Decision-Making Process

According to Hughes, a well-designed decision-making process helps those parties involved in making supplier management decisions better understand organization-wide interests, objectives and constraints (both on the customer side and the supplier side), allowing them to make better decisions more efficiently. To put these three guidelines into practice, notes Hughes, some companies designate all supplier-related decision-making authority to a particular function within the organization, such as strategic sourcing or purchasing, which works with other functions and business unit end customers to understand their perspectives and requirements.

That is how they do things at Colgate-Palmolive, where a small Strategic Purchasing Group manages the sourcing of materials and the establishment of supplier relationships, leaving planners in a number of "focused factories" to take care of ordering and inventory management. Project manager strategic purchasing Nick Berg says purchasing within Colgate-Palmolive has changed radically from bureaucratic to strategic, from vague to focused, from clerical to information management based, and from passive to innovative.

Purchasing relies on a range of processes and techniques, Berg says, including market research and benchmarking, competitive tendering (both traditional and electronic), supplier selection, supplier performance measurement, supplier partnering and relationship management, supplier management of inventory and information systems selection and development. "To deliver competitive advantage to your company via the prices you pay, you need to know your supplier market, be it local or global or both," he says.

Berg calls 2004 an exciting year to be working in purchasing, because purchasing people now have a range of skills and techniques available that were previously unheard of or little applied.

Other companies create cross-functional teams that are responsible for supplier management activities, or coordinate their procurement and sourcing groups. All of Telstra's sourcing and vendor management groups are oriented around industry groupings. Separate groups are oriented towards the IT community, network infrastructure, platforms, channels, the access industry and the other main industry groups it deals with as a company. Telstra's Pearson acknowledges involvement of stakeholders in the process is critical.

"In a large corporation there are many people affected by the decisions the sourcing group would make, if it made them in isolation," Pearson says. "Therefore that stakeholder management is a key issue for us: to get that buy-in and to get that collaboration. So it's a very positive message from [for???] stakeholder management.

"Of course it's really making sure in times of shortage - which we've had in this industry in the last few years, only for the supply base - that we understand their cost drivers, what's driving them, and we understand the need for them to make a profit and for us to have sustainability in our supply chain."

Vantage Partners notes such functions or teams often use tools to facilitate internal coordination, such as the "I-C-N" Decision-Making Matrix, a tool that specifies which decisions will have to be made, who should be involved in making the decision, and that individual or group's level of involvement.

However, Pearson points out that in some instances, a process can be better than a decision-making tool. Many of the decisions Telstra makes are probably too complex to put on a straightforward tool, he says. While Telstra certainly uses the various e-procurement tools available for some of its simpler purchasing decisions, when it comes to investments in Telstra's infrastructure of voice network a decision tool just does not cut it, he says.