Procurement and supply chain executives are struggling in the current environment of high inflation and missed deliveries.
A new study that the SCRC published with GEP examines the increasing pressure that supply chain executives are getting when it comes to responding to supply chain disruptions. The report was published in the last month, and reflects some of the increasing challenges and disparities that exist between procurement and supply chain executives. One of the problems that often emerges in organizations is not only misalignment between procurement and supply chain, but also between senior executives and their managers. Our experience has found that lower-level managers are often pulled into “fire fighting” situations but may remain unaware of the distinct priorities that exist for the procurement or supply chain function as a whole. This results in significant challenges for organizations seeking to establish a cohesive strategic plan that bridges these three interrelated activities. In this study, we explore the primary forms of misalignment that exist between supply chain and procurement executives. (We have not included contract management, as this is often a subset of procurement, and address this concern in a future study).
We surveyed 53 procurement and supply chain executives and managers about their organizations’ strategic priorities. The increasing difficulties in obtaining material supplies for nearly all material classes and services emerged in the latter part of 2021 and has continued well into 2022. In addition, rampant inflation exceeding 7% has emerged in 2022, as a result of labor shortages, increased transportation costs, and surging commodity prices. This dual threat of inflation and delivery shortages has led to often competing sets of priorities. To explore this problem further, we surveyed procurement executives and managers to explore their focus on cost versus factors that may alleviate shortages. About 78% of purchasing executives view supply chain resilience as the top priority post-pandemic, compared to 67% who still focus on achieving the lowest cost. As a result of the pandemic, the need for better forecasting has become more urgent, where meeting demand has become highly challenging due to continued volatility and uncertainty. Companies without robust tools for collaboration with suppliers prior to COVID received a wakeup call in 2020.
The dual challenges of controlling inflation as well as maintaining deliveries and inbound receipt of materials is proving to be a major headache. Unfortunately, many supply chain executives are caught off-guard when asked to present to their boards on what they plan to do. While the term supply chain resilience is often batted about, in my experience, most organizations don’t have a good idea of what to do to become more resilient, other than to throw a lot more inventory into their leased warehouse space. Supply market intelligence will become a crucial capability in this market. In one instance, I heard a story of a senior procurement executive called in front of his board, and asked to provide a synopsis of which categories of third party spend would be the bottleneck if demand were to double next year. The executive had no idea and no data, and was promptly let go by the board. These are the types of questions that executives are being asked to answer, and they require analysis and study to be prepared with a cogent response and a structured plan for how to deal with future scenarios.
As a result of this wakeup call, more companies are prioritizing supply chain resilience and agility, both of which require improved communication and collaboration with suppliers. As an example, organizations need to work with suppliers to identify bottlenecks and logistics problems that exist, and in some cases, work together to schedule premium freight to expedite shipments.On-time delivery is ranked third in importance, followed by improving quality compliance. The results also indicate that delivery velocity, reliability, product innovation, product visibility, and supply chain, associated with increased supply chain flexibility, are pretty low on the list of priorities. These results are consistent with procurement priorities that are seeking first “not to shut down” their operations, and second to do so at a reasonable cost.
First rule: saving ten cents on a part won’t help you if you can’t have it delivered. Meeting the challenge of high inflation and missed deliveries will continue to hound procurement and supply chain executives for at least the next two years….
