Why Procurement and Supply Chain are Smarter Together
Hand in hand, the possibilities for new and improved procurement and supply chain agendas are endless! Dr Madhav Durbha explains why:
For a while now, the world has watched supply chain agendas shift to keep up with these turbulent times, currently moving more from efficiency and cost to resiliency and business continuity.
That’s why nowadays, it’s critical that C-suite leaders collaboratively address the supply chain and its impacts on the business. As supply chain disruptions become the norm, Supply Chain Planning and Source-to-Pay (S2P) cycles need to be increasingly dynamic and intertwined. One starting point is to reduce organisational barriers and technological limitations and foster greater alignment between the (Chief Procurement Officer) CPO and the (Chief Supply Chain Officer) CSCO.
There are several areas in which this alignment can drive greater value:
Looking beyond China
Organisations in many industries have made greater efforts to diversify their supply chains beyond China. This is occurring for a number of reasons.
Firstly, the interruption that many organisations experienced when the pandemic first began (and disrupted an incredible 94% of the world’s supply chain) was enough to make just about any CPO and CSCO question whether such a heavy reliance on China was a great idea.
Secondly, and perhaps more importantly, increasing geopolitical issues and rising costs in China have many procurement and supply chain experts worried. China’s producer price index grew at its fastest pace in nearly 13 years in May, driving up the cost of inputs for most companies, and that’s without even factoring in the now-astronomical costs of international freight.
CPOs and CSCOs have a lot to gain from working together to properly assess their manufacturing, and considering what to do to ensure they add resilience to their supply chain, without adverse cost impacts.
Phasing out old products and introducing new ones
Digital disruption and startups are leading to strong growth in new product development. Putting supply chain and sourcing on the same page can reduce potential delays, lost revenues, and high costs, and improve scenario planning.
For example, when developing new products, it’s critical to factor in the “what if” scenarios, now more than ever. Supply chain and sourcing teams need to understand the impact of not just changes in supply, but how potential changes in demand may impact suppliers and their capacity.
Collaboration is also important when phasing out products. If the CPO and CSCO are able to plan significantly ahead of time, there should be limited waste.
Increasing focus on sustainability and diversity
Shareholder activism is pressuring companies to demonstrate stewardship in things like ESG (Environmental, Social, and Government) and DEI (Diversity, Equity, and Inclusion).
Increasingly, companies are required to do more than ‘tick a box’ when it comes to these initiatives. Regardless of the so-called green premium, consumers expect full transparency when it comes to an organisation’s supply chain, and are increasingly not accepting of companies who fail to discover issues with modern slavery. In fact, consumers are often the first to name and shame companies who are caught out doing the wrong thing.
For these reasons, cooperation between supply chain and procurement teams is essential. Teams can use advanced supply chain analytics to ensure transparency and reduce the risk of being caught off guard.
Ensuring supplier liquidity
While supply chain teams often look at sources through the lens of cost and service levels, procurement can help ensure supplier liquidity by adequately vetting them and supporting early payments or access to financing, if necessary.
Treating suppliers as more than just service providers and moving beyond a “transactional mindset” is critical, and cultivating relationships that help ensure supplier liquidity is an important step for this reason.
Keeping pace with regulatory changes
Supply chain leaders can tap into their sourcing counterparts to ensure they’re aware of coming regulatory changes that could impact sourcing.
This can include everything from changes in the Modern Slavery Act, to pandemic-induced changes such the fact that some countries have (and continue to) allow companies to trade insolvent.
Reducing financial, judicial, and cyber risks
Procurement can adequately vet suppliers, continuously monitor the supplier base for judicial and financial risks, and provide leading indicators of supplier risks to the supply chain team.
Another type of risk that is often not vetted for, but certainly should be, is cyber risks. Owing to the COVID-19 pandemic, cyber crime has increased by an incredible 600%, equating to a mind-blowing 419 attacks per minute. Procurement needs to work proactively with suppliers to ensure risks of cyber attacks or data breaches are minimised, and accordingly they need to relay this information to the supply chain team.
Adjusting to logistics needs
As the growth in reverse logistics pushes supply chain leaders to look to external providers, supply chain teams can ensure capacity and that projections are made by working closely with sourcing teams.
These are just some of the reasons why procurement and supply chain are smarter together. As external factors continually have a greater impact on organizations and their supply chains, tighter alignment between these two C-suite roles can reduce risk and create a more sustainable competitive advantage.
The alignment of procurement and supply chain will be discussed in our upcoming webcast, Procurement + Supply Chain: Together Forever? produced in conjunction with Coupa. Join us for an amazing panel discussion on September 29 as we delve into how our future partnerships will be underpinned by resilience and strategy. You can register here.
