2023 GLOBAL SRM RESEARCH REPORT
THE EXTENDED ENTERPRISE EXPLAINED
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The extended enterprise, explained
Suppliers increasingly provide an extension to company operations, and procurement should be managing that crucial wing.
Business has undergone an upheaval over the past two decades. Technological advances; increasing legislation and regulation; changing consumer demands; a heightened focus on the environment and ethics; people and skills shortages - and of course, COVID-19’s impact on everything from supply chains to a rise in remote working. All this and more has played a part in the evolution of business. Technology is helping companies escalated competition. The rise in e-commerce has enabled new entrants to quickly enter vertical markets and reach a global to keep pace with much of this change, but it has also audience with minimal overheads. This trend has prompted some of the more established, large-scale corporations to consider how they might become more agile to stay in contention. One way to do this is to reduce the size of their internal operation in order to concentrate on their core mission. “Nike is a historic example of this,” says Nick Hyner, Managing Director
for State of Flux in Europe. “It doesn’t make or move shoes on its own, it focuses on brand design and marketing. Coca-Cola is the same. It doesn’t try to do many of the associated functions linked to its core product, it concentrates on flavouring and marketing.” And both recognise the importance of supplier relationships. Prior to joining State of Flux, Hyner was Director of Cloud Services in EMEA for Dell, working under Chief Innovation Officer Jim Stikeleather. He says when visiting company CIOs to discuss these services, Stikeleather used to ask two key questions regarding the functions they supported internally: ‘Are you the best in the world at doing whatever you’re looking at putting in technology for? And/or do you have to do it for a regulatory reason?’ “If the answer to both was ‘no’, he would say: ‘Consider outsourcing it’. It’s extreme, but it is one way of doing things,” says Hyner. Companies that focus their own efforts on the essential essence of their business are increasingly reliant on their suppliers to do much
of the rest of the work. They look to them to operate as an extension of their enterprise and provide many of the other goods and services they need to succeed. In some cases, it includes services that are delivered directly to their own customers. Supply chain complexity The automotive sector made the shift years ago - integrating key suppliers into its factories and perceiving those providers as an adjunct of their own organisation. Much manufacturing, too, is now done by third parties; IT departments are largely outsourced; and marketing, PR, customer support, HR, recruitment, and more are frequently delivered by external providers. “Companies are engaging in increased and more complex supply chains or ecosystems,” says Hyner. This is in part because of the specialised data and technology needed. “They are outsourcing things that 30 years ago would have been done within corporate walls. When you think about it in those terms, it should impact how much money and effort you put into managing it.”
Transferring much of the work over to third parties frees up time and helps to make companies more nimble, but it can also increase risk and equates to power in the hands of suppliers. This dependency upon suppliers should translate to a rethink over how they are regarded. Instead of seeing them as a network of providers to keep at arms-length, suppliers, and in particular, key supply partners - should be seen as extension of the enterprise, and treated accordingly. “It is suppliers who increasingly have the choice of which organisations they work with and for,” says State of Flux Chairman and Founder Alan Day. “Our role, procurement’s role, has to be managing that supplier experience so that we’re an attractive customer. Procurement should be considering how it can help its suppliers to become more effective and efficient.”
They should be focused on new product development; improved organisational capability; reduced total cost of ownership; and, ensuring a better customer experience. All of these are key strategic outputs for an organisation, adds Day, and suppliers can play a key role in each. “An organisation would fail without customers; equally, suppliers are integral to its success,” says Day, which is more true now than ever before. Certain business-wide goals and strategies simply cannot be achieved and delivered without suppliers. And where key
services are delivered straight to the purchasing company’s end customers by suppliers, it is essential the behaviours, actions, and practices of that supplier mirror the brand values of the buying organisation. To achieve this, organisations must develop a strategy to integrate and treat those suppliers as part of their extended enterprise. Rethink the day job Managing the extended enterprise is not only a task that should be led by procurement, says Day, but failure to do so could eventually see the profession out of a job.
Procurement and supply chain teams must be acutely aware of what’s involved in the work of their tier one supplier companies.
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