IUPUI Professor Authors Study Detailing Supply Chain Dangers

Cost-cutting measures by global companies reduce investments for risk management and protections for vital supply chains, according to a new study co-authored by a faculty member at the IU Kelley School of Business Indianapolis.

The Cost of Control study, issued this week, is the first global study investigating the issues impacting finance and procurement. The research is supported by Mark Frohlich, associate professor of operations management at Kelley School of Business Indianapolis, located on the Indiana University-Purdue University Indianapolis (IUPUI) campus. The research was released by Basware, a global leader in purchase to pay solutions.

The study reveals chief financial officers at the 550 companies examined are failing to recognize the importance of managing supply chains through procurement, despite the hazards of the economic recession. Only 28 percent of respondents saw procurement as having a significant impact on financial risk exposure.

“Businesses today are defined by their supply chains and some of the high profile business failures of the last 12 months point to this as a root cause,” Frohlich stated in a Basware news release.

“Finance departments across the globe have been guilty of ignoring the real value that their procurement teams can bring to the financial health of their organizations for decades now, so there is real truth to the suggestion that CFOs aren’t making the most of what can be an invaluable asset in the fight against the recession,” Frohlich added.

Frohlich also noted his concern that only 27 percent of respondents consider that procurement has a positive effect on enterprise profitability, which indicates a view that supply chains are not seen as a significant factor for bottom-line performance.

Frohlich's teaching at IUPUI  focuses primarly on operations strategy, process improvement, program management and supply chain integrations,. His previous teaching positions include assignments with the London Business School, Boston University’s School of Management and Oxford University’s Said Business School.

The study found less than half of respondents see any level of integration between procurement and finance teams, representing a departure from past business models.

Ari Salonen, Basware’s general manager for North America, issued a statement saying the level of disconnect between finance and procurement departments is alarming.

“There should be a sense of trepidation on both sides of the fence when reading the results of this study,” Salonen stated. “While heads of finance everywhere are looking at how they can bring greater security and stability to their organizations, they seem to be missing a major piece of the puzzle in overlooking the procurement teams as a major strategic advantage.”

Basware recommended a more transparent model for company spending to improve efficiency and return on investment.

The study was conducted for Basware during May 2009 and evaluated responses from 550 financial executives from across the globe. Each responding organization had 1,000 to 50,000 employees. A complete copy of the study can be found by emailing Robert.cohen@basware.com or by visiting www.basware.com/control.

For more information about the IU Kelley School of Business Indianapolis, please visit www.kelley.iupui.edu or contact Dave Hosick, coordinator of communications and media relations, at 317-274-6856 or dhosick@iupui.edu.