“The Grocery Code of Conduct is a significant step toward improving the resiliency and efficiency of the grocery supply chain. The primary objective is not to directly rebalance market power, regulate fair dealing, or set the level of retail fees, but rather to improve supply chain relationships through principles of predictability, transparency and fair dealing.” – DH Canada (January 17, 2023)
It wasn't that long ago that I wrote an article regarding the largest Canadian grocer – Loblaws, and their headline-grabbing stare-down price dispute with the global brand Frito-Lay. Here is the link to that post titled The Inflated Supply Chain: How To Navigate The Complexity Of Doing Business During A Period Of Rising Inflation.
The primary focus of the piece was – as the article’s title suggests, understanding the impact of inflation on supply chains. However, beyond the big picture story in which inflation takes center stage, there is an underlying theme. The theme I refer to is how buyer-supplier relationships affect inflation and other supply chain disruptions.
The buyer-supplier relationship's impact on inflation, not the other way around, is not a typo. As the age-old saying goes, it is not what happens to you but how you react to it that matters.
For the sake of expedience, the following high-level bullet points should provide a solid understanding of the Loblaws and Frito-Lay situation at the time and the government’s intervention to resolve the dispute. This overview will help you better understand why the government is introducing the grocery conduct code.
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.
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.
With the evolution of procurement and the shift from a reactive, “three-bid-and-buy” scenario to more advanced means of sourcing, Category Management often is a concept best placed at the latter end of the spectrum. This makes sense because if you still quote products and services on an as-needed basis, you likely haven’t introduced the concept of collectively sourcing all spend within the category or subcategory. That reactionary approach may be the result of several things -- lack of support from the business, a misunderstanding of Procurement’s role, an inadequate process or workflow, or a combination of all of the above.
On the other side, many organizations have Category Management structures in place, or at least claim to. From my experience, an organization saying it has a framework for Category Management and an organization actually having such a framework are two very different things. More often than not, organizations will either employ a homegrown version of the methodology or leverage something that’s really not like Category Management at all.
Category Management can be approached differently based on several factors, including the industry you are in, whether you are service or product focused, what model of procurement you apply (centralized, decentralized, or center led), what drives the most spend in the organization and so on. As a result, I don’t think there is a strict rulebook on how to apply Category Management to your business.
While no two organizations will approach Category Management the same, these best practices should help any organization ensure their unique methodology is effective.
Jennifer Ulrich, Associate Director, Source One, a Corcentric Company