Cost Management vs Cost Leadership

From my archive of blogs written for the readers of the SCMR website, here is one of my favorites.

Are you struggling with cost management? Or, are you striving for cost leadership? It is more than a difference in semantics.

A few years ago, immediately after presenting a workshop at the ISM International Conference, I was approached by a member of the audience. He introduced himself as the senior vice president of operations at a global retailer. He said that he really liked what I had to say about leading procurement transformation. He was interested in the subject because he recently was given responsibility for overseeing all “not for retail” (indirect) procurement for his company.

We exchanged business cards, and agreed to talk after the conference.

A few days later we reconnected by phone, and had a fast-paced conversation that lasted almost two hours. At the end, he asked me to prepare a proposal that he could discuss with his CEO. I agreed to do so, but pointed out to him that – at that time – our firm had not done any procurement transformation work in the retail sector. Lots of other sectors, just not retail.

His response was indicative of the type of leader he was. He told me that if he wanted simply to match the performance of his retail competitors, then he would be looking for a consulting firm that had a strong retail background. His objective was to create the leading procurement organization in the retail sector – and for THAT objective, he wanted to learn from the best practices across all industries. A week later, we were hired (he was a dynamic decision maker), and the company built a leading-edge procurement capability.

In summary, his idea was classic, and bears repeating: you won't become the leader in your industry by imitating your competitors; you CAN become the leader by adopting the best practices from all industries into your business (and being the first to do so).

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