In "Profit from the Source," BCG Consultants Say Procurement, Suppliers Way Undervalued

In a provocative new book, four partners at Boston Consulting Group (BCG) argue that companies can transform themselves by extracting extraordinary value from their suppliers.

Supply Chain Digest Says...   The main value of the book is its blueprint for radical change that leverages proven and practical ways that business leaders can get all the potential benefits from their suppliers. What do you say? Click here to send us your comments   Click here to see reader feedback

The four authors (Christian Schuh, Wolfgang Schnellbächer, Alenka Triplat, and Daniel Weise) posit in “Profit from the Source,” that if CEOs are to maximize the value suppliers of all sorts, they need to undertake a radical transformation of their business by putting vendors at the heart of their company and empowering the procurement function, which after all owns the corporate relationship with vendors.

The reality, they say, is that business leaders generally view suppliers a peripheral contributors at bestto corporate success, and that procurement is largely an administrative function that focuses narrowly on delivering cost savings.

The authors say research from Harvard Business School showed that prior to the current global supply chain crisis, CEOs spent an average of just 1% of their time with suppliers.

"Given that spending on suppliers - the job of procurement - accounts for more than half of a typical company's total budget, it means that CEOs spend next to no time either thinking about or being actively involved in how their companies spend more than half of their budgets,” the authors note, adding “That's a mismatch with potentially existential consequences for companies."

Instead, suppliers must be considered potential competitive weapons, the book argues. If fact, suppliers are not only a source of cost savings but also a source of resilience through their provision of mission-critical components, parts, and raw materials, as well as vital services such as outsourced manufacturing.

In "Profit from the Source," the authors cite BCG analysis showing that only 35% of the top 150 companies in the S&P 500 put the chief procurement officer (or equivalent) on the leadership team. Yet, those companies that do outperformed the overall market by 134% from 2000 through 2020.

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"This clearly demonstrates that CEOs really can steer their companies through challenging times and extract enormous value from their suppliers if they give their CPO a seat at the table and empower their procurement function,” the book argues.

The main value of the book is its blueprint for radical change that leverages proven and practical ways that business leaders can get all the potential benefits from their suppliers.

The blueprint is based on proprietary BCG research, as well as the author’s firsthand experience and that of their colleagues of working with some of the world's leading companies.

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