Daily Archives: July 6, 2016

Procurement is Complex. Is Your Platform Capable of Handling It?

There’s been a lot of analysis of Brexit — Britain’s decision to leave the EU — an analysis that SI has pretty much stayed out of. There’s a lot to be said about the issue, pro and con, and a lot of fallout that will occur in the times to come. But when you get right down to it, this is just another example of the dynamic, ever-changing nature, of supply chains — which cannot be predicted.

Supply chains are full of risks. There are risks that can be easily predicted, such as raw material shortages, strikes, fleet breakdowns, and so on. There are risks that can not be easily predicted — such as embargoes on regime changes, riots, and massive shifts in trade and politics almost overnight (such as what happens when a country votes to leave a political union that manages trade).

All of a sudden, your costs are changing. Some of your supply lanes are changing (as some lanes will no longer be feasible or viable for your carriers). And some of your partners are going away (as they decide that they don’t want to do business with you anymore or you decide they are too expensive). And you do not know how these costs are going to change, which lanes will suddenly be unavailable (or what new options will materialize), and which partners are the most likely to leave, or what the new supply chain will look like.

With so much changing, how do you figure out what your new costs are? Which carriers, and lanes, are viable? Which partners you still want to do business with, and which partners will still want to do business with you when all things are considered?

In order to figure this out, you need big damn cost models. Complex, formula-driven, calculations. Breakdowns that include all components, energy costs, labour costs, other overhead costs, logistics costs, storage costs, and other costs. Modifications for expected changes based on recent and projected trends. What if analysis based upon potential cost concessions for volume or cost increases for lack thereof. And so on.

And, as you should be well aware by now, advanced cost modelling, bill of materials, and value-optimization is not a capability found in the majority of Procurement platforms. Is it in yours? If it’s not, there will come a point, possibly very soon, where your platform fails to serve you. This is not something you can afford.

As the doctor has said many times, a modern procurement platform can be your salvation, but it has to be the right one. Or at least the right one for the task. The reality is, you might need two. If your organization has a lot of high-dollar indirect with complex transportation requirements but also has a lot of simple indirect and MRO, or has a lot of complex direct with a lot of simple or non-strategic tail spend, you might need an optimization-backed sourcing platform with a simple e-Negotiation suite for the junior buyers or a sophisticated direct sourcing platform with a tail-spend platform for the day to day Procurement professionals.

Before you get blindsided by an occurrence that has the potential to totally decimate your supply main models and destroy your cost baselines, make sure you have the right platforms in place to adapt and get the best value no matter what. Start now while your not-so-bright peers are taking this strange thing called “vacation”. You won’t be sorry.