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From SCDigest's On-Target e-Magazine

- Feb. 12, 2014 -

Supply Chain News: "Commercial Acumen" Key to Supply Management Success

Deep Understanding of the Context of Strategies and Decisions Leads to Buying Power, Halliburton's Robert Goss Says

SDigest Editorial Staff

If you are in supply management or procurement, do you have a high level of "commercial acumen?"

What on earth does that mean, Supply Chain Digest, you are probably saying to yourself.

SCDigest Says:

Raising individual and collective commercial acumen can in turn lead to a supply management organization achieving high levels of buying power, Halliburton's Goss says.

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Well, according to Robert Goss, senior manager of corporate procurement for Halliburton in Houston, commercial acumen is "the ability to assess business situations and information, then make rational decisions and take sensible action that puts your company in a more optimal position."

That comes from Goss' guest column in the most recent edition of Inside Supply Management, from the Institute for Supply Management at Arizona State University.

After reading Goss' piece, SCDigest might say commercial acumen is really about developing the ability to devise procurement strategies, execute tactical programs, and make decisions within a deep context of what is happening in a company and its overall industry.

Goss further adds that "Commercial acumen begins with understanding the needs of your organization and its potential suppliers," a process he calls finding the "preferred market match."

The optimal preferred market matches can be developed by performing internal customer reviews and planning for supply continuity, which are both key components in understanding your organization's needs, Goss said.

He adds that "It's also important to know and understand your company's strategy, how your supply management organization's strategy supports it, and particularly how category strategies support your organization."

Like many others, Goss notes the importance of connecting higher level corporate strategies down to each level of an organization, so that you can draw a straight line between such corporate strategies to the plans and initiatives in the supply management organization.

While that concept is at one level well-understood, SCDigest believe no more than 20% of supply chains really operate with that level of strategic connectedness today.

Building commercial acumen is not that hard to achieve, but does take effort, Goss adds. Steps a supply manager can take to build that acumen include:

• Participating in supplier reviews, formal assessments and supplier interviews that should include the supplier's outlook for the market

• Reading professional journals and trade magazines specific to the categories you manage

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• Attending trade shows when possible

• Reading relevant data analysis reports, information published by the US Bureau of Labor Statistics, market indicator reports, and reports and predictions from industry analysts

• Keeping on top of quarterly earnings reports and other up-to-date information about suppliers and their industries

SCDigest would add that often many of these information sources are available inside a company, such as in the finance group, but you have to ask around to find them.

Achieving Buying Power

Raising individual and collective commercial acumen can in turn lead to a supply management organization achieving high levels of buying power, Goss says.

"Buyer power can be as basic as leveraging volume through standardization or linking spend from various segments of the organization," Goss observes. He notes, for example, how consistent specifications for electric motors in a given category of equipment can maximize efficient spend by allowing volume purchasing on the motors themselves - covering the repair and part replacement associated with their upkeep.

But of course, buying power can encompass a lot more than smart consolidation of spend. Speed and agility are also key attributes - such as ensuring the buying company owns the tooling at suppliers, enabling a rapid move to alternative sources if problems emerge at a key supplier, Goss says.

That thinking leads to the related principle that the supply management organization needs to have some control over technology, Goss says.

"Most supply chain practitioners agree it's not a good practice to allow suppliers to hold the reins of technology," he writes. "When supply managers control technology used in production, for example, the ability to switch to a new supplier is simplified - laying the foundation for an agile organization."

While recognizing that maintaining control of key technologies is sometimes simply not possible - and SCDigest will note can be highly dependent on how a given company thinks about such matters (internal versus supplier R&D) - but "deep knowledge of your suppliers' processes and technology brings buyer power," Goss says.

"Supply chain practitioners who understand the importance of buyer power will be able to negotiate strong, fair and profitable agreements for their companies," Goss concludes - and that starts with development of commercial acumen.

Is the concept of commercia acumen a good one for supply management? Let us know your thoughts at the Feedback button or section below.

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