)
❑ Total Cost of Ownership (0.82)
❑ Supplier Assessment, Measurement &
Communications (0.76)
❑ Engagement by Corporate Executives & Business
Unit Leaders (0.65)
❑ Structuring & Maintaining the Supply Base (0.60)
❑ Establishing World-Class Supplier Quality (0.57)
❑ Vision, Mission and the Strategic Plan (0.55)
❑ Strategic Supplier Alliances (0.54)
❑ Supplier Integration into New Product/Process/
Service Development (0.51)
A number of the strategies with the most sizeable gap
closure require significant company and supply
leadership and cross-functional focus across the
extended supply or value chain. They are also generally
more complex to implement and require additional
investment, but their implementation may result in
significant returns. Compared with the overall pool of
respondents, Procurement & Supply Organization
Structure & Governance, Supplier Integration into New
Product/Process/Service Development, and Structuring
36 Supply Strategy Implementation: Current State and Future Opportunities 20011
and Maintaining the Supply Base were the only
strategies that showed gap closure for both groups
between 2009 and 2011.
For 21 of the 22 supply strategies, there was a
consistent increase in implementation between 2007
and 2011, with some dips in 2009, presumably due to
the severe recession. Importance also increased, but less
consistently. Supplier Integration into Customer Order
Fulfillment; Cross-Functional/-Location Teaming;
Standardization of Products, Services, Components &
Design Specifications; and E-Sourcing & Supply Chain
Strategies saw minor decreases in importance.
Overall, both strategy implementation and importance
increased between 2007 and 2011. On average,
implementation increased by 0.93 and importance by
0.28. In addition, there was a reduction in the overall
gap between Supply Strategy Importance &
Implementation from 2.41 in 2007 to 1.66 in 2011, a
significant improvement at these 16 companies.
These 16 firms, when compared to the overall sample
(Table 5.1) were markedly superior. Their
implementation was 6.44 versus 5.5, their gap was 1.66
versus 2.0, and gap closure for 2011 versus 2007 was
0.75, compared to the total sample 2007-2011 gap,
which improved by 0.40 from 2.4 to 2.0.
 Table 5.2
Differences in Overall Importance between 2007, 2009, and 2011

It appears that these 16 firms placed significant The largest increases in supply strategy implementation
emphasis on the transformational journey. These 16 between 2011 and 2009 for the 16 companies and the
firms also regularly and systematically participated in total sample were:
the CAPS Executive Assessment of Supply.

16 Companies Total Sample

• Procurement & Supply Organization Structure & Governance 2.40 0.53
• Engagement by Corporate Executives & Business Unit Leaders 1.56 -0.14
• Human Resource Development 1.43 -0.39
• Global Sourcing & Supply Strategy 1.35 -0.33
• Establishing World-Class Supplier Quality 1.32 -0.05
• Vision, Mission and the Strategic Plan 1.31 -0.30
• Total Cost of Ownership 1.12 -0.19

It appears that these firms continued to invest in supply
management, even in difficult economic times. The
differences in implementation and gap improvement
with the overall sample is marked.
It should be noted that the companies participating in
2007, 2009, and 2011 likely had different individual
respondents to our research study. Individual differences
may therefore explain some of the rating differences. In
addition, implementation is “moderate,” indicating the
journey continues.

CAPS Research 37
 Table 5.3
Differences in Overall Importance between 2007, 2009, and 2011

38 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 5.4
Importance, Implementation, and Gap Strategy Ratings for Companies Participating in 2007, 2009, and 20113

Number of firms participating in 2007, 2009, and 2011 = 16.

3

CAPS Research 39
 Chapter 6: Critical Supply Strategies: 2011
to 2015
Introduction
This chapter provides findings resulting from responses
to the following question asked of respondents:
“Please identify three (3) emerging supply strategies
that will be most critical to improving your company’s
competitive performance areas the next 3-5 years. In
addition, for each strategy, please identify and describe
the major drivers (reasons why) for this strategy.”
More than 350 strategies were identified, with a few
eliminated from consideration because of limited clarity.
Major drivers of the strategies were not specifically
identified. However, the supply strategies themselves
provide insight into the drivers.
Emerging Supply Strategy Findings
Each supply strategy was classified into one of 19
strategy areas based on the authors’ judgment. In some
cases, the strategies could be placed in more than one
category but were assigned to a particular category
based on the primary emphasis of the strategy.
Table 6.1 shows the overall results. Based on our
content analysis of the 19 strategy areas, we found that:
1. Supply strategies could be grouped into three
major groups.
• Strategic supply strategies
• Critical supply strategy enablers
• Strategies with limited emphasis
2. The strategic supply strategies and critical
supply strategy enablers categories were
40 Supply Strategy Implementation: Current State and Future Opportunities 2011
predominant and made up 84 percent of the
supply strategies identified.
• Strategic supply strategies made up 48 percent
(166/344) of the strategies submitted and
included Supply Management, Commodity/
Purchase Category Strategy Development,
Strategic Cost Management, and Global Sourcing
and Supply. Also, included in Supply
Management were numerous comments about
“risk,” indicating the growing importance of
Supplier Risk Management.
• Critical Supply Strategy Enablers, making up 36
percent (123/344) of the strategies, included:
E-Systems; Talent; Supplier and Customer
Integration; Organization, Governance and
Process; and Strategic Supplier Alliances.
• The “limited emphasis” strategies making up 16
percent (55/344) of responses consisted of the 10
remaining strategies, with the top two being
Standardization and Complexity Reduction of
Products/Services and Environmental
Sustainability.
• In addition, if Total Cost of Ownership strategies
were added to Strategic Cost Management, and
Strategic Supplier Alliances were added to
Supplier Management, 56 percent (194/344) of
the strategies would be in the Strategic Supply
Strategy classification.
3. Critical strategy industry differences were
minimal.
Analysis of the 19 strategy areas by the discrete,
process, and service industries for critical strategy
focus showed:
• No major differences among industries for the top
four strategic supply strategies, except that Global
Sourcing and Supply was far less frequently
mentioned in the service industry.
 Table 6.1
Critical Supply Strategy Focus Areas

• Major differences were not found in the enablers E-Systems and Talent. It appears that these
except for Supplier Integration, which was more strategies are focused on incremental
emphasized in the discrete industry. improvements compared to overall best-in-class
standards. However, these enhancement strategies
may be considered breakthrough at specific
Conclusions organizations.
2. E-Supply Systems and Talent are viewed as critical
The following conclusions are based on the emerging enabling strategies to achieve cost and other
supply strategies that respondents provided. performance improvements.
3. Supplier integration and the overall integration of
1. The emerging strategies for 2011 to 2015 follow the supply chain and processes appear to be of
traditional patterns that focus on Supplier increasing importance to organizations compared
Management, Global Supply, Purchase Category to prior years — and could provide significant
Strategy Development, and Cost Management, benefits if alignment and linkages can be achieved
and the enabling strategies dominated by across the supply chain.

CAPS Research 41
 4. Environmental sustainability still is not achieving
frequent mentions by responding firms,
suggesting a limited focus. This finding agrees
with the ratings data of importance and
implementation shown in Chapter 2.
5. Strategies that were mentioned as “most critical
emerging strategies” have significant gaps between
importance and implementation and will take
focused effort and investment to achieve
implementation.

In addition, Appendix C provides non-attributed and

selected examples of the most critical supply strategies
that respondents provided.

42 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Chapter 7: Summary and the Path
Forward

Introduction 1. Engagement by Corporate Executives & Business

Unit Leaders
This chapter provides a summary of the key findings 2. Vision, Mission and the Strategic Plan
and broadly discusses a “path forward” to be considered 3. Commodity & Supplier Strategy Process
by supply executives to aid in their continuous 4. Strategic Cost Management
transformational journey. 5. Procurement & Supply Organization Structure &
Governance
6. Human Resource Development
7. Total Cost of Ownership
Summary: Key Findings
8. Structuring & Maintaining the Supply Base
9. Measurement & Evaluation
Supply organizations are continuing their
10. Establishing World-Class Supplier Quality
transformational efforts, but are currently achieving a
slightly lower level of supply strategy implementation
The 10 most implemented strategies were:
than in 2009. There is also an increase in the gap
between supply strategy importance and implementation,
1. Procurement & Supply Organization Structure &
with significant gaps existing across a number of
Governance
strategy areas. Even at those firms with the highest
2. Engagement by Corporate Executives & Business
degree of implementation, there are opportunities to
Unit Leaders
further enhance and implement supply strategies. In
3. Vision, Mission and the Strategic Plan
addition, it appears that the recent severe recession
4. Commodity & Supplier Strategy Process
slowed supply strategy implementation.
5. Strategic Cost Management
6. Cross-Functional/-Location Teaming
The largest supply strategy gaps between importance
7. Structuring & Maintaining the Supply Base
and implementation were for Human Resource
8. Total Cost of Ownership
Development; Supplier Assessment, Measurement &
9. Strategic Insourcing/Outsourcing
Communications; Accelerated Change Management;
10. Measurement & Evaluation
World-Class Supplier Quality; Collaborative Buyer/
Supplier Development & Continuous Improvement;
Comparisons between the 25 firms that had the highest
Standardization of Products, Services, Components &
and lowest implementation ratings on average showed
Design Specifications; Environmentally Sustainable
that:
Supply Chain Management; and Strategic Cost
Management. Total Cost of Ownership, Measurement &
• Procurement & Supply Organization Structure &
Evaluation, Commodity & Supplier Strategy Process,
Governance; Engagement by Corporate Executives
Supplier Integration Into New Product/Process/Service
and Business Unit Leaders; and Vision, Mission
Development, and Structuring and Maintaining the
and the Strategic Plan were in the top five most
Supply Base followed closely.
implemented strategies for both groups. However,
the average implementation rating for these three
The 10 most important supply strategies were:

CAPS Research 43
 strategies was more than four points higher for
firms that had the most implemented strategies.
• The rank order of the least implemented strategies
was similar for both groups except for
Standardization of Products, Services, Component
& Design Specifications, which was ranked lower
by the firms that had a higher degree of strategy
implementation. The most implemented
companies had an average implementation rating
of 7.4 versus 3.4 for the least implemented firms.
This clearly reflects significant differences in the
maturity stages between the most and least
implemented firms.
Industry comparisons were also made for the
implementation and importance ratings between the
discrete, process, and service industries. The ratings
were generally similar, with the discrete industry sector
giving hire ratings in terms of both importance and
implementation compared to the process and service
sectors.
The research findings also show that the most
implemented strategies are critical enablers to world-
class supply strategies. These strategies include
Procurement & Supply Organization Structure &
Governance; Engagement by Corporate Executives &
Business Unit Leaders; and Vision, Mission and the
Strategic Plan. In addition, the least implemented
supply strategies generally include those that require
significant investment and considerable cross-functional
alignment and linkage of goals, strategies, and resources
(Environmentally Sustainable Supply Chain
Management; Supplier Integration into New Product/
Process/Service Development; Standardization of
Products, Services, Components & Design Specifications;
and Environmentally Sustainable Supply Chain
Management).
In addition, supply achieved positive improvements for
2011, although performance improvement slowed and
was less than had been achieved in 2009. There was
absolute improvement, but the rate of improvement was
less. For example, average unit price improvements
were reduced from 4.0 percent in 2009 to 3.65 percent
in 2011.
Given these findings and recognition that firms are at
different stages of maturity, two transformation
observations are important. First, there is a need to
ensure high implementation and effectiveness for core
strategies such as category and supplier strategy
development (with risk management), structuring the
supply base, total cost of ownership, supplier selection,
strategic cost management with total cost of ownership,
44 Supply Strategy Implementation: Current State and Future Opportunities 20011
and high talent people acquisition and development.
These strategies need to deliver supply performance
today.
Second, leading supply organization and business unit
leaders need to further invest in their long-term success
by accelerating the transformation of e-systems, better
integrating suppliers into both new product
development and customer order fulfillment,
standardizing specifications and purchases to reduce
complexity, achieving supplier innovation through
effective collaboration, and establishing environmentally
sustainable supply chains. These strategies are necessary
to deliver future performance improvements.
The Path Forward: Supply Transformation 2011 to
2015
Based on the research, the supply transformation
journey can be long and perilous. However, our
ongoing research and prior experience suggests a
number of elements critical to success, including:
• Clearly articulated goals important to the business
• Transformation priorities
• The resources and capabilities to implement
significant change
• A transformation process
In addition, due to the economic crisis of 2008-2009
and slow growth, priority setting and goal clarity
(especially related to cost reductions) become more
important as resources for transformation have become,
and will continue to be, limited. New emerging supply
strategies, such as risk management, environmental
sustainability, and innovation sourcing, also require
greater executive focus, engagement, and investment.
Clear Goals
It is important to create and clearly articulate the value
contribution to be achieved from a supply
“transformation” and its specific elements. For example,
supply organizations are focusing on various approaches
to achieve cost reduction such as negotiation, price
reduction based on raw material price decreases,
achieving supplier cost reduction ideas, cost modeling,
best country sourcing, and so forth. In addition, some
firms are also increasing their longer term focus on
obtaining supplier innovations.
For any of these initiatives, capital, people, and time
investments may be required. Increasingly, firms are
requiring that the return on investment from these types
of initiatives be measured, including personnel capacity
and capabilities to implement the transformation. To be
effective, clear-cut goals and how they will be achieved
need to be well thought through and effectively
communicated throughout the firm.
Figure 7.1 illustrates different value contributions that
can be made through effective supply management and
transformations.
Supply transformation results must focus on the overall
financial and customer market contributions to be made
to the firm and not be limited by functionally driven
objectives. The linkages between supply transformations
and revenue, cost, and asset improvement must be
clear, logical, and supported by the CFO.
Establish Priorities
Based on the three EAS Assessment findings and prior
experience, the strategy areas shown in Figure 7.2
should be clearly evaluated for transformation priorities.
Priorities will be established based on an organization’s
current state and potential short- and longer term
benefits from the transformation. Figure 7.2 has been
modified since 2007 and continues to be relevant.
Even though many firms are implementing some or all
of these strategies, they are only partially implemented
against the attributes shown for each of the 22 strategy
areas. This was again confirmed by our 2011 research
findings. Therefore, these strategies should be
prioritized for implementation based on anticipated
results compared to costs and complexity to implement.
Figure 7.1
Improving Economic Value-Add (EVA)
In addition, we earlier discussed those strategies with
the largest gaps. These strategies can be characterized as
a top priority.
Resources and Capabilities
Firms undertaking supply transformations must ensure
that they have the resources and capabilities to execute
the transformation. Figure 7.3 provides a framework to
help evaluate implementation capabilities for priority
transformations. Strategy complexity and the capability
of the firm to actually implement specific strategies
must be established.
Supply Transformation Process and EAS
Application
Supply transformations will sometimes fail. To minimize
failures, a critical success factor is a process to achieve
successful supply transformations, centered on
maintaining a tight focus. Figure 7.4 shows a 10-step
implementation process that can help achieve successful
supply transformations. (This process is the same as the
one we outlined in the 2009 EAS report.)
The “Decade Ahead”: Supply Strategy
Implementation
This section builds on the data gathered in the EAS,
other research, and consulting experience combined
with the findings of Succeeding in a Dynamic World:
Supply Management in the Decade Ahead. This
CAPS Research 45
 Figure 7.2
Building Blocks for Supply Transformation*
discussion is similar to that from our 2009 study,
recognizing that supply strategy implementation
progress has been achieved to some degree but that
considerable progress overall is still required.
Figure 7.5 illustrates the likely next wave of supply
strategies to be the focus of innovation at leading-edge
companies. A brief discussion follows.
These strategies combine further enhancement of the
critical enablers and the development of supply
strategies that increasingly require cross-functional and
cross-enterprise collaboration with a holistic supply
chain and customer focus. The “function only”
perspective will fade as they are adopted.
Strategy Enhancement
An expanded supply strategy vision with center-led
approaches will be required to achieve maximum
supply performance in the future. Supply will be
expected to not only contribute to cost reduction, but
also to help improve asset utilization and enhance
revenue. This can be seen based on the increased
emphasis on obtaining supplier innovations and “open
innovation” approaches.
People acquisition, development, and retention
strategies will require transformation. Salary grades and
46 Supply Strategy Implementation: Current State and Future Opportunities 20011
people capabilities will increase given the capabilities
required in an increasingly complex and competitive
world with extended supply lines. Recruitment and
people location at all levels will be worldwide, with a
focus on creating strategic, challenging jobs,
establishing a “best place to work” environment and
recognizing generation differences. Highly talented
people will also have to be hired and developed in
emerging regions. Initiatives to further transfer supply
strategy approaches and processes from mature to less
mature regions will require implementation.
E-sourcing without human touch will be achieved. The
proportion of time supply people spend on clerical,
administrative, and routine tasks will continue to be
reduced. Procure-to-pay interfaces with suppliers will
become automated.
Supplier-Focused Strategies
A number of supply strategies that primarily focus on
suppliers and supply networks will be enhanced and
take on greater importance in the future. These include
true cross-functional teams developing value-driven
category strategies. For example, at one firm revenues
were enhanced because supply determined that there
would be insufficient capacity to meet demand for a
product with a very long lead time, so it created a new
supply chain capable of providing the product. The firm
 Figure 7.3
Strategic Supply Strategy Priorities and Capabilities Assessment Framework
also bought out capacity and was able to provide its
business customers with needed products earlier than
the competition, thereby gaining high-value orders. (For
more information on this case, see the CAPS Research
report entitled Value Focused Supply: Linking Supply to
Competitive Business Strategies.)
Category strategy development will be resourced with
highly capable people with high-level representations
across functions for the most important purchase
categories. Key category strategies will aim to provide
value, going far beyond traditional cost reduction goals.
Increasing collaboration with strategic supply partners
and networks will be required and achieved due to the
global scope of business, limited investment capability,
and the scale and know-how that external firms may
possess. Firms will have to enhance trust with suppliers
and more effectively share risk and rewards. Other
CAPS Research studies have demonstrated that trust
and “risk/reward” sharing are critical elements to
successful collaboration.
Supplier development activities will also increase. As
worldwide sourcing is being implemented, especially in
emerging markets, some suppliers may not have the full
manufacturing or operations capabilities required. For
example, automotive OEMs are utilizing hundreds of
technical and other non-supply personnel in supplier
development.
Value and demand analyses will also be more fully
utilized at the product or service design stage.
Standardization and product/service complexity
reduction efforts will increase. At one manufacturing
firm, engineering and supply are working closely
together in teams with executive engagement and
support to reduce product complexity at the raw
material, systems, and component levels.
Environmental sustainability efforts and results will
increase. Firms in the automotive, electronics,
computer, energy, and many other industries are
implementing significant initiatives, such as IBM’s
Global Supply Social and Environmental Management
System.
Greater emphasis will also be placed on supply risk
management strategies. These strategies will both
protect supply and be a means to achieve competitive
advantage.
Supplier-focused activities are required to provide
greater value to customers by providing differentiated
features while controlling costs. Implementation to date
has been relatively low for these strategies.
Supply/Value Chain Integration
The integration of functions and firms making up the
supply value chains is one of the last frontiers. How
CAPS Research 47
 Figure 7.4
Supply Strategy Transformation Process

48 Supply Strategy Implementation: Current State and Future Opportunities 20011

 Figure 7.5
Critical Supply Strategies: 2011 and Beyond
well suppliers and customers are aligned and linked
with a company will influence future success. Strategies
to better integrate the value chain are the most complex
because they include so many functions and
organizations. However, alignment and linkage
strategies across the value chain and networks will be
increasingly important once supply strategy building
blocks are in place. These strategies will drive alignment
among functions and firms focused on collaborative
innovation efforts, shared resources, standardization and
complexity reduction, and environmental sustainability.
In addition, firms such as IBM, Cisco, Whirlpool, and
many others are driving toward end-to-end supply
chain integration. Those that are first and that focus on
holistic company rather than narrow “function only”
goals will likely achieve competitive advantage.
Concluding Comments
This report provides insights to firms about the supply
strategies most important to the strategic success of the
overall firm. The findings also suggest that firms are
somewhat lagging with respect to full implementation of
important supply strategies.
The “building block” strategies shown in Figure 7.5 are
the focus of Stages II and III in the Maturity Model
presented in Chapter 1. To move to Stage IV, firms will
implement supply strategies and their enablers that
require additional collaboration, integration, and
customer-focused rather than functional metrics.
Each firm requires a supply transformation strategy that
is regularly updated and executed to achieve high
supply performance in a fast-changing and increasingly
complex world. Those dozen or so supply strategies a
firm identifies as “critical to success” require complete
implementation to move to the next level of
performance.
Although the recent economic crisis may have slowed
the rate of implementation, the lessons learned can help
firms prioritize those supply strategies most important
in the new economy. For example, risk management
will be of increasingly significant importance as part of
category and supplier strategy development. Companies
will have to reexamine their focus and ensure that the
correct supply strategies are targeted for implementation
to provide maximum future benefits.
CAPS Research 49
A APPENDIX
Supply Strategy Definitions
Vision, Mission and the Strategic Plan
Definition
This strategy sets direction for the development and
management of a supply network that creates value and
leads to competitive advantage. Vision and mission
articulates how the supply network will create value,
and the strategic plan provides a “blueprint” for
implementation and execution. The vision, mission and
strategic plan are documented.
Strategic Insourcing/Outsourcing
Definition
A “strategic sourcing” process to evaluate internal
capabilities, competencies, and capacity versus external
sources and capabilities to identify opportunities to
better focus on core competencies, improve product/
service differentiation, and develop and sustain
competitive advantage.
Commodity & Supplier Strategy Process
Definition
A written, systematic plan to achieve both short- and
long-term commodity/purchase family goals over at
least a one- to three-year horizon. Strategies are
developed for the important commodities/categories.
Elements include supply base structuring, sourcing,
contracting, supplier development, product/process
design/specifications characteristics, and value chain
considerations. The strategy combines various elements
into an executable plan with timelines, accountabilities,
and measurable performance expectations. The view
includes the total supply chain or network.
50 Supply Strategy Implementation: Current State and Future Opportunities 20011
Structuring & Maintaining the Supply Base
Definition
A properly structured supply base includes the
appropriate number and quality of suppliers to
significantly contribute to companywide economic
value-add and maintain a competitive sourcing
advantage. Suppliers are categorized as strategic,
preferred, improve, eliminate, and other categories
deemed appropriate. The maintenance of the supply
base reflects changing external economic risk and
market/competitive conditions worldwide, and aligns
with the overall current and future sourcing program
and specific commodity/purchase family strategies to
meet companywide requirements.
Supplier Assessment, Measurement &
Communications
Definition
This strategy encompasses the process of continuously
measuring and providing feedback to suppliers about
performance to ensure that the supply base is a source
of competitive advantage. The objectives are to identify
outstanding suppliers and reward them with additional
business; identify substandard suppliers and eliminate
or strengthen them through development efforts; align
supplier/buyer goals through joint metrics; and establish
a performance baseline to track trends.
Supplier Integration into New
Product/Process/Service Development
Definition
The systematic process of involving external suppliers in
the design, development, and introduction of new

products, processes, or services as well as innovations
around them. Integration occurs at any stage in the
process and supplier responsibilities range from “black
box,” in which a supplier owns primary responsibility
for the process, to “white box,” in which the supplier
may be consulted.
Supplier Integration into Customer Order
Fulfillment
Definition
Customer-driven synchronization of supply chain
physical, financial, and information flows from
customer needs through post-sales service and disposal
to enhance asset velocity, value creation, and
competitive advantage. The cross-enterprise supply
chain versus a single business unit is the competitive
unit; the objective is to optimize capability of the total
value chain.
Strategic Supplier Alliances
Definition
Strategic supplier alliances are long-term, cooperative
relationships designed to leverage the strategic and
operational capabilities of individual participating
companies to achieve significant ongoing benefits to
each party. The relationship is based on mutual business
interest and does not involve the formation of a separate
legal entity. Successful alliances require high levels of
coordination, trust, information sharing, creativity, and
senior management support to fully exploit joint
opportunities.
Collaborative Buyer/Supplier Development &
Continuous Improvement
Definition
A strategy for developing and improving strategic and
tactical processes and relationships with key suppliers
to maximize cross-enterprise performance. Formalized
development efforts and continuous improvement
processes ensure performance targets are established
with appropriate metrics and progress reporting for
critical value chain processes. World-class efforts will be
characterized by greater focus on bilateral
improvements, commitment of joint resources to
development activities, and more risk/reward sharing.
Lean practices are applied.
APPENDIX
A
Establishing World-Class Supplier Quality
Definition
World-class supplier quality management is the process
of managing the entire supply chain to obtain
comprehensive quality process controls utilizing
traditional and innovative quality management
strategies. These strategies are both internal and
external, at every stage of the supply chain process,
with the objective of attaining a competitive advantage
and long-term success through customer satisfaction
and overall stakeholder loyalty.
Global Sourcing & Supply Strategy
Definition
Global sourcing and supply strategy includes strategies
and practices enabling firms to effectively coordinate
information and decisions about customers, company
needs, commodities/purchase families, and suppliers on
a worldwide basis. Globalization of a firm’s procurement/
sourcing and supply chain strategy requires global
leveraging of suppliers and internal resources and
processes.
Strategic Cost Management
Definition
The identification and proactive management of all costs
and associated cost drivers throughout the product/
service supply chain. Requires development,
prioritization, and implementation of strategies and
processes to control, reduce, or eliminate costs during
each phase of the life cycle. Cost categories include but
are not limited to design, purchase item costs, quality,
inventory, delivery, and end-of-life costs.
Total Cost of Ownership
Definition
Total Cost of Ownership (TCO) is a cost-analysis
technique utilized in support of a company’s strategic
cost management strategies. TCO analysis involves the
identification and categorization of all cost elements and
associated cost drivers related to a sourcing/procurement
decision. TCO includes all costs, direct and indirect,
incurred throughout the life cycle of an asset, including
acquisition and procurement, operations and
maintenance, and end-of-life management.
CAPS Research 51
A APPENDIX
Standardization of Products, Services,
Components & Design Specifications
Definition
Standardization strategies include companywide
determination of those products, services, components,
or technologies that can be defined to company or
industry standards for simplification and cost savings.
Differentiation is only applied when it provides value to
the ultimate customer and justifies higher pricing and
greater margins. Differentiation is commonly established
around core competencies.
Environmentally Sustainable Supply Chain
Management
Definition
A written, systematic set of supply management
strategies that incorporate environmentally sustainable
processes to make both short- and long-term
performance improvements in supply management at
the firm level and/or across the supply network.
Procurement & Supply Organization Structure &
Governance
Definition
Firms operate in a globally coordinated environment
with companywide or strategic business unit (SBU)
center-led leadership with purchasing authority and
coordination, combined with decentralized purchasing
execution. Purchasing or supply reports to a top-level
executive. Much of the sourcing/supply strategy
development is increasingly done by global commodity
teams recognizing the direct needs of customer facing
organizations and ultimate customers.
Cross-Functional/-Location Teaming
Definition
World-class teaming involves proactively forming,
managing, and supporting cross-functional/-location
teams with the objective of achieving competitive
advantage through purchasing/supply strategies. Teams
pursue tasks and assignments that link to and directly
support the attainment of business and/or corporate
objectives. Teams are the correct organizational response
when faced with complex or large-scale decisions or
tasks that span functions, geographies, product/service
lines, etc.
52 Supply Strategy Implementation: Current State and Future Opportunities 20011
Measurement & Evaluation
Definition
Strategic and supply chain performance measurements
include metrics for commodity/purchase family sourcing
effectiveness that can also be used to gauge supplier
performance; overall functional strategies and processes;
cross-functional team performance; and cross-enterprise
performance. Metrics are utilized within a balanced
scorecard performance measurement and evaluation
methodology against specific measures and objectives;
they are integrated with the company/business unit
performance evaluation system.
E-Sourcing & Supply Chain Strategies
Definition
E-sourcing and supply chain strategies are a series of
practices that involve automating supply chain process
and/or conducting supply chain activities electronically
and via the internet to optimize inherent efficiencies.
E-sourcing and supply chain streamlines processes,
including procurement, supply/demand planning, and
logistics, as well as supplier relationship management,
design/development, and customer relationship
management. E-systems are substituted for tactical
operations where possible.
Human Resource Development
Definition
Human resource development is a continuous process
of attracting, acquiring, developing, and retaining
knowledgeable and skilled personnel to achieve
increasing competitive advantage worldwide. The
evolution to a “virtual organization” makes highly
effective human resource development practices
imperative as personnel are provided with significant
“place and time flexibility.” Ongoing knowledge
management and development is a priority.
Engagement by Corporate Executives &
Business Unit Leaders
Definition
Executive engagement includes company executives
participating in (sometimes leading) and providing
organizational and budgetary support for critical
sourcing and supply chain strategies and initiatives.
This engagement signals to the organization the strategic
criticality of sourcing and supply to sustaining the
competitive advantage of the firm.

Accelerated Change Management
Definition
Accelerated change management is a process that
enables rapid, innovative change from the existing state
to a new paradigm. The new paradigm, which becomes
the existing environment, is again shifted to a new
paradigm with increasing speed. This continuous
improvement process combines an organization’s
system, structures, and culture. Project and process
implementation speed are measured, communicated,
and reinforced throughout the organization.
Competitive Performance
Definition
Strategic sourcing and supply chain strategies achieve
competitive performance by creating and enabling a
APPENDIX
A
competitive network of supplying firms that produce
superior results. Key elements of competitive
performance include direct and measurable economic
value-add (EVA) or return on invested capital (ROIC)
contributions to the overall business unit performance
and for specific sourcing and supply chain metrics.
Instructions
For your most important purchases (80/20 rule) over
the past twelve (12) months, indicate the magnitude of
measurable performance improvements and/or business
unit contribution achieved through sourcing & supply
chain strategies at your business unit. NA=Not
Applicable.
CAPS Research 53
A APPENDIX

Instructions

Please indicate the overall results achieved by your

business unit over the past 12 months from your
business unit’s strategic sourcing and supply chain
strategies for each of the following:

54 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
A

CAPS Research 55
B APPENDIX

Statistical Analysis

22 Strategy Area Calculations Performance Difference by Industry

The statistics provided for each of the 22 strategies are
based on simple averages of strategy implementation
and strategy importance for all of the respondents or
groups of respondents (i.e., discrete manufacturing,
process manufacturing, and service). The “gap” scores
provided are calculated as the average implementation
score for a specific strategy area minus the average
importance score for a specific strategy area. Therefore,
positive scores indicate that implementation exceeds
importance and negative scores indicate that importance
exceeds implementation (the more common case).
Strategy Area Difference Tests
Chapter 3 of the report includes a section that examines
the difference between each of the dimensions of
performance (unit purchase price, transportation &
logistics cost, etc.) between each of the three industry
groupings (discrete, process, and service). These
calculations were done using a one-way analysis of
variance (ANOVA). The ANOVA statistical procedure
examines the difference in the mean for each group and
then forms a confidence interval around the mean (in
this case) of 95 percent probability. Each mean is
compared and, based on the 95 percent confidence
level, a determination is made as to whether the
difference in the means is statistically significant (at a 95
percent level of confidence).

For each of the 22 strategy areas, estimates of

statistically significant (paired t-test) differences are Correlation Analysis
indicated by a box drawn around a group of either
importance or implementation strategy areas. To Chapter 4 of the report provides a written discussion of
determine the box that represents the approximate a correlation analysis between each of the strategy areas
differences, statistical difference tests (paired t-tests) and each dimension of performance (unit purchase
were calculated between each of the averages for a price, transportation & logistics, etc.) overall and by the
specific strategy area (implementation or average) with discrete manufacturing, process manufacturing, and
each of the other 21 averages, yielding 231 difference service industry grouping. The correlations were
tests ((22 * 21)/2). The differences were then rank calculated as simple “Pearson product moments.”
ordered from largest to smallest absolute difference. An
inspection of this rank ordering was used to determine
the smallest absolute difference, where all larger
absolute differences were statistically significant. The
boxes were then created by subtracting this smallest
statistically significant absolute difference value from the
largest of the average values (average implementation or
average importance). All of the values that were less
than this value were included in the box that is reflected
on each of the rank-ordered strategy importance and
strategy implementation tables.

56 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C

Supply Strategy Comparisons by Industry Sector

The supply strategy comparisons by industry sector are provided for the importance, implementation, and gap
analysis, and for the implementation at highest/lowest implemented companies.

Discrete Manufacturing Ratings/Rankings

Table A3.1
Discrete Manufacturing Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Strategic Cost Management 6.55 8.61 -2.06
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Human Resource Development 6.00 8.52 -2.52
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Engagement by Corporate Executives & 6.91 8.33 -1.42
Business Unit Leaders
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Total Cost of Ownership 6.18 8.06 -1.88
Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Measurement & Evaluation 6.24 7.97 -1.73
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Global Sourcing & Supply Strategy 6.15 7.91 -1.76
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Accelerated Change Management 5.03 7.42 -2.39
Strategic Supplier Alliances 5.48 7.36 -1.88
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33

CAPS Research 57
C APPENDIX

Table A3.1
Discrete Manufacturing Importance Strategy Rankings/Ratings (continued)

Cross-Functional/-Location Teaming 5.79 7.30 -1.52

Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Average 5.91 7.84 -1.92

Table A3.2
Discrete Manufacturing Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Engagement by Corporate Executives & 6.91 8.33 -1.42
Business Unit Leaders
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Strategic Cost Management 6.55 8.61 -2.06
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Measurement & Evaluation 6.24 7.97 -1.73
Total Cost of Ownership 6.18 8.06 -1.88
Sourcing & Supply Strategy 6.15 7.91 -1.76
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33
Human Resource Development 6.00 8.52 -2.52
Cross-Functional/-Location Teaming 5.79 7.30 -1.52
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Strategic Supplier Alliances 5.48 7.36 -1.88
Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Accelerated Change Management 5.03 7.42 -2.39
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
Average 5.91 7.84 -1.92

58 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Table A3.3
Discrete Manufacturing Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Standardization of Products, Services, 5.06 8.03 -2.97
Components & Design Specifications
Supplier Integration into Customer Order 4.15 6.79 -2.64
Fulfillment
Human Resource Development 6.00 8.52 -2.52
Accelerated Change Management 5.03 7.42 -2.39
Supplier Integration into New Product/ 5.76 8.12 -2.36
Process/Service Development
Collaborative Buyer/Supplier Development & 5.64 7.85 -2.21
Continuous Improvement
Environmentally Sustainable Supply Chain 4.30 6.52 -2.21
Management
Supplier Assessment, Measurement & 5.73 7.91 -2.18
Communications
Strategic Cost Management 6.55 8.61 -2.06
Establishing World-Class Supplier Quality 6.61 8.58 -1.97
Strategic Supplier Alliances 5.48 7.36 -1.88
Total Cost of Ownership 6.18 8.06 -1.88
Structuring & Maintaining the Supply Base 6.42 8.21 -1.79
Global Sourcing & Supply Strategy 6.15 7.91 -1.76
Measurement & Evaluation 6.24 7.97 -1.73
E-Sourcing & Supply Chain Strategies 4.94 6.58 -1.64
Vision, Mission and the Strategic Plan 7.09 8.67 -1.58
Commodity & Supplier Strategy Process 6.79 8.33 -1.55
Cross-Functional/-Location Teaming 5.79 7.30 -1.52
Engagement by Corporate Executives &
Business Unit Leaders 6.91 8.33 -1.42
Strategic Insourcing/Outsourcing 6.00 7.33 -1.33
Procurement & Supply Organization 7.27 8.03 -0.76
Structure & Governance
Average 5.91 7.84 -1.92

CAPS Research 59
C APPENDIX

Table A3.4
Implementation: Highest 10 Discrete Manufacturing Companies versus
Lowest 10 Discrete Manufacturing Companies

Table A3.5
Discrete Manufacturing: Implementation Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 9.09 1 3.36
2 7.77 2 4.00
3 7.64 3 4.05
4 7.45 4 4.68
5 7.18 5 4.73
6 7.00 6 4.77
7 7.00 7 4.77
8 6.82 8 5.05
9 6.82 9 5.18
10 6.59 10 5.36
Average 7.34 Average 4.60

60 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Process Manufacturing Rating/Rankings

Table A3.6
Process Manufacturing Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Strategic Cost Management 6.40 8.21 -1.81
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Human Resource Development 5.90 8.00 -2.10
Measurement & Evaluation 6.05 7.74 -1.69
Total Cost of Ownership 5.83 7.69 -1.86
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Strategic Supplier Alliances 5.86 7.43 -1.57
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Accelerated Change Management 5.02 7.19 -2.17
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Average 5.73 7.48 -1.75

CAPS Research 61
C APPENDIX

Table A3.7
Process Manufacturing Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Strategic Cost Management 6.40 8.21 -1.81
Measurement & Evaluation 6.05 7.74 -1.69
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Human Resource Development 5.90 8.00 -2.10
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Strategic Supplier Alliances 5.86 7.43 -1.57
Total Cost of Ownership 5.83 7.69 -1.86
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Accelerated Change Management 5.02 7.19 -2.17
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Average 5.73 7.48 -1.75

62 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Table A3.8
Process Manufacturing Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Supplier Assessment, Measurement & 5.17 7.48 -2.31
Communications
Environmentally Sustainable Supply Chain 4.50 6.71 -2.21
Management
Accelerated Change Management 5.02 7.19 -2.17
Human Resource Development 5.90 8.00 -2.10
Standardization of Products, Services, 4.38 6.45 -2.07
Components & Design Specifications
Collaborative Buyer/Supplier Development & 5.05 7.07 -2.02
Continuous Improvement
Establishing World-Class Supplier Quality 5.31 7.29 -1.98
Commodity & Supplier Strategy Process 6.60 8.52 -1.93
Total Cost of Ownership 5.83 7.69 -1.86
Structuring & Maintaining the Supply Base 5.86 7.67 -1.81
Strategic Cost Management 6.40 8.21 -1.81
Supplier Integration into New Product/ 5.07 6.79 -1.71
Process/Service Development
E-Sourcing & Supply Chain Strategies 5.38 7.10 -1.71
Measurement & Evaluation 6.05 7.74 -1.69
Global Sourcing & Supply Strategy 5.90 7.57 -1.67
Strategic Supplier Alliances 5.86 7.43 -1.57
Vision, Mission and the Strategic Plan 6.71 8.24 -1.52
Engagement by Corporate Executives & 6.64 8.14 -1.50
Business Unit Leaders
Supplier Integration into Customer Order 4.54 6.02 -1.49
Fulfillment
Cross-Functional/-Location Teaming 6.52 7.69 -1.17
Strategic Insourcing/Outsourcing 5.98 7.12 -1.14
Procurement & Supply Organization 7.38 8.52 -1.14
Structure & Governance
Average 5.73 7.48 -1.75

CAPS Research 63
C APPENDIX

Table A3.9
Implementation: Highest 10 Process Manufacturing Companies versus
Lowest 10 Process Manufacturing Companies

Table A3.10
Process Manufacturing: Implementation Ranking/Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 9.59 1 2.27
2 8.50 2 2.59
3 8.00 3 3.18
4 7.45 4 3.50
5 7.36 5 3.77
6 7.27 6 3.82
7 7.27 7 3.86
8 7.27 8 4.09
9 6.95 9 4.32
10 6.95 10 4.55
Average 7.66 Average 3.60

64 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Service Rating/Rankings

Table A3.11
Service Importance Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Human Resource Development 4.95 8.18 -3.23
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Strategic Cost Management 5.45 8.02 -2.57
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Total Cost of Ownership 5.39 7.93 -2.55
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Measurement & Evaluation 4.80 7.61 -2.82
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Establishing World-Class Supplier Quality 4.35 7.40 -3.14
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Strategic Supplier Alliances 4.80 7.02 -2.23
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Accelerated Change Management 3.98 6.84 -2.86
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Sustainable Supply Chain Management 4.39 6.68 -2.30
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Average 4.98 7.34 -2.36

CAPS Research 65
C APPENDIX

Table A3.12
Service Implementation Strategy Rankings/Ratings

Strategy Area Implementation Importance Gap

Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Strategic Cost Management 5.45 8.02 -2.57
Total Cost of Ownership 5.39 7.93 -2.55
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Human Resource Development 4.95 8.18 -3.23
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Strategic Supplier Alliances 4.80 7.02 -2.23
Measurement & Evaluation 4.80 7.61 -2.82
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Environmentally Sustainable Supply Chain 4.39 6.68 -2.30
Management
Establishing World-Class Supplier Quality 4.35 7.49 -3.14
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Accelerated Change Management 3.98 6.84 -2.86
Average 4.98 7.34 -2.36

66 Supply Strategy Implementation: Current State and Future Opportunities 20011

 APPENDIX
C
Table A3.13
Service Strategy Gap Rankings/Ratings

Strategy Area Implementation Importance Gap

Human Resource Development 4.95 8.18 -3.23
Supplier Assessment, Measurement & 4.32 7.50 -3.18
Communications
Establishing World-Class Supplier Quality 4.35 7.49 -3.14
Accelerated Change Management 3.98 6.84 -2.86
Measurement & Evaluation 4.80 7.61 -2.82
Collaborative Buyer/Supplier Development & 4.02 6.80 -2.77
Continuous Improvement
Commodity & Supplier Strategy Process 5.34 7.98 -2.64
Strategic Cost Management 5.45 8.02 -2.57
Total Cost of Ownership 5.39 7.93 -2.55
Structuring & Maintaining the Supply Base 5.20 7.61 -2.41
Environmentally Sustainable Supply Chain 4.39 6.68 -2.30
Management
E-Sourcing & Supply Chain Strategies 4.93 7.20 -2.27
Vision, Mission and the Strategic Plan 5.82 8.07 -2.25
Strategic Supplier Alliances 4.80 7.02 -2.23
Supplier Integration into New Product/ 4.48 6.66 -2.18
Process/Service Development
Engagement by Corporate Executives & 6.41 8.59 -2.18
Business Unit Leaders
Standardization of Products, Services, 4.82 6.98 -2.16
Components & Design Specifications
Cross-Functional/-Location Teaming 5.91 7.68 -1.77
Supplier Integration into Customer Order 4.16 5.88 -1.72
Fulfillment
Strategic Insourcing/Outsourcing 5.25 6.91 -1.66
Global Sourcing & Supply Strategy 4.09 5.73 -1.64
Procurement & Supply Organization 6.66 8.05 -1.39
Structure & Governance
Average 4.98 7.34 -2.36

CAPS Research 67
C APPENDIX

Table A3.14
Implementation: Highest 10 Service Companies vs. Lowest 10 Service Companies

Table A3.15
Service Implementation Ranking/Ratings for Top/Bottom 10 Firms
Highest 10 Lowest 10
Companies Companies
Rank Average Rank Average
1 6.86 1 1.64
2 6.86 2 2.23
3 6.86 3 2.27
4 6.82 4 2.59
5 6.64 5 2.82
6 6.50 6 3.14
7 6.50 7 3.55
8 6.32 8 3.77
9 6.23 9 3.95
10 6.23 10 4.14
Average 6.58 Average 3.01

68 Supply Strategy Implementation: Current State and Future Opportunities 20011


Selected Emerging Supply Strategies
Appendix D provides non-attributed selected supply
strategies from respondents to provide insights into
those strategies that will likely be the focus of supply
transformation efforts over the next few years. These
strategies are presented for the discrete, process, and
service industries.
Discrete Industry
Purchasing must maximize savings opportunities by
consolidating requirements to leverage spend in
order to maximize sub-tier supplier efficiencies and
competition. Purchasing must strive to evaluate raw
material pricing and understand the impact on material
costs. Purchasing must analyze industry, supplier, and
raw material commodity markets to assess sourcing
opportunities and bargaining positions. Purchasing
must leverage the corporate spend and determine the
opportune time to place orders to achieve maximum
cost savings while ensuring that production schedules
are not placed at risk.
Refine a new methodology to project the future cost
of material for use in proposals to customers.
Methodology must reflect the cost impact of raw
material and non-material costs on sub-tier supplier
prices. Methodology must be clearly defined for use in
projecting costs and acceptable to customer base for use
in forecasting cost and proposal development.
First is the sophistication of our supplier
segmentation strategy. We segment suppliers today,
but we do not “break them down” into groups that
merit executive interaction, more intense scorecarding
and supplier relationship management overall. By the
end of the year, we will have assessed and super-
segmented the supply base to concentrate supplier
relationship management on the correct companies.
APPENDIX
D
Supplier risk management/supplier improvement.
The driver is extensive new product development
activity along with moderate rate increases in legacy
business that will compound capacity concerns. Higher
level of supplier partnering extends greater risk outside
of direct control.
Strategic enterprise aligned commodity strategies.
This optimizes the supply base across the enterprise by
establishing a preferred supplier base with the best of
the best. Should see continued improvement in total
cost of ownership.
Our market growth and thus the manufacturing
footprint associated is going to be coming a lot from
ER regions (China — India). Thus the need to
develop a local competitive supply base to serve those
markets. This base will also be used for other markets if
the total landed cost shows a benefit for that. For this
strategic drive, we will rely heavily on one of our main
assets, a team of supplier quality and development
specialists with a heavy presence in those ER regions
whose task is to participate in the screening of new
suppliers and develop these.
High-velocity supply chain. For the lower end portion
of the product portfolio, exceptional serviceability to
our end clients and consistent delivery performance are
our critical success factors. The company is driving a
new high-velocity supply chain to reengineer the
planning, manufacturing, procurement, and fulfillment
processes for this portion of the portfolio. For the high
end of the company’s product portfolio, the attributes of
the supply chain are quite different. Product
customization and optimized workload performance are
critical. As such, a supply chain setup with unique
attributes from a “high-velocity” supply chain is needed.
China + 1 strategy. Diversify sourcing of key product
categories outside of China. In some cases this could
CAPS Research 69
D APPENDIX
mean bringing products back to North America. The
reason is offset inflationary trends in China. Mitigate
potential supply chain disruptions/shortages in China.
Establish risk assessment for all purchased
component parts. (We are a medical device
manufacturer and this is patient risk. If a part fails, what
is the risk to the patient?) The suppliers of components
with the highest risk ratings will be subject to higher
scrutiny, more frequent audits, more extensive supplier
qualifications, ongoing monitoring of quality
performance levels, etc. The goal is to ensure the
highest level of quality in all of our finished devices.
Supply strategy: improve, standardize and leverage
category and supplier management across the
company. Drivers/reasons: Leverage larger amounts of
spend across a smaller, focused supply base to drive
improved performance. Standardized best practices to
drive best-in-class performance, efficiency and risk
management.
Blended strategy best cost for major raw materials
using cost driver analysis for the end product/material
costs, using VAVE and effective sourcing mix.
Increase sourcing in lower cost countries, and
localize sourcing in those countries when we have
an industrial presence there. Do not rely on
traditional western suppliers in case on technology
transfer.
Security of supply and capacity growth. Our
company forecasts indicate significant growth during
the next decade. Our supply chain must be ready to
respond to this growth which has three significant
elements: 1) organic portfolio growth; 2) new product
introduction; 3) domestic manufacture to transfer to
external supply chain.
Increasing asset utilization to drive increased return
on investment. This is a commodity business so cost
wins; key supply chain function will be effectively
sourcing and implementing new high-dollar-value,
high-speed equipment so can drive down production
variable costs.
Procurement productivity tools. Given the
competitiveness of our business, we can no longer
afford to have large purchasing organizations. Tools that
promote productivity enable sourcing personnel to
work more on supplier development and be less tied to
their desks completing transactions.
70 Supply Strategy Implementation: Current State and Future Opportunities 20011
Developing effective shared services for
procurement across our business. 1) Drive efficiencies
that keeps pace with competitors. 2) Leverage ERP
systems and e-commerce tools to drive cost out of the
business that improves internal customer service and
support. 3) Standardization and common processes will
drive further integration of our business PM&E.
4) Facilitates spend management and corporatewide
deals to improve our competitive position.
Raising the expertise and capability of the supply
chain staff. New skill sets are required to compete in
an increasingly competitive market. We need to learn
and perform at a global best practice level. The parent
company’s supply chain staff is much more mature and
professional and we need to take on their best practices
and procedures.
Improved integration of sourcing into new product
development earlier in the process to drive growth.
Drivers/reasons: Better leverage supplier innovation to
drive top-line growth, improve processes and business
models.
Strategic alliances with select suppliers. This is to
reduce costs and increase innovation, improve
relationship, move from transactional-based to strategic-
based relationship, share market intelligence, build
trust.
Early supplier involvement in the product
development process. Key drivers/reasons: Need for
innovation/speed to innovation and ability to meet
customer needs with products at price points
demanded.
Talent pipelines and cross-business movement of
talent. Establishing reliable talent pipelines, especially
in emerging market regions and moving talent across
businesses to create leaders with a broader view of the
company. This is important because we are constantly
being asked to do more with less and rapid business
growth is creating the need for a deeper bench of talent.
Capturing supplier innovation in the product
development process and cost reduction process.
This is to expand our capability to drive a sustainable
cost advantage in input costs.
To build a set of unified item code. Currently, we
have 20 different operation units in Taiwan and
Mainland; however, we do not have a set of unified item
code while purchasing. We are not able to do further
and deeper spend analysis if we cannot unify item code
internally.

Standardization of products, services, components
and design specs. Custom designs continue to drive
costs, extend manufacturing and material lead times,
and limit our ability to be competitive and exceed
customer expectations.
Advance a powerful commitment to sustainability
and corporate social responsibility. Major drivers:
1) The right thing to do and consistent with our long
history of responsible citizenship; 2) Meeting changing
expectations on the part of customers, consumers, and
the Investment community.
Process Industry
Identification of low-cost country sourcing and
effective use in other regions when a competitive
advantage can be achieved.
Best cost country sourcing. Establish lower cost for
raw materials and technical goods. Increase sourcing
one-third of total coming from low-cost regions.
Key raw material sourcing. Opportunity to reduce
supply risk for key raw materials and improve
economics through strategic sourcing arrangements
such as licensing technology, JVs, M&A, and capital
projects, in addition to cross-functional purchasing
approaches for qualifying new sources.
Localization of purchasing requirements in emerging
regions. This is important in order to optimize supply
chain costs and reduce import duties as well as
transportation costs.
Take a more holistic approach and strategic thinking
to risk mitigation. Recognize external factors/events
that could potentially have a high impact if they occur
and cause a large impact to the business. Initiate
thinking to develop contingencies, even if it’s at a very
high level.
Risk management. Establishing a comprehensive risk
management program to mitigate supply risks and
ensure consistent supply and quality of product, while
expanding reach into emerging markets.
Global expansion. Need to build strong procurement
team in Asia, India, and Brazil. Seeing healthy growth
across the globe.
Standardization. With the consolidation of three legacy
procurement organizations, there needs to be a singular
way of engaging our internal stakeholders and one
process for our external suppliers.
APPENDIX
D
Increased market assessment expertise in technical
purchasing. Must become the experts and go-to group.
Management of human capital will be essential in
the upcoming years. Management rotations to cross-
train and broaden management knowledge will better
position our company to prepare for upcoming
retirements and minimize turnover.
Supplier relationship management — enterprise
risk-focused model. With increased reliance on third
parties for key business operations, it is absolutely
critical that we have robust supplier relationship
management practices in place with a global
programmatic view to ensure appropriate risk
mitigation and risk response. Additionally, supplier
collaboration and innovation will absolutely be required
for us to continually advance our business model and
drive year-over-year productivity and innovation.
Improve supplier relationship/performance
management program and tangible benefit delivery.
Drivers include revenue and profit erosion due to generic
competition, pipeline challenges, political environment,
worldwide demographics, etc. and resultant focus on
cost reductions, supplier innovation, and total value.
We will partner with suppliers that successfully
collaborate to deliver against all facets of AQSCI
(assurance of supply, quality, service, cost, innovation),
year-on-year cost reductions, and total value.
Standardization of technical goods. Drivers: supplier
portfolio reduction, reduction in working capital,
harmonization of MRO practices.
Team building. Our overall executive team has not
been effective nor stable. Turnover at the highest
levels of the company has had a negative effect on both
company financials and employee morale. As a
company, we have to do a significantly better job of
defining what we need in our executives and executive
team, and develop a rigorous process of recruiting and
retaining true world-class executives to lead and
manage this company. “All stars” at each position are an
absolute necessity, as well as collaborative teamwork in
the best sense of the term. We are currently not where
we need to be for the long haul.
Ensure continued high impact from procurement
integration in business/cash improvement
opportunities. Company focus is on significant
improvement in earnings. Company focus is on
significant ROCE improvements across several key
regional operating envelopes. Incentive compensation
has value creation and superior cost management as key
components.
CAPS Research 71
D APPENDIX
Environmental, social, governance challenges.
1) Governmental, social, and nongovernmental
pressures challenge brand name preservation;
2) Compliance requires process, systems, and
behavioral changes across corporation requiring
investment and time; 3) Separation of focus challenges
the delivery of sourcing and procurement strategies
versus compliance.
Service Industry
Support company revenue growth. Through “balance
of trade” initiatives; by joint calling on customer’s
procurement individuals with sales force; by providing
“procurement” insight and tips to sales force via formal
presentations; by meeting external customer
requirements for small and disadvantaged vendor data,
and by achieving other certification recognition, i.e., ISO.
Develop more accurate and extensive “should cost”
models. We are looking to be much more efficient with
market penetration in unfamiliar areas for
manufacturing and project execution. Time pressures to
meet our end customer demand are shortening; we do
not have adequate time to estimate costs as we have
done traditionally; looking for a better solution.
Distributed execution. This strategy focuses on the
labor cost savings that may be realized by conducting
procurement execution activities from our established
offices in India and the Philippines. The three strategies
as noted above are specifically driven by the
requirement to seek additional avenues of cost
reduction in order to remain competitive with firms that
have emerged from nontraditional EPC execution
markets such as China and South Korea. While these
firms are gaining increasing acceptance by the Western
client base due to their ultra cost competitiveness and
improved execution capabilities, we seek to maintain
competitive advantage through strategic sourcing and
procurement initiatives that both decrease cost and
provide value add differentiation to our clients.
Supplier management framework. Roll out a
framework of governance, processes, and tools to
manage enterprise supplier risk and performance. A
framework of governance, processes, and tools to
manage enterprise supplier risk and performance
annually for tier 1 and tier 2 suppliers is key to long-
term viability with strategic suppliers. Supply managers
and suppliers submit program deliverables that enable
our ability to assess, manage, and mitigate supplier
performance and risk issues in a timely manner. This is
needed not just at the global level, but at the regional
and local level as well.
72 Supply Strategy Implementation: Current State and Future Opportunities 20011
Globalization of relationships with important
suppliers. Transformation of the procurement function
into a strategic sourcing function has progressed well.
Now at the stage where the opportunities lie in
leveraging our global footprint with large monopoly or
oligopoly suppliers of technology and technology
services.
Implementation of corporate supplier management
program and process. Again as a part of an overall
transformation of the function, we are implementing a
corporate supplier performance management process
with supplier segmentation, performance measurement
and communication, periodic business reviews, named
executive sponsors, and strategic plans and roadmaps.
Development of robust category strategies. This will
result in a very targeted supply base for each
category/subcategory. Supply base tiering and
rightsizing becomes a part of this category strategy
development. Drivers include 1) better leverage through
consolidation of supply base; 2) better supplier
performance management because of significant
reduction of supply base and identification of preferred
suppliers to focus on; and 3) increased ability to drive
supplier innovation and speed to market.
Advanced supplier risk management. Drivers:
1) minimize risk; 2) protect brand and reputation.
Work with key suppliers to have more of their
compensation at risk/pay for performance.
Drivers/reasons: 1) The future of health care in the US
will be on a pay-for-performance basis. 2) Under health
care reform, hospitals will be paid for successful
outcomes, not simply paid on volume.
Attain an improved supplier behavior model based
on mutual respect and win-win. Drivers/reasons:
1) Health care industry supplier behavior is based
almost exclusively on pricing. 2) Suppliers in the health
care space are conditioned to provide a price only, and
because of this, suppliers do not traditionally offer
additional value to their customers outside of pure price.
Supplier management, risk management, and
compliance. Enforce policies with required diligence
and documentation in fair and consistent business
practices. Grow processes to qualify suppliers and
ensure compliance with standards, plans, and
regulations. Increase use of internal auditors to assess
and evaluate risks, facilitate risk discussions, and
develop and support risk mitigation enhancements.
Long-term cost reduction is critical to ensure
viability. A number of strategies are in place to

accomplish this, but one of the first will be to
consolidate and reduce the number of suppliers for
both services and materials. This will reduce the
number of contracts to manage and speed up the
ordering and fulfillment process. Vendor-managed-
inventory through a long-term blanket purchase order
will be a component of this evolution.
Supply chain/supplier risk management. Ever-
changing world events, from EMEA instability to natural
disasters, have a profound impact on supply availability
and pricing. This is true of commodities, finished or
partially finished goods as well as logistics to obtain
either. Supply chain’s ability to identify and manage
through these risks in a rapidly changing world and
economic environment is arguably the most critical
strategy currently being discussed.
Implementation of a supply chain risk process.
Limited view of true risk across supply chain. Robust,
comprehensive process needed to identify “holes” in
existing supply chain, where the company could be
exposed to risk. Support development of second
sources/ additional resources. Need proactive process to
monitor financial health of key/critical suppliers.
APPENDIX
D
supply management; 4) improve speed to market;
5) Better manage risks (operating costs, technology
expertise).
National strategy for sustainable business practices
to increase energy efficiency, reduce environmental
impact, and measure and report sustainability
performance.
Standardization of key equipment to leverage spend
and reduce inventory. The standardization team plans
to work on: 1) Update or creating standards for selected
engineered equipment used across our company.
2) Investigate adoption of standard processes and best-
in-class technologies. 3) Develop purchasing agreements
with selected suppliers and producing best total cost of
ownership pricing. 4) Realize improved quality and
superior service. 5) Develop a better understanding of
“hidden” purchasing activity (that done on our behalf
by third parties) in selected areas for future sourcing
leveraging. The drivers were operating costs, quality,
and future implementation of value-added technologies.

Supplier collaboration. Developing supplier

relationships with full transparency to costs and growth
strategies so we implement initiatives that are mutually
beneficial and we receive preferred treatment to supply,
innovation, cost reductions, and other benefits. This
will be especially important as the economy starts to
recover and demand outpaces supply.

Small country solution. This means effectively

addressing smaller non-hub locations around the world
from a technology, process, assisted buy desk
perspective to address controls and governance issues
surrounding how the organization spends money.
Currently, most global organizations address these issues
for the larger countries and ignore smaller spend
countries. The ability to address this issue at a lower
cost raises the question on whether cloud or software-as-
a-service solutions will be of interest. The only barrier
to this will be convincing financial regulators that there
are no security or data privacy issues in doing so.

Source to pay. Transforming the end-to-end purchasing

and payment process to move beyond the vertical, fixed
model to a horizontal, global model for providing
critical skills and services. The move toward a global,
horizontal model will help: 1) optimize costs; 2) enhance
agility in delivering services to the right place at the
right time; 3) increase focus on strategic planning and

CAPS Research 73
 CAPS Research

CAPS Research was established in November 1986 as the result of an affiliation agreement between the W. P. Carey
School of Business at Arizona State University and the Institute for Supply ManagementTM. It is located at the
Arizona State University Research Park, 2055 East Centennial Circle, P.O. Box 22160, Tempe, Arizona 85285-2160,
telephone 480-752-2277.
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is dedicated to the discovery and dissemination of strategic supply management knowledge and best practices.

Research published includes more than 85 focus studies on purchasing and supply management topics, as well as
benchmarking reports on purchasing and supply management performance in 20-plus industries.
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Timothy W. Coats, General Mills, Inc.
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Timothy R. Fiore, CPSM, C.P.M., Chair, CAPS Research Board of Trustees
Beverly Gaskin, Rolls-Royce Corporation
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74 Supply Strategy Implementation: Current State and Future Opportunities 2011

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