Coming up on the one-year anniversary of North America’s big COVID surprise — we closed our offices on March 8th, but everyone really clued in on the 11th when the NBA shut their season down and Tom Hanks and Rita Wilson announced they had contracted it — media is awash with reviews of the last twelve months. What a strange time it’s been! From the mad rush for PPE to baking sourdough to buying up the world’s supply of hair clippers and all the business wear tops (but none of the bottoms), buying behavior has shifted entirely. Supply chains everywhere have been completely disrupted and are only now starting to reconnect. Even Wendy had to apologize to her patrons:
COVID has been a massive pressure test for every system, from supply chains reaching all the way across the planet to hyperlocal grocery shopping. It shined a blinding light on all of the fragility and thin margins on which many enterprises ran and highlighted all of the assumptions upon assumptions that were built into those structures. The ripple effect of emptying our factories, grounding our fleets, and completely shifting demand to unexpected categories has left procurement professionals reeling. Add climate change and its increasing effects in the form of wildfires, hurricanes, and droughts and the pressure ratchets way up in the red zone. The importance of Environmental, Social, and Corporate Governance (ESG) frameworks is only growing as boards and investors focus their attention on procurement risk. We’re living in an increasingly VUCA world, filled with volatility, uncertainty, complexity, and ambiguity and it’s rapidly highlighting the weaknesses in the systems we’ve built.
In many ways, we’ve become victims of our own success. Decades of focusing on procurement efficiency and margins have built highly effective procurement and supply chain machines, constructed on the premise of low-cost, outsourced production, just-in-time inventory management and delivery, and centralization through an increasingly small number of global suppliers. It was rare that supply chain issues made the front page of newspapers and news sites before 2020 but it’s now common: shortages in PPE, then in glass vials for vaccines, now in ocean containers and electronic components for cars. Our race to reduce product costs and eke out margins has been so successful that we were blinded to the downside: systemic fragility.
It’s tempting to look back at the supply chains in place at the time of the 1918 influenza epidemic — very localized, highly inefficient — and conclude that they ultimately offered far more resilience and continuity. If the factory up the road ran out of masks you could source them from one of the many other mask factories around. It would have taken quite a while and a letter writing campaign and maybe even a few horse rides, but the inefficiency and duplication of resources, affronts to today’s supply chain optimization gurus, provided pressure release valves. Forbes called out this coming shift back from Global to Local in their recent 2021 Business Trends Everyone Should be Ready For:
If the last year has taught us anything, perhaps it’s that change is the only constant. It’s a regular theme on this blog when we talk about transformations and the need to move to a constant state of evolution and agility. The outside perception of procurement is often the exact opposite: bureaucratic, ponderous obstacles to getting work done whose value lies only in grinding down suppliers and vendors. That might hit a little close to home for those inside procurement organizations — it’s a worst case scenario that is sadly common in large enterprises — but there’s no reason it has to remain the reality in a post-pandemic world. Other long held beliefs have been radically changed, like the need for big, expensive offices in shiny downtown towers. Now is the time for a procurement evolution toward resiliency and agility, leveraging automation and intelligent systems to optimize processes and free up time and brain power to provide higher value services.
Procurement in the Enterprise Orchestration Era
The Enterprise Orchestration Era elevates the role of Chief Procurement Officers and provides entirely new toolkits to their teams. CPOs will increasingly become trusted advisors to boards (hopefully before they find themselves in the hot seat), gaining a larger strategic role in managing supplier and supply chain risk. Rather than remaining administrative order takers, procurement professionals need to become master orchestrators, overseeing ever more complex ecosystems of suppliers and partners. You can join this new era by engineering your ecosystem, as we wrote in The Decoded Company, intentionally rethinking your approach to take advantage of these important trends.
Purpose is more important than ever
Driving costs to their lowest point can no longer be our driving force. Climate emergencies and younger generations of purpose-driven team members are pushing companies to live their values. This applies to procurement teams as much as anyone else. Lengthy supplier Codes of Conduct filled with boilerplate copy will no longer meet the needs of a modern supply chain. We can no longer simply monitor supplier compliance with environmental or workforce regulations but instead need to partner and collaborate to design new systems, leading to a purpose-led procurement approach.
“Historically, businesses have focused on supply chain consolidation, often resulting in suppliers being squeezed. However, the effect of these measures Is that they have removed buffers and flexibility to absorb disruptions such as COVID-19.”
Build resiliency at every step
We need to build resilience into every step of our supply chains by anticipating and planning for uncertainty. Question your long-held assumptions behind key decisions. No one could have anticipated all of the challenges 2020 brought, which only serves to highlight the importance of so-called ‘black swan events’ and the need to build capacity to handle them (everyone can predict a white swan but almost no one anticipates a black one). Resiliency for procurement might mean breaking down geographic, category, or team silos that cause communication challenges in a crisis. It could include building additional inventory of raw materials and finished products or shifting where those items are stored. It might mean planning for alternate, backup delivery routes and finding greater supplier diversity, especially locally, and even at additional cost. Resiliency doesn’t only mean responding to negative events — consider the agility needed by teams whose markets suddenly grew far beyond normal levels as we needed toilet paper, hair clippers, sourdough starter, and patio heaters. Consider how you would respond to a sudden and dramatic increase in market demand and plan for it.
Digitize and automate to move up the value chain
Procurement teams have ever greater access to new tools and platforms that can digitize and automate old, manual processes. The data from those new processes can be fed into intelligent systems that employ AI and machine learning to feed back into procurement operations and decision making. Our new work from home reality means teams will only be more dispersed and remote, driving the adoption of both generalized and role-specific collaboration tools. The output from these systems provides a holistic view of the supplier lifecycle and the risks to each member of the chain — data that will become more and more critical in reporting up to boards and steering committees.
Conducting global procurement
We’ve had the opportunity to work with some of the world’s largest procurement teams on supply chain optimizations, spend reductions, product cost outs, and operational transformations touching thousands of people and billions of dollars. Our Conductor™ platform is a proven solution to address these critical, highly visible, and ever-evolving requirements. I hope you’ll watch the webinar on demand to discover our work with global enterprises and how our Sensei Labs Conductor platform orchestrates enterprise procurement for CPOs to build continuity and resiliency.