How Scarcity Could Lead to a New Procurement Relationship
As the supply chain management profession closes out 2023, we collectively reevaluate the year, mull over the possibilities for the future and contemplate options to facilitate the best course of action to balance spend and increase growth.
With a swath of political, economic and climate challenges yet to be tamed, global enterprises must amass the risks of uncertainty with new approaches meant to curtail their ramifications. As such, a scarcity remains across the supply chain ecosystem affecting supply, customer demand and the talent needed to achieve balance.
The root of many business success stories, no matter how tumultuous the circumstances, can be found in procurement relationships. “Regardless of economic conditions, you’re going to hold on to the best people,” says Paul Archiopoli, MS, C.P.M., CPIM, CMFGE, Institute for Supply Management® (ISM®) subject matter expert and supply chain and operations leader.
A recent article in Modern Materials Handling examined scarcity in procurement through the insights of former Johnson & Johnson (J&J) CPO Len DeCandia, posing a shift in perspective worth consideration. His thoughts shed light on a long-standing focus given to meeting customers’ expectations — leading to subsequent shortcomings in other business-critical relationships.
Archiopoli says, “DeCandia’s outlook brings forth an important conversation that no one is talking about, weighing metrics and outcomes. There’s an outcome metric and the leading metrics that drive the outcome. Leading metrics create happy customers. If you have unhappy and incompetent employees or poor suppliers, you can’t have happy customers. It’s a realization that customer satisfaction is an outcome of valued productive employees and reliable engaged suppliers.”
In the last 10 to 15 years, notes Archiopoli, the quality of many relationships has diminished. He says suppliers are sometimes treated as “disposable.” To reverse that trend, he says, “It comes down to ongoing communication, understanding suppliers in the course of day-to-day business and nurturing relationships over time.”
Employee motivation has evolved, Archiopoli adds, as today’s workers are often focused on short-term employment wish lists: a pay raise or on-site company service amenities, with less regard for traditional pensions since they are far less common than in the past. “It’s hard to keep talent because there is often no tangible benefit to staying,” he says.
The Cost of Customer Expectations
Unrealistic and unsustainable customer demands place undue pressure on manufacturers, suppliers and logistics partners, says Pawan Joshi, Ph.D., executive vice president products and strategy at e2open, an Austin, Texas-based global supply chain software company. “To meet this escalation of customer expectations, supply chain efficiency and profitability are strained,” Joshi says. The approach is myopic, he says, and may lead to broken customer relationships, dissatisfied employees and acrimonious partner (suppliers, carriers, re-sellers and more) ecosystems.
“Neglecting employee well-being can also result in higher turnover rates and increased costs.” Instead, Joshi suggests a balanced approach that includes the interests of all stakeholders and a change in customer relationship strategy.
Archiopoli attributes the scarcity of good employees and suppliers, in part, to the challenging nature of the supply management profession. He recommends actions that support a company’s standing as an employer or customer of choice. “The best employees and suppliers are those we want to work with and in an environment of scarcity, they have more choices,” he says, making best practices in recruitment and retainment a long-term key driver.
A New CPO Solution
DeCandia posed a modification to the closed loop procurement life cycle, consisting of three relationship management categories: employee (ERM), supplier (SRM) and customer (CRM), instituting a more balanced approach and overriding the focus on CRM.
For CPOs, Archiopoli concurs with DeCandia that the equation supporting success is ERM + SRM = CRM. “With satisfied employees and satisfied suppliers, you increase the chances for satisfied customers,” though he adds certain caveats.
When things don’t go as planned, emotions run high and, in those moments, he says, the core of those relationships kick in. “Supply chain executives need to keep investing in their people, regardless of internal and external conditions,” Archiopoli says. “You’ll retain more people and gain a solid reputation from your employees and your suppliers.”
Businesses should diversify their supplier network, says Joshi, and conduct regular assessments, maintain open communication, establish reserve inventories and foster collaborative relationships. By identifying alternative sourcing options, companies can optimize inventory management and build resiliency.
To further address scarcity challenges, Joshi adds that companies should “embrace technology to examine risk factors and gain supply chain visibility.” He says the numerous supply chain touch points dictate the need for 360-degree visibility across tiers enabling quick pivots, when needed, in real time.
Filling the Talent Void Efficiently
Amid times of uncertainty, when financial retraction is necessary, addressing procurement talent scarcity effectively involves some of the same principles evident during economic abundance.
With scarcity in the talent pool, “you’re forced to rely on more of who and what you already have, which can add stress to your current head count,” says Archiopoli. From a cost standpoint, he advises maximizing the retention of valued employees.
He adds, “Some say AI can help, but I don’t think it’s there yet — even automation can create more work: more reports, charts, and graphs. At the end of the day, we still need people.”
Archiopoli advises CPOs looking to fill employee vacancies to seek people who are trainable and ready to develop additional competencies, though it may entail going “outside the box” to remain competitive against other companies looking to do the same.
To find the best people, he says to: (1) recruit and develop talent from the inside, (2) pull highly trained candidates from other organizations and (3) hire new students fresh out of college (both undergraduate and graduate).
Supply management remains a growing profession, Archiopoli states, but corresponding college programs are not numerous, making qualified job candidates highly desirable, heavily recruited and placed at the best companies offering better compensation rates.
Exogenous Pressures Rift Supply
Beyond scarcity of talent, external pressures and increasing geopolitical tensions must be considered carefully when seeking ERM, SRM and CRM balance, says Joshi, particularly involving supply chain strategies.
“Just in case (JIC) involves holding larger inventories to ensure readiness during disruptions but can be costly. Just in time (JIT) streamlines operations for efficiency but can be vulnerable to shortages.” Joshi recommends a hybrid approach, combining elements of JIC and JIT, offering agility with safety measures.
“AI systems can help navigate through exogenous pressures preventing margin declines. Through real-time data analysis, early threat detection averts risk and offers dynamic pricing strategies and valuable customer insights,” he says.
By diversifying sourcing, instituting digital technologies such as demand sensing and AI, real-time supplier collaboration is catalyzed, says Joshi. “A connected supply chain network works most efficiently when strategy aligns risk assessments, industry context and business goals and remains adaptable in today’s dynamic landscape.”
There are variances in when and what business model is applicable for the highest and best use, Archiopoli says: “Certain situations support JIT. For instance, in the case of building out an aircraft with A/B/C parts classifications, if you have really good supplier relationships, you can plan months or years in advance, and they will work to deliver materials within 24 hours of the time needed — illustrating JIT.”
Even in the JIT-intensive automotive industry, Joshi suggests that not all material and activities are JIT, as there are processes and materials that operate in a non-JIT manner.
Technology allows us to process massive amounts of information, says Joshi, providing timely insights and augmenting human decision-making processes increasing resiliency through times of scarcity.
Through transparency, everyone has an ability to succeed, Archiopoli says. “Being a decent human being will also go a long way to nurture employee and procurement relationships and build trust,” he says.
(Image credit: Getty Images/Scharfsinn86)