Welcome to the Great Procurement v Supply Chain Divide
The increasing divide between procurement and supply chain agendas is causing concern. Learn about what is driving us apart, and what could bring us together again.
On the surface, we want the same things. But behind that facade, our collaboration and communication can be strained at best… and an utter disaster at worst. We’re both tasked with acquiring the right goods, at the right price, and ensuring they arrive at the right time … but how has sharing the same objective resulted in two functions that have seemingly never operated so differently?
You know who we’re talking about, procurement – we’re talking about supply chain. Welcome to the great procurement-supply chain divide.
If you work in procurement and you’ve found yourself scratching your head (or perhaps banging it on the table), bewildered by the actions of your supply chain colleagues (or vice versa), you’ll be relieved to know that you’re not alone.
Increasingly – both in theory and in practice – there is a growing mismatch between how procurement and supply chain teams operate, and it’s causing all sorts of problems, including financial concerns.
Here’s what the divide is, and why it’s so important to resolve it:
What’s the divide?
Picture this: you have to store excess raw materials, but at the same time your packaging supplier has too many finished goods. You invest in producing a new product, but this results in a shortage of raw materials for your best-seller. You invest in local production, only to astronomically increase your shipping costs.
Does this sound like a situation you’ve faced before?
These common problems are the result of a procurement-supply chain misalignment, but often it’s hard to put your finger on exactly what causes it.
According to McKinsey & Co, there are two main causes.
Same game, different goals
- The goals of procurement and supply chain, while they may seem the same, can actually be the opposite. In a nutshell, procurement – who owns the relationship with suppliers – often takes a static (and sometimes more long-term) view of what is required to create cost savings and add value to the business. This may include making strategic decisions about suppliers today that may drive significant cost-savings in years to come.
This goal, however, is different to that of the supply chain team. Primarily, the supply chain team exists to satisfy the demands of the end consumer. These demands are dynamic and may change frequently. This means that any longer-term savings negotiated by procurement may never eventuate, causing financial issues and more importantly, a lot of frustration and angst between the teams.
Costly operations
- Procurement and supply chain often don’t work together. Instead, they work sequentially.
For example, a procurement team launches a project to identify new suppliers. They engage suppliers, negotiate favourable terms and create a robust contract. Then, the management of the day-to-day elements of the supplier relationship is handed over to the supply chain team.
After this happens, things seem to go a little awry. Not much goes as planned: seasonal variability, new competitors, or even extenuating circumstances such as quality issues wreak havoc on forecasts.
Rapid action is required by suppliers, and suddenly, inefficiencies abound. It becomes clear that the initial contract didn’t take the dynamic requirements of the supply chain into account (sometimes because the supply chain team hasn’t made these requirements clear), and any pricing wins go out the window. Suddenly, shortages abound, deadlines are missed, and customer demand is far from fulfilled.
Has this ever happened in your organisation?
These operational methods can be particularly costly, yet still, most procurement and supply chain teams work this way.
What are the benefits of improving collaboration?
Better alignment between procurement and supply chain can ensure that the savings negotiated by procurement are realised. Beyond this, there are many additional financial savings to be made, including better inventory management, reduced storage costs, and less waste.
Most importantly, better collaboration can lead to the realisation of more opportunities. Many of us in both procurement and supply chain realised during the pandemic how costly shortages can be. With better alignment, not only can these shortages be reduced, but companies can move quickly to take advantage of new customer opportunities.
How can supply chain and procurement work together… better?
While optimal collaboration might be the ‘holy grail’ between procurement and supply chain, the divide exists for a reason. How do we overcome it? Our latest webinar with Coupa, Procurement + Supply Chain: Together Forever? provides a practical blueprint for overcoming the divide and working towards a more efficient and productive partnership.
Grab your spot here, and get ready for a live panel discussion that is sure to shake up the procurement and supply chain divide.
