Last week, this supply chain industry analyst attended the Institute for Supply Management (ISM) 2016 annual conference held in Indianapolis. This is the conference where global purchasing and supply management professionals from large and smaller organizations alike gather for added learning, education and insights related to supply management and in particular, its role in contributing to required business outcomes.
In our previous Supply Chain Matters Part One posting, I primarily focused on thoughts related to the sustainable business presentation that was presented by PepsiCo. In this Part Two commentary, I provide some additional highlights and takeaways of the conference.
One intriguing presentation that caught my eye was a panel discussion within the People conference track focused on the topic: What Private Equity Expects from Sourcing Leaders. With so many private equity takeovers and activist actions that have occurred across multiple industries, subsequently impacting various industry supply chains, this author was especially curious to hear the perspectives of representatives of private equity. This year’s conference organizing committee deserves praise for the bold move in including such a panel under a personal skills learning tract.
The panel itself consisted of executives representing firms Apollo Global Management, Centerbridge Partners and The Blackstone Group. For the most part, the panelists indicated that current PE strategies typically involve a 5-6 year investment window with the objective to move earnings and shareholder return to a much higher value. They stressed that where-as 5-10 years ago, PE was more “financial engineering” driven. Today’s focus is on operational intervention and improvement.
Most all of the panelists reinforced that supply and operations management has now become the prime target for leveraging such value rather quickly. Firms focus on leveraging buying power across the entire direct and indirect materials value-chain seeking both quick near-term as well as longer-term opportunities to leverage material cost reductions.
A full spectrum of business process, technology and supplier management tools are expected to be deployed, including supply facing electronic auction capabilities. The PE focus is in driving value over time in working capital reduction. One panelist bluntly indicated that procurement professionals are expected to have demonstrated direct experience in auction tools and in generating meaningful cost savings. Others on this panel pointed to seeking and recruiting procurement professionals with broad, across the board skill sets, including strong linkages and acumen with finance in the u understanding of line-of-business expected bottom-line financial outcomes. For PE, the focus remains of continuous working capital reduction.
Consistent readers of this blog are probably very aware that this Editor is not very keen on such strategies, which includes the short and long-term havoc imposed on supply chain capabilities and relationships. But, with the realities of the current business environment being what they are, and with so many firms now under the PE looking glass, procurement professionals need to be aware of such expectations of continuous working capital cost reductions that are to be expected.
Be forewarned and be prepared, since those possessing or prepared with these skills can reap some short-term financial and other rewards.
In our Part Three posting concerning ISM 2016, I will highlight two other sessions that I found noteworthy and insightful.