October 10, 2012

Lessons from a Visionary – What would Deming say about Supplier Management today?

Recently my colleagues and I at HICX Solutions were talking about the evolution of supply chain management and the whole history behind the notion of improving quality. Invariably the name Edwards Deming came up. The story about Deming is an amazing one.  As a thought leader and prophet of total quality of management, his theories revolutionized manufacturing in post-war Japan, ultimately forcing US manufacturers to completely rethink their approach on “quantity over quality” after the initial rejection of his ideas.

What’s funny is that even in the digital high-tech age of the 21st century, the challenge of achieving quality is still an elusive one.  While quality continues to advance through modern process and technology, the quality of data that goes into procuring or manufacturing modern products or services is becoming a growing challenge.  Perhaps nowhere is the expanded notion more relevant in the supply chain today than in supplier management, where the number of IT systems housing supplier data can range from the single digits to the hundreds.

Deming notes that increased challenges in one area can have profound effects on another in what he called the Appreciation of a System. This concept is grounded in the fact that most products or services result from a complex system of interaction among people, procedures, and equipment/technology. Appreciation of a System becomes a guideline for understanding interdependencies and interrelationships among all the components of a system in an organization, thus increasing the accuracy of predictions about the impact of changes throughout it.

Supplier management as a “system” today fits well into Deming’s concept, where not understanding all the components that go into managing a supplier can go wasted, since different groups (internal and external) are unable to collaborate based on their disparate needs or wants.  Furthermore when a change is made to one area, do the stakeholders know the impacts on the other?

For instance, while supplier compliance and risk may be top of mind for Procurement or Sourcing, handling multiple instances of fragmented, duplicate, incomplete and/or outdated supplier information may be top of mind for IT managers.  Thus obtaining a quality 360 view of a supplier or supplier relationships becomes a challenge with out truly appreciating all the aspects of what goes into supplier management – or in what we call creating “a gold copy of a supplier” at HICX Solutions.

Perhaps the takeaway here would be to start with the goal of going beyond cost by measuring the current quality of your supplier management efforts.  How would we do this?  Again borrowing on the idea of quality from Deming, quality can be measured by the equation:

Quality = Results of Work Efforts / Total Costs.

In the case of supplier management, how many organizations can actually measure or assess the results of their supplier management efforts versus their total costs in managing their suppliers (i.e. process, technology, labor, etc.)? Any organization planning or in process of implementing a supplier management initiative should consider using Deming’s simple yet profound equation for measuring their success.

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by Grant Watling

Chief Customer Officer

Grant has 11 years management consulting experience specialising in supplier data and analytics advisory services. Grant holds a Master’s Degree (MSc) in International Business, is a Prince2 practitioner and holds certificates from the Institute of Financial Services and the Chartered Insurance Institute.
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