The era of scarcity will shape the future of procurement

I think it’s safe to say that there is no debate that we live in an era of unpredictability. This applies to business in general and the supply chain in particular. Who could have predicted that post-pandemic business would be brought to another harsh halt by an extreme winter storm in Texas or a ship endlessly stuck in the Suez Canal? A Russian invasion of Ukraine would have been foreseeable, but the likelihood of Ukraine putting up a savage defense that would put Russia on its heels? I do not think so.

However, there is debate as to whether the effects of these disruptions are permanent or temporary. One camp argues that we will soon overcome this hump and return to normal business. The other suggests that decades of growth, abundance and endless consumer choice are coming to an end. Not only in emerging markets, where supply has always been scarce, but also in developed countries like the USA

Put Len DeCandia, Johnson & Johnson’s former global chief procurement officer, among the skeptics. “I never believed that the supply issues we’re facing were demand-driven and temporary,” says DeCandia. “Rather, we are moving from an era of plenty to an era of scarcity.”

DeCandia examines the era of scarcity in detail in an article I just published on entitled “Supplier Relationship Management: A New Era for Growth.” You can access the article by clicking here.

I don’t want to steal the thunder from DeCandia — read the article — but here’s a teaser. Part of his argument is that after the fall of the Berlin Wall, the economy operated in a more open environment, with new trade pacts and greater collaboration than ever before. Since supply was plentiful, companies invested where the money was: with the customer.

As a result, the customer has more channels, access to more information, and more ways to interact with the companies they do business with than ever before. In supply chains, we have invested in efficiency and cost reduction. Vendors were an afterthought; as well as the ability to maintain supplier relationships. The trend in recent years has been towards working with fewer and larger suppliers than opening up new sources of supply.

One might imagine investing in CRM – the customer – rather than SRM – the supplier.

In the face of endless disruptions from labor shortages, political instability, energy spikes, and extreme weather events, supply chains designed for abundance are faltering. It may be time to flip that script, says DeCandia: “This new era of scarcity will require a new definition of where we invest.”

The companies that will increase their market share in times of scarcity will be the ones that have products in stock or on the shelf when a customer makes a purchasing decision. In all likelihood, this will result in organizations with the competencies to develop a supplier base and maintain supplier relationships. Those are completely different skills. “We need to decide what skills we need to be competitive, and then we need to invest in those,” says DeCandia.

Think of it as SRM versus CRM.

Here are some of the areas DeCandia believes will require new skills and new investments.

Geography: There has been a lot of news about supply chain reconfiguration, including strategies such as China Plus One, re-shoring and near-shoring. “We forget that we need capabilities in those regions before we can invest in new regions,” says DeCandia. “Look at computer chips. If we’re going to create it here, what skills do I need to give me a competitive advantage? And what skills do I need to procure or partner with? We have to identify these and invest in them.”

New perspective on leadership: DeCandia says that when making decisions, most organizations invest in managers as leaders of the people in their organization. It’s an internal focus. “We get people and budgets,” he says. “But 99% of the time those budgets are spent on third parties.” What’s needed, he argues, are the skills and tools to manage those external supplier relationships. This is an external focus.

Look beyond the price: Historically, the primary role of procurement could have been described as: But what have you been doing for me lately? The goal was price containment and cost reduction. In an era of scarcity, DeCandia believes the ability to accelerate and scale innovation will trump a narrow focus on price. “We have to develop a strategic view, or we fall behind the competition,” he says.

Become an internal employee: In the course of the digital transformation of procurement, a number of traditional tasks, such as B. the creation of RFPs and orders, automated. DeCandia’s question: If we give procurement professionals more time, what will they do? “We have to become internal employees,” he says. “We can help organizations on their way from abundance to scarcity.”

Become an influencer: One consequence of becoming an employee is becoming an influencer. “No matter where you sit in your business, you have to be an influencer, and you can only do that if you can solve problems,” notes DeCandia. For example, integrate sourcing early in the new product development process and it can be the bridge between R&D and the commercialization of a product.

More ESG: There is no question that environmental, social and governance (ESG) will no longer be owned by marketing, at least for now. It’s moving from the boardroom to the C-suite to operations as customers and Wall Street pay attention to a company’s actions. “We’re moving into an era of greater transparency,” says DeCandia. “We can’t promise anything we can’t deliver, and those promises extend to our ability to influence our network of suppliers to achieve business goals and regulatory compliance.”

The supply chain in general and sourcing in particular play an important role in ESG. For example, DeCandia notes that during his tenure as CPO, J&J doubled its spend on various suppliers, which was important in building the company’s innovation pipeline. “It’s critical to leverage the supplier base to introduce scale, speed and growth,” he says. He adds that having a portfolio of diverse and local suppliers who have been able to continue operating during COVID has helped J&J navigate the pandemic.

What excites DeCandia most about the future of procurement? “More than any other time,” he says, “procurement has an opportunity to be part of growth and not just cost containment.”

In a time of scarcity, this is a good position.

About the author

Bob Trebilcock Bob Trebilcock, Editor-in-Chief, has covered materials handling, technology, logistics and supply chain issues for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. Trebilcock is a graduate of Bowling Green State University and lives in Chicago. He can be reached at 603-852-8976.

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