Thought Leaders is a series of regular posts from experts from across industries and regions, looking at the issues procurement faces today. In this post Cranfield School of Management professor of supply chain strategy Richard Wilding questions whether procurement chiefs are paying enough attention to the time factor in their decision making.
We all know the saying “Time is Money”, but how often when involved in making procurement decisions is time taken into account? Henry Ford proposed in 1926 that “Time waste is more important than material waste in that there can be no salvage”. In other words if reading this is a complete waste of time to you, your time will never be reimbursed! On the other hand, if you were to print this out, you may be able to recycle the paper and salvage some material!
But when we come to procurement and sourcing how much are we willing to pay for time? Is time factored into the price we pay, is it considered as part of the procurement decision? Do you understand the true costs of time when you procure?
For example, it is not uncommon for a low-cost global sourcing decision to extend the cash-to-cash cycle from 8 weeks (if locally sourced) to 19 weeks when sourced globally. What is the cost of this to the business in terms of increased risk, the cost of funding additional inventory and the cost of reduced responsiveness?
What is the cost of having to manage highly variable ocean-transit times, which means your items may arrive plus or minus 10 days from the due date originally promised? What is the cost of the increased safety stock you carry to cover this increased time variance? Can your ’just-in-time’ systems cope with this?
As a procurement leader, the true cost of time needs to be understood and disseminated to your team. Without considering the “T” word, TIME, the “P” word, PROFITS, will be destroyed, even if you did reduce the “piece” price significantly.
Richard Wilding is chair (full professor) in supply chain strategy at the Centre for Logistics and Supply Chain Management, Cranfield School of Management UK.