Ensuring Procurement’s Longevity: How to Thrive in the Future
Do you ever sit in your current job and dream about burning all the current processes and thinking to the ground and starting afresh? If money were no object, what type of procurement team would you build? From process and culture to technology and analytics, how would you operate if you could wave a magic wand?
Traditional procurement has been primarily focused on ensuring the security of the supply chain, locking in contracts, establishing reliable networks, and managing inventories to prevent shortages. This security-first approach is aimed at mitigating risks by creating a foolproof system that can withstand various challenges.
However, to effectively navigate today’s dynamic market environment, this mindset needs to shift. Instead of merely securing the supply chain, procurement must become a proactive partner and look for ways to optimise the supply chain beyond the immediate purchase of the goods and services.
From Security to Optimisation
The term “optimisation” varies across organisations, sectors, and procurement types (for example, direct versus indirect procurement) but, generally speaking, in procurement it refers to a shift in focus from managing costs, categories, and suppliers, towards a focus on more dynamic goals.
A security focused approach prepares for disruptions, ensuring that plans are in place for when things don’t go as expected. Whilst security implies stability, it often results in a reactive approach, waiting for issues to emerge before addressing them.
Optimisation, conversely, involves being proactive and shaping value chains. It emphasises collaboration and transparency with suppliers, balancing risks, and anticipating market dynamics such as price fluctuations. An optimised supply chain is strategic, interconnected, resilient, and focused on sustained improvements and adaptability.
A Step-by-step Guide to the Future
Changing procurement’s focus and practices demands a unified effort, especially if areas of organisations are reluctant or resistant to a mindset shift. Individually, procurement professionals can initiate changes within their own workflows, sparking momentum towards broader transformation. The collective impact of these individual actions will help contribute to a more significant change overall.
Here are six steps to help you pave the way for a new future and be on your way to a more optimised supply chain.
1. Supply Chain vs Value Chain
Understanding the difference between a supply chain and a value chain in procurement is crucial. While the supply chain focuses on the logistics and flow of goods from suppliers to customers, the value chain extends this concept by considering how value is added throughout the entire process, including the product or service itself.
The concept of a value chain is not new to procurement; the Porter Model of Value Chain has been around since 1985. However, many procurement functions are now embedding themselves in the conversation rather than having procurement as a secondary activity supporting the value chain.
A reimagined value chain encourages“a holistic perspective that goes beyond merely focusing on input procurement, considering aspects like ethical concerns, material loops, ecosystem services, and added customer value.” Procurement can partner with the internal client to be a part of the bigger solution instead of being an enabler or a service to an internal client.
2. Understand your Market
Understanding your supply market is critical for leveraging opportunities and avoiding potential disruptions. By analysing market trends, supplier capabilities, and the competitive landscape, you gain the insight needed to make informed sourcing decisions.
If you don’t have a good gauge on your market, you can start by engaging with your suppliers to uncover potential challenges and improvements and work towards building resilient relationships. Regularly monitor and audit your vendors (as well as your own organisation) to ensure compliance and performance and stay updated with technological advancements and industry shifts.
This comprehensive approach helps mitigate risks and empowers you to negotiate better pricing, improve operational agility, and maintain a distinct competitive edge.
3. Diversify your Supply Base
A procurement culture rooted in security often has a limited pool of suppliers. If this is the case, the first step is to ensure a diversified supply base. A robust diversification strategy ensures resilience by having various sources to fall back on if one fails.
Security can often lead to a situation when the classic idiom of putting all your eggs in one basket comes to mind. If you do this and the basket tears, it’s a complete disaster. A robust diversification strategy means developing multiple relationships with different suppliers. It ensures resilience by having various sources to fall back on if one fails.
Consider this: You source components from Supplier A in Asia. Then an entirely unpredictable event happens – for example, a natural disaster. If you are solely reliant on Supplier A, there are serious implications for the business.
However, if you have diversified, you have Supplier B in Europe and Supplier C in South America ready to step up. Diversification is your safety net, making sure nothing catches you off guard. You can increase your order with the other suppliers, giving your original supplier time to stabilise.
Tips for getting started with supplier diversity:
- Conduct a Thorough Assessment: Begin by evaluating your current supplier network to identify potential vulnerabilities and improvement areas. Understand the composition of your suppliers and pinpoint critical dependencies.
- Engage Stakeholders: Involve key decision-makers and departments in the planning process. Ensure that everyone understands the benefits of supplier diversity and is aligned with the strategic goals.
- Analyse your Supply Chain: If advanced technology is not available for this, review supply chain operations. Speak with team members, review purchase history, and gather insights through direct observation of processes.
“When we invest in supplier diversity, it helps us to increase the pool of possible suppliers and promote healthy competition, leading to better product quality, more innovation, and cost savings.”
– Carlos Guzman, Managing Director, Supplier Diversity and Sustainability at Cigna
4. Invest in Supplier Development
Identifying and nurturing alternative suppliers is like planting seeds for the future. You need to cultivate these relationships and enhance agility in the supply chain. It’s not just about having backups; it’s about fostering these relationships so they can step up when needed. Supplier development can mean supporting existing suppliers to grow in different areas (or order volumes). It can also mean actively working with and shaping a market to grow a supply base, introducing new suppliers, new skills, and new products.
What’s the difference between alternate suppliers, supplier diversification and supplier development?
An alternate supplier is about having your eggs fall through (unharmed) straight into another basket and having other baskets ready to go below that one. A supplier diversification strategy is deliberately having different eggs in different baskets that either do the same thing or slightly different things. Supplier development is having a deliberate plan to work with a supplier to increase the number of eggs in their basket, or working with a market to collectively create a new basket together.
5. Mitigating Risks and Minimising Disruptions
Now that we’ve got our diversified and agile supplier base, how do we use it to mitigate risks and minimise disruptions?
First, it’s all about visibility. Use risk assessment tools to identify potential hotspots. Think of these tools as a weather forecast – predicting storms before they hit. You’ll get insights into geopolitical risks, natural disasters, and even market fluctuations that may affect your supply chain.
Next up is contingency planning. In simple terms, plan for the worst. What happens if Supplier A goes under? How do you quickly switch to Supplier B? Lay out clear, actionable steps and ensure everyone in your team knows them like the back of their hand. When chaos hits, you’ll be ready to deploy your plan without missing a beat.
This applies to the value chain, working with external and internal stakeholders and suppliers to correctly identify risks and where efforts should be prioritised to mitigate the most damaging. Procurement can help by ensuring regular reports and data come in from suppliers and having a way to access and update the same market data internally.
6. Maintain Strong Relationships
Never underestimate the power of relationships. Regular touchpoints with your suppliers can make all the difference. Stay engaged, understand their challenges, and be a supportive partner. This goodwill often translates into better cooperation when you need it the most.
There are plenty of great articles on Procurious about creating and maintaining strong supplier relationships. I’ve picked out a few of the top ones for you to have a read of:
- 9 ideas to reduce costs using Supplier Relationship Management
- How good is your supplier experience – and why you should make it better
- The top 3 standards you should expect from every supplier negotiation
- How supplier diversity can help increase profitability
- 5 ways to level up your local sourcing
- Harnessing The Value Of Strategic Suppliers
- How To Say Goodbye To Negative And Contentious Supplier Negotiations
- Supplier Relationship Management: How to Ace Your First Meeting
- 6 Supplier Relationship Lessons from the Survivors
- The Little Things that Affect Supplier Relationships
The Future is Now
Transitioning from security to optimisation in procurement may sound daunting, but with the right strategies, you’re simply juggling more effectively and ensuring that procurement is valued and ahead of the curve. Yes, it may take time and require buy-in from a senior level, but the journey will be worth it and should mean you can leave any thoughts of a scorched earth approach behind!
