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GSM is a new category of software, services, and information that enables companies to dramatically improve bottom-line results through more effective management of their supply of goods and services.

As sourcing and supply management have evolved into more strategic functions, so too have the solutions designed to streamline and enhance the efficiency and effectiveness of these functions. Global supply management (GSM), for example, is a new category of software, services, and information that enables companies to dramatically improve bottom-line results through more effective management of their supply of goods and services.

Because the financial impact that GSM excellence can have is so profound, it is becoming a priority for companies around the world. As such, they are developing strategies and identifying partners who can help them achieve excellence and realize the full promise of GSM.

GSM Defined

In good economic times, companies that want to win invest in future growth. But, in periods of weakness or decline, most organizations shift their focus to maintaining profitability and managing business risk. The bottom line becomes every bit as important as top-line results. Hard dollar supply savings can actually outpace top-line revenue growth.

Executives look for ways in which they can reduce the total cost of all the goods and services their organization needs without sacrificing either quality or time to market. And many are finding that effective global supply management can help them do just this. So, what is GSM? In short, GSM is a key business imperative that drives increases in profitability by achieving both efficiencies and excellence in five critical supply management activities. These activities are: supply analysis and strategy, requirements management, sourcing, supplier development and supplier relationship management (see Figure 1).

Figure 1: GSM Activity

The Forces Driving GSM

Beyond the current macroeconomic environment, there are several other important forces at work, motivating companies to embrace GSM. These forces include:

• Globalization: Free market economies and new technologies are creating new supply-and-demand markets around the world. Many organizations, for instance, are looking at Mainland China as the next low-cost frontier. But a good number of these organizations lack the information and knowledge necessary to drive more supply and production offshore.
• Consolidation: The rules of capitalism dictate that only the strong survive. As a result, industries around the world are consolidating at a rapid rate. Mergers and acquisitions are a primary means of achieving consolidation. But unless synergies between combining entities can be realized, consolidation rarely works.
• Velocity: Global competition and improved technology are shortening new product introduction and order-to-delivery times. This, in turn, is requiring organizations to select the best suppliers and pull them into these core enterprise activities.
• Outsourcing: Organizations across geographies and industries are scrutinizing make-versus-buy options. And many are finding increased value in outsourcing production of goods and services.

A New Way of Doing Business

Switching gears is never easy for organizations to do. And GSM represents a fundamental shift in the way that many organizations both think and operate. Successful GSM demands a fundamentally different approach to supply management. It involves enterprise coordination, new kinds of software, new forms of communication, new levels of speed in every aspect of the supply management process, and a related set of skills no traditional organization would need to develop. It requires different ways of working, different skill sets, different tools, even a different level of thinking. In short, it requires a holistic approach.

For organizations that invest the time and resources to successfully design, implement and execute GSM strategies, the benefits can be substantial.

GSM can have a significant impact on the following areas:

• Total cost: GSM is about reducing total cost, not just the price of specific goods and services. Effective GSM strategies and solutions help organizations arrive at the lowest total cost by enabling them to consider all aspects of supply management, including: service levels, specifications, use policies, number of supplier rationalization, make-versus-buy decisions, leveraged negotiations, and supplier development and management.

• Risk management: Changing suppliers, consolidating suppliers, and an increase in outsourcing are often necessary to remain competitive; however, companies are often exposed to greater supply risk at these times. GSM helps organizations balance total cost with supply risk, ensuring that critical nonprice factors such as quality terms and time to market are accounted for.

• Global leverage: GSM enables organizations to effectively deploy global resources. For instance, with the right strategy and solution in place, companies can find and manage global, low-cost, high-quality suppliers.

• Enterprise management: GSM can also help companies focus internal resources more effectively and efficiently. For example, they can drive coordination across functions such as purchasing, engineering, manufacturing, finance, and all other internal customers of the supply management function.

Realizing the Full Promise of GSM

There's no doubt that GSM excellence can create substantial benefits within an organization. But achieving this excellence is a daunting task. To realize the full promise of GSM, companies must first design an effective strategy, ensure the right leadership is in place, and then select the right solution partner to execute upon the strategy.

Achieving Excellence In Leadership

In addition to focusing on the right technology, services, and information to drive results, companies that hope to achieve GSM excellence must elevate the role of supply management within their organization. Appointing a senior executive with the same degree of influence and power as the head of sales to drive supply management is a necessary step. According to market advisory firm Gartner Group:

• By 2008, at least half of all Global 2000 firms will have a chief procurement officer reporting directly to the CEO. Today, few non-retaining companies give procurement management this status. However, increased outsourcing, virtual organizations, and the need to preserve margins through shrewd supplier management will guarantee procurement takes its place in the limelight.

• By the end of the decade, more than 10 percent of senior operational managers will be supplier account managers. As an increasing proportion of the cost of goods and services sold will be derived from external expenditure, effective management of suppliers will become a key issue. This change of focus will often be marked by the appointment of a primary point of contact for a supplier — a mirror of the conventional sales account management function.

Searching inside — or outside — your organization for the right leadership and team is paramount. But it's also critical to work with partners who can help you realize your GSM goals, while helping reduce your costs and lowering business risk.

Identifying a GSM Partner

When looking for a GSM solutions provider to partner with, be sure to thoroughly examine their strengths and capabilities. Always keep in mind that they must be able to successfully address the primary challenges mentioned above. You should ensure your GSM partner has:

• Market knowledge and experience: A GSM provider must have a deep understanding of critical sourcing and supply management issues such as data management and visibility, supplier implementation, and depth in sourcing, and have the ability to develop solutions to address them. They must also employ experts across a range of commodities and be able to deal in both direct and indirect spend.

• Strategic program approach: The ability to diagnose, design, and drive the success of a strategic program is critical. In evaluating partners, consider only those who can design customized approaches that meet your unique needs and help you build your own internal GSM capabilities, drive change, and accelerate results.

• Real knowledge transfer: Knowledge is power. So in choosing a GSM provider, partner with an organization that can share best practices that it has gleaned from a substantial number of customers across a wide range of industries. Also, make sure your partner can provide the latest thinking on specific commodity areas.

• Global capabilities: A GSM provider should have a global presence that goes well beyond just sales and marketing functions to include: localized software, user and supplier training, customer support, supplier research and management, and much more. In addition, the provider should consistently have the ability to offer high-quality services to its customers all over the world.

• Unmatched services to help drive capability and adoption: Software alone cannot solve the challenges inherent in GSM. Companies that hope to achieve excellence must partner with a world-class organization capable of tailoring and delivering services around the globe and around the clock.

Summary

Gaining competitive advantage via world-class GSM is a tough task, but well worth the effort. With the right strategy, solutions, and internal resolve in place, companies can excel in their GSM efforts and realize lower supply costs, reduced supply risk, and ultimately, increased profitability.