In a previous post, I made a case for how the Chief Supply Chain Officer (CSCO) and Chief Procurement Officer (CPO) are smarter together. I took the viewpoint that as the need for supply chain resiliency becomes front and center, CSCOs and CPOs will need to collaborate very closely; and shared the reasons why this is more important than ever. Accordingly Supply Chain and Procurement will need continuous collaboration. However, in spite of the best intentions, such close collaboration has not always been practical. The processes at the boundaries of these organizations in many companies stayed fragmented and were highly manual at best.
However this is changing, thanks to new generation technologies and platforms that provide a holistic view of the extended supply chain with visibility to the supply base and the transactions flowing through. As the supply chain and the procurement teams come together, there are several use cases that can be tackled to add tremendous value to both the organizations and extended stakeholders. Here are some examples of such use cases.
- Building optionality in the supply chain through collaborative sourcing: Supply chain teams can proactively identify choke points within the existing network by leveraging emerging technologies such as digital twins and advanced analytics, and modeling their end-to-end supply chains. Based on this intelligence, they can in turn collaborate with sourcing to create events in consideration of supply chain needs. Such sourcing events can be in the context of direct materials or logistics capacity.
- Optimizing supplier selection combining the best of supply chain and sourcing attributes: Supply chain teams consider supplier lead times, supply variabilities, material requirements, and site level capabilities. Sourcing teams can help understand the total land costs and various supplier attributes supporting the company’s ESG (Environmental, Social, and Governance) and diversity efforts. In collaboration, the teams can decide not only the sources of supply, but also prioritize these sources into primary, secondary, tertiary and so on, while honoring contractual minimum commits.
- Optimizing business spend across the enterprise: A significant amount of enterprise spend is tied up between supply chain and procurement, in our view as high as 70% of the total spend in several cases. By aligning supply chain and procurement, spend can be considered more holistically. With tighter alignment between the two organizations and through the application of predictive analytics, the CFO and the Treasurer can benefit in a big way by having much more reliable cash flow forecasts.
- Securing contingent workforce to support supply chain needs: As businesses grapple with increasingly volatile demand patterns and heavy seasonal spikes such as holiday seasons, temporary labor becomes increasingly important for operating supply chains without disruption. Supply chain leaders will need to collaborate with procurement leaders to ensure that they adequately capture contingent workforce needs, support sourcing in bidding for suppliers, and vet them for successful qualification and selection.
- Mitigating supplier risk: As supply chain leaders engage with the supplier community, procurement teams can lend significant support in helping assess supplier performance, scorecarding, and tiering by risk profile. As an example, a supplier who had never taken supply chain financing and now requesting this option, or a supplier requesting more frequent access to financing can be a trigger to dive deeper to see if the supplier is facing a liquidity risk. News sources can be scanned for judicial risks such as lawsuits filed against the supplier. Proactive measures can then be taken to mitigate supplier risks, either by engaging in supplier audits or by looking for alternate sources rather than scrambling and reacting when disruptions happen. Making this an integral part of the supply chain operating model can significantly augment business continuity and risk mitigation efforts.
- Collaborating with suppliers on demand forecasts, inventory, and capacity: Supply chain teams can make optimal projections of material and capacity needs by supplier. Such visibility can help the procurement team engage closely with suppliers and in turn help suppliers streamline their own operations, resulting in significant cost savings for both parties. Through collaboration, supplier inventories can be closely monitored for any shortages and proactive interventions. This can in turn benefit Tier 2 suppliers and beyond.
- Improving end-to-end visibility and regulatory compliance: Progressive sourcing organizations are working very closely with their supplier community, amassing a wealth of information on sources of supply, their ESG (Environmental, Social, and Governance) and overall business practices, and gaining visibility into multiple tiers of supply. They also join broader consortia, take advantage of pooled buying opportunities and platforms that provide benchmarks and best practices by tapping into community intelligence. Supply chain teams can greatly benefit from such intelligence harnessed by the procurement organization. Supply chain teams in turn can supplement such visibility with “where used” reports that clearly link purchased materials to wherever they get used in the manufacturing and packaging process.
These are some of the many possibilities where supply chain and procurement together can drive competitive differentiation for their organizations, making decisions with the right balance of profitability, service, risk, and sustainability. As external factors continue to have outsized influence on businesses and supply chains associated with them, tighter alignment and collaboration between these organizations can create sustainable competitive advantage as shown by market leaders.
Dr. Madhav Durbha is the Vice President of Supply Chain Strategy Coupa Software, where his team helps customers and prospects solve various supply chain challenges. Prior to Coupa, Dr. Durbha held positions at LLamasoft, Kinaxis, JDA Software and i2 Technologies, Inc. With more than 20 years in the supply chain industry, Dr. Durbha has broad experience in strategy & process consulting, supply chain software, program management, software application development & deployment, machine learning and data science. He received his Ph.D. in chemical engineering from the University of Florida and his bachelor’s degree in chemical engineering from the Indian Institute of Technology at Madras.