One of the significant advantages of the Sourcing Industry Group (SIG) is that members have unparalleled access to industry insights and expertise through our vast and diverse community of practitioners and thought leaders.
Recently we conducted interviews with two senior procurement executives regarding their innovatively practical approach to dealing with inflation and its impact on supply chains.
In the first instance, we talked with Tony Abate - Senior Vice President & Global Chief Procurement Officer at Cigna Express Scripts.
When Cigna closed its $67 billion acquisition of Express Scripts in December 2018 to become what the media called a “$140 billion revenue healthcare colossus,” Tony’s responsibilities expanded considerably.
Responsible for “transforming and integrating two procurement departments into a global, world-class international team, he is accountable for the CIGNA taxonomy research, analysis, and development, including identifying 8000 suppliers with an annual spend of $4.5 billion.
Our second executive is Michael Koontz. Michael is the VP Strategic Sourcing & Business Leader for ATD Sourcing Solutions, whose unique approach to battling inflation we will discuss in a follow-up post.
Creeping Into Supply Chains
Shortly before his interview with SIG, Tony gave a speech to 1500 employees at Cigna on inflation and its impact on supply chains.
Readily recalling Olivia Newton-John and the Commodore 64, Tony is old enough to remember the last time we had inflation, such as what we are seeing today in the 1970s and 80s. According to him, inflation is creeping into our supply chain pretty quickly, so much so that within the next year, we will see the full force of inflation across all of our spend categories. It is an important point that didn’t fall on deaf ears when it comes to “hitting your P&L” as the “impact on your supply chain will be significant.”
A Better Position
Given that it has been 40 years since we have experienced something like this – are we in a better or worse position to address inflation?
Even though most people in today's workforce do not know what inflation is - nor have they ever seen it, Tony is confident that we are in a much better position today than yesterday to deal with it as it is no longer a case of procurement mandating what happens. In other words, because today’s successful procurement departments have very strong relationships with their internal business partners, collaboration opens the door to more options and better outcomes.
Although many business leaders may think, “why can’t we just say no to higher prices,” there is growing recognition that while we can beat increases back a little through negotiations, we will not get it to zero. As a result of our being better able to collaborate with internal stakeholders – something we could not do in the past, we can now suggest other options to offset the impact of inflation beyond getting the lowest cost or extending supplier payment terms.
Talking About Suppliers
What about the relationship with external partners – such as suppliers? How do companies successfully address inflation outside of the organization?
Tony emphasizes that we must develop new business models with suppliers using creative economic frameworks to offset the cost of inflation and ultimately improve partner operations both individually and collectively.
Recognizing that suppliers are an integral part of what we do, we need to create new efficiencies leveraging our suppliers’ labor force to deliver services. In the right circumstances, our suppliers agree with this approach.
For example, in some of our operations, we pay for the supplier's labor to “wring out” inefficiencies to offset the impact of inflation. In other words, we will outsource the work to a supplier as a service who will do whatever they need to do to deliver that service while driving efficiencies in our operations and theirs.
Dawn Tiura, CEO and President of SIG, SIG University and Future of Sourcing Digital Publication, has over 26 years leadership experience, with the past 22 years focused on the sourcing and outsourcing industry. In 2007, Dawn joined SIG as CEO, but has been active in SIG as a speaker and trusted advisor since 1999, bringing the latest developments in sourcing and outsourcing to SIG members. Prior to joining SIG, Dawn held leadership positions as CEO of Denali Group and before that as a partner in a CPA firm. Dawn is actively involved on a number of boards promoting civic, health and children's issues in the Jacksonville, Florida area. Dawn is a licensed CPA and has a BA from the University of Michigan and an MS in taxation from Golden Gate University. Dawn brings to SIG a culture of brainstorming and internal innovation.