April 2006 | Commentary | Checking In

Stakeholders Share New Value

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The CEO of Procter & Gamble, A.G. Lafley, does not talk much about shareholders; instead he talks about "stakeholders." I wondered precisely what he meant, so I did a little online research.

The original meaning of the word stakeholder was a person who holds money while its owner is being determined—a trustee for a minor, for example, or someone holding the cash until a bet is won.

But in the past few years, the definition, in the progressive business world at least, has evolved to mean someone, anyone, having a perceived beneficial interest in the enterprise.

So who has a stake in P&G? You do, if you fall into this list: P&G employees, retailers, and distributors; suppliers and all their employees; 2.5-plus billion customers, and their families and communities; and finally, P&G stockholders. That's a lot of stakeholding.

Blurring the Lines

In our supply chain slice of reality, however, the stakeholder family is more exclusive. Thanks to the collaborative way supply chain theory and practice has evolved in the past 20 years, supplier partners have been brought into the stakeholder fold. Back in the day, it was all about buyer/seller adversarial relationships—
where "more for me" meant "less for you."

There are, always will be—and always should be—hard boundaries between who is buying and who is selling, and that is wrapped around who keeps more of the money during the transaction. But those lines have blurred, because of technology's impact on transportation, logistics, and supply management practices.

Supply chain technology helps create supply chain stakeholders. The tension between buyer and seller has not gone away, but logistics technology and the practices it engenders have created another layer of value on top of the existing buy vs. sell layer. The new value is created by the "stakeholder" relationship itself.

Many times this new shared value is soft value, not cold, hard cash. For example, you might say to a vendor or supplier, "Help me serve my customer better and cheaper and I will buy more from you or I will buy in a way that lowers your cost."

How do companies make good on such a promise? By sharing demand and supply information and logistics costs, and jointly acting to streamline those processes to enhance sales. That could be called soft ROI stakeholder value.

But more and more, there is actual gain-sharing in cash—savings in direct inventory, handling, and transport costs are sometimes parsed out between business partners. That truly makes your vendors stakeholders in your enterprise. This would be very difficult to accomplish without the collaboration that logistics IT creates.

So these days, it is much easier to have stakeholders, though not as many as P&G does, thanks to logistics technology and the practices it empowers.

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