Supply Management Defined
Supply Management Defined
Joseph L. Cavinato, Ph.D., C.P.M.
Institute for Supply Management™
Approved by the ISM Board of Directors, January 2010
The supply profession continues to change, expand, grow and evolve at an accelerating rate. Today's dynamic times provide opportunities for new and better strategies, tools and practices which in turn, cultivate more complex supply professionals and companies. The ongoing development and sophistication of this field of supply management requires a periodic look at the dimensions of supply to understand how it is being practiced and influenced, and how supply impacts results and performance across the enterprise and the supply chain.
ISM leadership carefully crafted and periodically updates the future-oriented definition of supply management. Today it reads: "The identification, acquisition, access, positioning, management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives." The remainder of this paper discusses each of the dimensions of supply. Appendix 1 defines each supply management component.
Identification: Supply professionals' interactions are broader than ever before, from consumer and customer and across the company's stakeholders and top management and through the supply base—all with the goal to identify opportunities and needs. Identification continues with understanding risks, effects, performance requirements and paradigm shifts across products, services, processes and geographies.
Acquisition and Access: Acquisition is a broad concept capturing the concept of the many ways an organization can acquire and use products and services. Access reflects the use of the assets of others. For example, outsourcing is a way of accessing the use of others' assets. Other forms of access include creating close relationships that utilize innovation resources and energies from outsiders.
Positioning: Positioning is the posturing of the overall organization to acquire and access the best possible goods, services, assets and energies from suppliers. It means becoming the best customer to a supplier in order to attain superior services, attract first innovation, and assure quality and supply flow. Positioning entails having the ability to influence and affect suppliers' actions, behaviors and investments for the organization's own benefit.
Management of Resources: Management of resources spans both the internal and external spectrums. Internally, the supply professional leads and manages how the organization produces goods and services for its customers and constituents. Externally, the supply professional collaborates with suppliers and influences product manufacturing, delivery of services, logistics performance and delivering value through effective process management. Supply professionals manage resources to ensure lowest overall cost, increase efficiency and transparency in processes, and shrink the asset base. Leading companies share their engineering, IT, logistics and other experts to help suppliers innovate and enhance processes, thus improving and lowering costs' levels and prices.
Related Capabilities: This final dimension, related capabilities, addresses approaches, personal strengths and organizational abilities that best combine tasks, skills, competencies and systems to meet any challenge or to identify and gain benefit from any first advantage. Classic examples include (a) strategic sourcing, (b) total costs, including total cost of ownership, (c) life-cycle costs, (d) scenario planning, and more recently (e) category and risk management and leadership. Broad capabilities reflect how effective supply professionals detect and flex approaches to tight, loose and shifting markets. They also reflect the ability to know and understand when it is best to apply primary buying power strength or gain advantage through collaboration. A capable supply professional is financially savvy and seeks performance results through a variety of mechanisms including lower price, total cost, working capital, speeded cash-to-cash cycles and reduced asset bases, among others.
Building Supply Management for the Organization
Creating an expanded future for supply management requires two things: a vision and a roadmap. Characteristics of an effective supply organization include:
- A well-defined vision statement that is written and communicated throughout the entire organization;
- Strategic process models for products, services, outsourcing, insourcing, access and technologies;
- Business alignment that is synchronous with the strategies and initiatives of the rest of the organization;
- A highly-developed understanding of the need for global awareness, culture, geopolitics, demographics and geography.
- Assertive roles for influencing value-add throughout the organization and pulling it from the suppliers;
- Planning and support of on-going change, development of consultative skills, and building talent;
- Leading with new information, intelligence and measurements; and,
- Extended influence and "selling" internally and externally.
In these dynamic times, the global environment can bring more change and demands in a month than were experienced previously over a few years. The supply field and profession will continue to expand and grow in complexity and challenges. Supply professionals today must understand strategic elements of the business first and then competitively manage the business as an effective supply professional and leader.
Joseph L. Cavinato, Ph.D., C.P.M.
ISM™ Professor of Supply Chain Management
Thunderbird School of Global Management
and Director, A.T. Kearney Center for Strategic Supply Leadership at ISM™
ISM Field Research on the Components of Supply Management
ISM field research reveals that the scope of supply management is an integration across fourteen components:
- Disposition/Investment Recovery
- Inventory Control
- Manufacturing Supervision
- Materials Management
- Product/Service Development
- Strategic Sourcing
Supply Management Components Definitions
Source: ISM Glossary of Key Supply Management Terms, fifth edition, 2009
Disposition is the act of moving goods out of one's internal organization to another organization due to loss of value, obsolescence, excess inventory or product change. Investment recovery refers to a systematic, centralized organizational effort to manage the surplus/obsolete equipment/material and scrap recovery/marketing/disposition activities in a manner that recovers as much of the original capital investment as possible.
Distribution refers to: (1) Businesses established for the purpose of buying goods from manufacturers and reselling them to a general customer base. Distributors sell in smaller quantities than manufacturers, often with immediate delivery, and provide services that manufacturers are not willing to do. (2) Process by which commodities move to final customers, including return of goods. Activities include storing, transacting, packaging and shipping. (3) Relative arrangement of the elements of a statistical population based on distinctive characteristics.
Inventory control is the management of inventories, including: decisions about which items to stock at each location; how much stock to keep on hand at various levels of operation; when to buy; how much to buy; controlling pilferage and damage; and managing shortages and back orders.
Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of conforming to customer requirements.
Manufacturing is defined as planning, managing and performing the processing of materials into intermediate or final products, usually in large quantities.
Materials management is a managerial and organizational approach used to integrate the supply management functions in an organization. It involves the planning, acquisition, flow and distribution of production materials from the raw material state to the finished product state. Activities include procurement, inventory management, receiving, stores and warehousing, in-plant materials handling, production planning and control, traffic, and surplus and salvage. In spite of a slight difference in meaning, this term is often used interchangeably with supply management.
Packaging is the container, wrapper or shipping box of a product. Packaging serves a number of functions, including containment, protection, apportionment, unitization, convenience and communication.
Procurement and Purchasing
Procurement is an organizational function that includes specifications development, value analysis, supplier market research, negotiation, buying activities, contract administration, inventory control, traffic, receiving and stores. Purchasing refers to the major function of an organization that is responsible for acquisition of required materials, services and equipment.
Product and Service Development
Product and service development is a series of integrated processes in new product development chronicling steps from idea conception to commercialization.
Quality has been defined in a number of ways, including: synonymous with "innate excellence"; a precise and measurable variable that is inherently present in the characteristics of the product/service, defined by the user and therefore products and services have to have clusters of attributes which groups' of people (users) want; "right the first time"; conformance and efficiency; design and measured conformance with no waste, meaning lower costs; performance at an acceptable price; or conformance at an acceptable cost or conformance to specifications, satisfying or surpassing customer needs throughout the life of the product.
Receiving is the business function that is responsible for verifying that the goods received are the goods that the organization ordered. This involves inspecting and accepting incoming shipments.
Strategic sourcing is the selection and management of suppliers with a focus on achieving the long term goals of a business.
Transportation, traffic and shipping are terms describing the movement of goods and passengers over distances. Traffic is a materials management activity that controls buying, scheduling, auditing and billing of common and contract carriers.
Warehousing or physical distribution refers to a range of materials management activities that involves taking care of shipping, receiving, internal movement, and storage of raw materials and finished goods.
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