Businesses are naturally worried about the resilience of their supply chains. COVID-19 was full of surprises, not only regarding the frailty of many suppliers, but also discovering just how extended their supply chains have become and how little transparency exists.
Early in the pandemic, businesses sought alternative sources of supply and started work reviewing their sourcing strategies. This led to a range of options being considered, including bringing activities back in-house, shifting supply to on-shore or near-shore alternatives, increasing stock levels and multi-sourcing. Many also started to reevaluate the economics of recent procurement wisdom – in particular, if supply chains have now become so extended, does that not mean they are innately inefficient and costly? Has the mantra of low-cost sourcing actually led to the opposite effect in terms of final cost?
Low cost sourcing has been pernicious in its effect, in particular in its destruction of investment and loyalty. Given the constant threat of re-bidding, suppliers have been forced to focus on short term cost reductions as the primary source of customer value. This sense of ‘disposable relationships’ has permeated many areas of global trade.
How did we get risk so wrong?
This week, the Sourcing Industry Group is promoting a webinar posing the question ‘How did we get risk so wrong?’ It acknowledged that the “COVID-19 crisis just exposed how weak the collective Supply Chain and Procurement industry was at doing risk planning. For years, cost savings has been the primary strategic objective at the expense of risk, innovation, and corporate social responsibility. The crisis isn’t even over and this lesson has become abundantly clear. Therefore the value equation has to fundamentally shift. But, how far do we go? How do we prevent over-indexing the other way? What other factors do we need to consider?”
The thing that amazes me is that organizations that represent the sourcing profession can still be asking this question. Why did so many get it wrong? Maybe not listening to the market. Paying too much attention to consultants and analysts. Believing that success comes from following the CFOs orders, without regard to the wider stakeholder community. Grasping at straws like ‘we are going to be at the top table’. Procurement had a strong run for 20 years, driven by the opportunities created by globalization and automation. Its actions had massive impact on our world, good and bad. Change is now long overdue.
How do we fix it?
One part of the answer lies in the comments above – by listening more, by acting as team members truly focused on output and outcome value, rather than input cost, by supplementing or replacing its inwardly focused transactional technology with tools and systems that facilitate ‘relationship resource planning’, operating across enterprise boundaries.
New technologies must be deployed to provide heightened levels of transparency and increased flows of data between organizations and throughout supply networks. The European Commission is already looking at how to do this on an EU-wide basis, so surely we can get to grips with implementing new approaches at an enterprise level. New platforms offer far more efficient and dynamic ways to monitor markets than the traditional approach of regular re-bidding. And with those new methods comes the opportunity to build increased loyalty between buyers and suppliers, for both to establish the levels of trust and collaboration that are fundamental to stability and growth.
