(Editor’s note: “The Traditional Mindset of Cost Savings Is Dead,” the author’s column in the May/June issue of Inside Supply Management®, discusses how the total cost to serve (TCS) model can help supply management organizations optimize the supply chain for efficiencies.)
By Hemant Porwal, CPSM
As vice president — global operations and supply chain at WESCO Distribution, Inc., my perspective on total cost of ownership (TCO) has changed over time. In my current role, I lead all aspects of operations and supply chain management at WESCO, a multinational industrial distribution and supply chain services company.
My career in corporate America started at a Fortune 50 food-and-beverage company in its quality assurance operations group at one of its manufacturing plants. After six years working in operations, I had an opportunity to work in procurement with responsibility for the aluminum-can portfolio in North America — managing more than 20 billion cans a year and greater than US$1 billion in spend. We focused on cost savings using the traditional formula of the old price minus the new price multiplied by the volume.
After procurement, I took an assignment in finance, where I spent several years learning about different procurement categories and creating baselines to measure the effectiveness of the procurement team in categories including energy, fleet, advertising and marketing, benefits and capital procurement.
The finance position forced me to think differently about cost savings because the extended concept of the same form, fit and function barely applies when comparing creative agencies — human talent — and sole-sourced equipment designed to introduce innovation that creates a moat around a business model.
The finance experience prepared me to become the CPO at another Fortune 50 company that was in the retail business. Once again, I fell into the trap of focusing purely on cost savings as the most acute metric to measure and celebrate success.
In 2013, I earned my CPSM® certification from the Institute of Supply Management® — although the certification was in supply management, I was still focused on procurement skills and optimizing cost within the procurement sandbox.
Two years later, I began working for WESCO, where having the visibility and ownership of the end-to-end supply chain has made me critical of the TCO mindset as it’s very procurement focused. My thought process has evolved into a more holistic metric — total cost to serve (TCS), which measures costs from the first mile to the last mile and ultimately within reach of your customer in the last three feet. In my opinion, TCS is the future.
Hemant Porwal, CPSM, is vice president — global operations and supply chain at WESCO Distribution, Inc. in Pittsburgh and a member of Institute for Supply Management®’s Board of Directors.