Whenever we face a crisis, our attention is understandably focused on finding a solution as quickly as possible. We, in essence, become "locked in the moment" because the fallout of inaction is usually significant.
However, in our hasted energy to resolve a problem, we tend to lose sight of why we are in this situation in the first place. In other words, there is a bigger picture beyond our narrow scope of immediate impact, and we need to recognize its importance.
I like to think of it as the slow-leak tire syndrome. You have a tire with a slow leak and must repeatedly pull into a service station to fill it to the proper inflation rate. Is it an inconvenience-absolutely, but is our frequent station stops enough of a hassle to prompt us to either repair or replace the tire?
When I was originally asked to write this article on the disruptive impact a potential West Coast port workers' strike would have on supply chains, the slow-leak tire analogy immediately came to mind.
A Long Time in The Making
The contentious situation we are now facing at this and other ports in North America has been brewing for some time, pre-dating the COVID-19 pandemic.
If you've been to the grocery store in the last couple of months, you may have noticed that your total costs are far higher than before. Prices on items like food, housing, gasoline, and utilities have risen by over 9.1% over the last 12 months – a 40-year record, according to the U.S. Consumer Price Index.
Why is everything so expensive?
A lot is working against the global economy:
Covid-19 continues to affect manufacturing and logistics around the world.
The war in Ukraine continues to have an impact, especially on grain production for much of Europe.
The U.K. is facing unprecedented increases in energy price caps.
These combined events are the perfect recipe for supply chain shortages and drastic price increases.
All eyes on procurement
Businesses are facing uncertainties unlike ever before, causing CEOs to look closely at what is happening behind the scenes. Procurement is under scrutiny with central purchasing being pushed into organizations' spotlight.
One such question being asked of procurement is, "Do we have approved alternative sources of supply in place?" Building a diverse supply chain is key but not always easy.
You might source goods or ingredients from various vendors for a product you manufacture. Still, all it takes is one ingredient to be delayed because of rigorous testing, approval processes, or even that supplier's supply chain for the whole operation to halt.
Have you ever heard the old saying, "when everything is said and done, there is more said than done?"
How about “everyone talks about the weather, but no one does anything about it?”
The common theme through the above examples of observational wisdom is the suggestion that talking about something is not the same as doing something about it.
Based on experience, I would not be off base in suggesting that this same theme applies to the subject of supply chain resiliency. In other words, in the world of procurement and strategic sourcing, the importance of resilient supply chains has been a point of discussion for some time.
However, what the COVID-19 pandemic and today’s increasing geopolitical instability have taught us is that our fruitful discussions in the past did not necessarily translate into meaningful actions and outcomes today.
Didn’t See It Coming?
When considering the significant disruptions in our global supply chains over the past two years – the most recent involving baby formula, we must ask ourselves how we got here. Didn’t we see it coming?
Let's face it, before COVID-19, how many of us would have predicted that our supply chains would, in some cases, snap like a rubber band stretched beyond its level of tolerance. Sure, we knew there were potential vulnerabilities in our supply and demand networks, but who expected such far-reaching, universal failures? By the state of things today, very few saw what was coming, and even fewer believed that we weren't ready for it.
Why were we so confident?
The problem wasn’t a lack of awareness regarding the importance of having resiliency and agility in our supply chains. We knew it was important. The issue was in our approach, or better yet, our interpretation.
Mary Zampino, Vice President – Content, Research & Analytics
My first Op-Ed, Open Letter to the C-Suite, appealed to the C-Suite to hold Procurement accountable for not investing in technology. The blog referenced a Gartner perspective that only 22% of procurement leaders have a long-term digital strategy. I touched a nerve, invoking comments from a few readers suggesting there are procurement leaders - the Magical CPO - that understand how to navigate the C-Suite to get the budget for technology investments.
To give credit where credit is due, Nikesh Parekh, CEO of Suplari (Now Microsoft), is the source for the term Magical CPO. It describes a procurement leader that understands how to build business cases and secure budgets for technology investments that improve their department's efficiency and effectiveness while supporting the needs across all business disciplines. The Magical CPO persona, by definition, is juxtaposed with the technology laggard. If you saw my first Op-Ed, I noted that 78% of procurement leaders are technology laggards without any digital automation strategy.
The Magical CPO persona
Let’s unpack the Magical CPO persona to agree on common qualities. My views are based on my observations and experiences over a 30+ year career in procurement. There is no Wikipedia page for Magical CPO nor a Google search that prompts any relevant hits - I checked. While I understand there are more sources than Wikipedia and Google, the point is that there is generally no standard persona for the Magical CPO. Here’s my interpretation of what the Magical CPO must possess:
Greg Tennyson, SVP of Strategy & Procurement, Fairmarkit
Coming in at 130 pages, you might immediately think that this isn't a paper or a report; it's a book.
I know that was my first thought when I began reading the GEP Spend Category Outlook Report For 2022. Just as an aside, did you know that between 2011 and 2017, the average length of a bestselling book fell by 42%? Since then, and with the demand on our time becoming greater, I am sure that the length reduction has continued its downward trend.
By the way, a 2022 report indicates that the same downward trend applied to white papers, which, on average, are now 6 to 8 pages.
So, why am I with this latest paper talking about the number of pages versus the actual content – which is amazing?
My reason is that reviewing this report shouldn’t be a “read once and done” exercise.
The Ultimate Nightstand Guide
In today's Zettabyte digital reality, we are bombarded with content so much so that if you read a book or a paper, you are likely to gather what you can and then move on to the next resource – which is fair.
However, sometimes the information you receive is so on the mark that it is worth setting aside to a special place so that you can easily access its insights any day, every day. What I am talking about is a guidebook. And this latest GEP release is just that – it is a handy guidebook that you will want to keep at your fingertips to understand better the challenges you have or are facing today and the ones you will be facing tomorrow.
Having read it in its entirety, I can confidently say that it will help you get ahead of the curve of future challenging events before they unfold. Through the agility of its timely insights and the practical adaptability of its direction, you will quickly move from a reactive to a proactive position. It is the epitome of turning information into actionable knowledge.
Mary Zampino, Vice President – Content, Research & Analytics
There are no shortages of headlines such as the one above linking supply chain disruption to inflation. While I don't want to oversimplify the current situation, when supply can't meet demand for various reasons, inflation is the end result. External forces such as the above reference to the war in Ukraine and the now seemingly endless COVID-19 pandemic are the most notable contributing factors. And let’s not forget the Suez Canal blockage and its extended impact around the globe.
Undoubtedly, the “interconnectedness of global supply chains” means that these events have far-reaching implications impacting “labor, energy and transport costs.” As a result, the consumer price index (CPI) - which has been somewhat stable for the past few decades, has seen a significant rise in prices.
In December 2021, reports indicate that the CPI was “5.4% higher than a year previously in December 2020.” In other words, even though supply chain disruption and its link to inflation are not new, the breadth of its impact globally has created a sense of urgency like never before – at least not in the 21st century. Nor are there any signs of relief on the near horizon, as a recent New York Times article proclaims that we are not likely to see the return to a “normal supply chain” in 2022 (or anytime soon.)
Along with senior buy-side executives, joining SIG’s Stephani McGarry on the call was the Everest Group. In what I can only refer to as a “captivating session,” the discussion focused on what we as an industry have and will continue to face during these inflationary times.
Thrust into the spotlight due to the pandemic and now the war in Ukraine, the demand for sourcing professionals to deliver maximum value has never been greater.
To start, "maximum value" is no longer about getting something at the best price – if it ever was. I base the "ever was" on the words of a 20-plus-year industry veteran who has held senior executive positions with a major global brand and stressed that it has never really been about cost savings alone. If it were, they added, they would have left the industry a year and a half after they started.
So, if it isn't about cost savings, what is it about?
It is about agility, resilience, and being strategic. It is also about breaking through existing barriers to achieve optimal outcomes through digital transformation. In other words, the merger of people skills with emerging digital tools such as Life Cycle Contract Management (CLM) solutions.
The Seven Steps to Success in Sourcing paper was written with the above objectives in mind.
Beyond providing an outline of the challenges with which sourcing professionals are now contending, in this article, I will review the paper's "seven steps" within the context of a CLM framework. Included will be a deeper dive into one of the steps – Improving transparency.
Barriers To Agility
The paper talks about the challenges of "cumbersome siloed data" and points out that sourcing professionals are weighed down (and slowed down) by "outdated traditional systems" and "complex, often manual" processes.
While these have been significant issues, they take on new meaning in a post-pandemic world, a new meaning in which supply chain resiliency is being stretched to the breaking point.
As a result, the risk of "slow, inflexible sourcing processes" reduces agility and, with it, the ability to adapt to the at times, unpredictable changes in the marketplace.
Mary Zampino, Vice President – Content, Research & Analytics
A timeless saying is that "life is 10 percent what happens to you, and 90 percent how you react to it."
I was reminded of these words when I recently read the PBS News Hour articleHow the supply chain caused current inflation, and why it might be here to stay.
According to reports, the 6.2 percent increase in prices over last year was unexpected and, therefore, a shocking turn of events to many experts. Even more troubling is that there is a growing belief that higher consumer prices will become the "new normal." In short, while the rate of inflation may nominally fluctuate over the coming months, its fastest rate of increase in "more than three decades" is a trend that will likely continue in the coming years.
I intend to understand the "why" of what is happening and highlight the consequences of the current crisis - including the means and tools at your disposal to deal with it.
Supply Chain Mess
While there is no single reason for the inflation we are experiencing today, it seems that the catch-all reason given by experts is that our supply chains are a mess.
Starting with the "severe shortages of goods and labor in supply chains," pundits point to a dramatic increase in people buying online due to the pandemic as an exacerbating factor.
For example, industry projections that orders would hit 4.7 million packages a day during this recent holiday go well "beyond what the system can possibly absorb or deliver." However, that is just one part of the story, which brings us back to my opening comments about our reaction.
When The Chips Are Down
The strained relationships between buyers and sellers due to inflation are making headlines around the globe.
In what was traditionally a siloed function, separate from overall executive and organizational strategy, procurement professionals have more recently become integral to company operations and resilience. This prominence grew during the COVID pandemic, which broke down barriers between departments and raised attention to the importance of Chief Procurement Officers (CPOs) and other procurement personnel, and the work they do.
The Power of Procurement
The procurement team is at the interface between the enterprise and the extended enterprise: the organization and its suppliers. Procurement professionals are in the position to understand the risks and the wider ecosystems their suppliers operate in. They, like no other function, can make predictive connections and be able to quickly identify risks specific to one supplier or those endemic to the wider ecosystem, and quickly pivot alongside the business accordingly. And it’s not just risk, but opportunity and innovation for the enterprise, such as identifying new products, materials, capabilities and offerings.
With this greater inclusion of procurement professionals into organizational strategy, CPOs and similar roles need to begin to reframe how the function can best serve the organization, and how other departments can serve them. One key to this new way of thinking is framing procurement around holistic risk management, particularly when it comes to managing third parties, suppliers and the supply chain.
Best Practices for Taking a Holistic Approach to Procurement
While not everything in this shift can be implemented immediately, there are general aspects of agility that should be on procurement’s agenda, including: