Supplier management white paper (May 2014)

OFS Portal’s Peter Smith has it that suppliers are not just a ‘necessary evil.’

A new white paper by Peter Smith of OFS Portal*, the supply side oil and gas e-business group, advocates giving more attention to supplier management which should be ‘central to your procurement thinking.’

Smith traces the history of procurement—starting with Samuel Pepys’ job supplying the English Navy’s provisions through to early formalization of the purchasing function, notably with Marshall Kirkman’s 1887 book, The Handling of Railway Supplies and German sociologist Max Weber’s 1920 early work. Fast forward to the late 20th century and the concept of ‘category management’ which brought a rigorous approach to procurement, and saw specialist buyers of items such as software, drilling equipment and services. While acknowledging that there are many definitions for supplier management, Smith homes in on key aspects as follows—vendor onboarding, qualification, performance management, risk and compliance management, relationship management and collaboration. Smith cites a 2013 report from Proxima titled ‘Corporate Virtualization: A global study of cost externalization and its implications on profitability’ which analyzed data from some 2,000 companies to find that 79% of revenues were spent with suppliers against only 12.5% on staff costs. Oil and gas had the third highest proportion of external spend at 77%, and the lowest labor cost of all at 5%.

While the importance of the supply chain is broadly recognized, today’s software tools do not fully support an integrated supplier lifecycle management approach. Companies have to integrate point solutions to address different needs such as risk management and onboarding. Smith advocates a ‘behavioral shift’ that sees suppliers as contributing to organizations’ future success rather than a ‘necessary evil.’ A renewed look at the big picture of supplier management is also needed—particularly in risk and performance management. Technology can help, even though the ‘perfect solution’ remains elusive. More from ofs-portal.com.

*Smith is also MD of UK-based Spend Matters.

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