Category Archives: Supply Chain

Procurement Must Align With Supply Chains

Especially in direct, as Bob and I explained in detail in our Standard Sourcing Solutions Don’t Work for Direct.

While simplistic, almost obvious, and not prescriptive, it was nice to see a recent article over on India Shipping News that echoed some of the reasons why procurement must align with fulfillment in modern supply chains.

It noted that in today’s supply chain environment, for the ecosystem to function in a seamless manner, there needs to be perfect alignment between the procurement and the fulfillment networks.

One must remember that the outcomes of fulfillment are directly impacted by the Procurement decisions. These mainly include delivery, order accuracy, and inventory availability. The procurement strategies must also be informed by the fulfillment insights, which include delivery performance and demand patterns. The operations have now transformed from being independent to following a more collaborative approach.

And we still haven’t mentioned inventory levels. In retail, 8% stock-out is the traditional average. That’s a lot of lost revenue, and in low margin industries, quite a lot of lost profit. Without alignment, organizations’ unnecessarily lose money customers would be happy to give them while losing money in stale inventory that has to be fire-sold or discarded because the organization has too much of some products and materials and too little of others.

Now, the organization’s don’t have to merge, but they have to align … and the way that happens is through shared data, shared requirements, shared goals, and shared alignment. Fortunately, with today’s systems, data can be shared across the organization in real-time. With on-line collaboration, there’s no excuse for people not to come together and outline all of their requirements and ultimate goals. And there’s no excuse for the organizations to not get together and align on what’s the most critical, and for them not to go to their common boss (the CFO) and bless the rankings on the alignment (that will be used as weightings in optimization). Once you have the goals, the rankings, and the weightings, both sides can use optimization to make the right decisions that takes the needs of the other party in mind. (In fact, there’s no excuse for all of Procurement, Logistics, Supply Chain, and Inventory Management not to be 100% aligned at all times with the tried-and-true proven tools available today.)

In other words, not only must Procurement align, it can align, and there’s no reason it shouldn’t be aligned.

Execution Capacity has Always Been the Competitive Advantage in Supply Chain

And The Key is Still Automation, NOT AI!

A recent article over on Global Trade Magazine on Why Execution Capacity Is Becoming the Next Competitive Advantage in Supply Chain gets a number of things right.

1. Procurement and Supply Chain leaders are constantly being asked to do more with less, and, yes, this has been going on for years (and, to be precise, decades).

2. They are managing larger supplier ecosystems, responding to geopolitical disruptions, navigating inflationary pressures, adapting to shifting tariffs, and controlling costs across increasingly complex global operations. At the same time, executive teams expect procurement organizations to move faster, identify new savings opportunities, and strengthen business resilience.

3. The challenge is capacity.

Most enterprises already have capable procurement teams, well-defined sourcing strategies, and clear objectives. What they often lack is the bandwidth to execute those strategies consistently across thousands of suppliers, transactions, and commercial opportunities.

With one supply chain catastrophe after another of the man-made and natural variety (port strikes, border closings, tariffs, wars, strait and canal closings, factory fires, droughts, wild fires, volcanic eruptions, earthquakes, tsunamis, mine collapses, etc.), the constant uncertainty in your supply chain and underlying costs, and supply lines disappearing without warning, execution gaps are becoming increasingly visible, disruptive, and costly.

In order to manage these turbulent times, your organization needs alternate suppliers, alternate supply lanes, the ability to re-allocate orders daily, the ability to re-route shipments in real-time, and the ability to optimize your suppliers, supply lanes, order allocations, and shipment routings. And, most importantly, the ability to identify, and manage, these (alternate) suppliers, supply lanes, re-allocations, and re-routings across all products that must be sourced globally! In other words, execution capability across the Procurement and Supply Chain organizations.

But, as the article notes, in an average organization, only so many new suppliers can be identified, existing supplier relationships can be optimized, products can be strategically sourced, orders can be re-allocated, and shipments re-directed.

This is because, while most organizations have invested heavy in classic analytics, supplier intelligence, sourcing platforms, and risk management tools, they have simply invested in visibility, not execution!

According to the article, the answer is to go from “AI Assistance to AI Execution”. But that’s not the answer. It’s not “AI Assistance to AI Execution”. It’s “Tech Assistance to Tech Execution”, whatever form that tech may be … and for the most part, it’s classic automation, which, we’re sad to say, has existed for over a decade, and been largely ignored for that time.

Let’s take each of these requirements one by one:

Supplier Discovery: when the organization needs to source, or re-source, a product, the tool automatically searches the supplier network for all suppliers that supply a similar product and then weights them on key dimensions of product similarity and organizational supplier scoring criteria for suppliers in that category (based on information on the supplier in the network)

Supplier Optimization: for a product/category, automatically run analyses that identify the right mix of current and potentially new suppliers based upon a combined ability to supply the organization’s demand with enough “slush” to allow for a supplier becoming unavailable due to supplier issues, supply chain issues, or other issues without adding unnecessary bloat to the supply base. (Considering that organizations typically spend 80% or more with 20% of suppliers, most organizations have too many suppliers but not enough for key products or materials.) This mix will be automatically optimized with the right automation solutions.

Order (Re) Allocation: re-run forecasts weekly/daily, re-allocate orders based on stock-levels, probabilistic forecast predictions, current and expected lead-times, expected supplier/lane availability, contractual commitments, etc. and choose a balanced solution that will satisfy all the probable outcomes (using optimization, not random AI predictions)

Real-time Re-routing: for every multi-modal lane, re-routings can happen at every waypoint (where modes shift, cross-docking at warehouses/FTZs is utilized, or where stops occur); re-run the models based on supply chain updates daily and if carriers/routes for segments are expected to become unavailable, costs become too high, or delivery times would stretch out too long (or could be stretched out to lower costs), possibly issue re-routing orders

Required Data: Automation can automatically pull/push data on a daily/real-time basis

When you consider that modern AI falls into Gen-AI which is literally “make stuff up”, you can’t depend on it for critical supply chains where one mistake can be catastrophic. But, fortunately, there are systems out there that do all of the above reliably on classic RPA, optimization, and analytics. (And have been for about a decade.) Plus, with the recent SaaS price compression as a result of the AI Hype wave, it’s all very affordable.

So if you want to succeed, get these systems. They’ll allow you to manage all suppliers, all items, and all lanes. You’ll be able to execute on your strategy, provided you can come up with a strategy that is adaptive enough in today’s global economy.

Can You Truly Have Structured Risk Conversations without Exact Purchasing?

We’ve been talking a lot about the Busch-Lamoureux Exact Purchasing Pocket-Cube model lately because we’re never going to solve the exponentially proliferating Procurement problems unless we fix the fundamentals. And when it comes to risk management, it’s pointless unless the risks being managed are the ones that really matter relative to their criticality which should be defined not by Risk Management, but by Procurement based on the importance of the categories they impact.

If you look at risk in isolation, you’re going to focus on:

Traditional Risks

  • limited commodities, especially foodstuffs, where bad yields or natural disasters wipe them out, or minerals that come from limited mines
  • transportation shortages, where routes are at capacity and any man-made or natural event that impacts the lane in any way causes a shortage
  • factory limitations, as it’s a custom product that can only be produced by a few existing factories without extensive customization

And you’re going to completely ignore:

  • restricted commodities, where a significant percentage of global production comes from a single region, or country (and when that gets cut off, a glut of supply suddenly becomes a dearth of supply)
  • global transportation chokepoints, and what happens when a lack of rainfall limits the amount of traffic that can pass through the Panama Canal, the Red Sea closes, the Strait of Hormuz is cut off, etc.
  • local transportation chokepoints, such as the ILA controlled east-coast ports in US or the ILWU controlled west-coast ports in the US, and a strike cuts off your routes and back-up routes
  • skilled worker limitations because it’s not just the factory, it’s the work force, and if most of the workforce is > 60 and the educational/mentorship programs that trained the next generation workers were shut down … that factory is gone in a few years

And what you address might not be that important.

If you’re a traditional mechanical manufacturer, you’re only dependent upon rare earths for magnets and lighting, as most rare earths are in electronics. If you’re monitoring anything beyond the rare earths used in the magnets and lights you need to make/source, you’re wasting your time.

If everything being sourced through a taxed transportation network could be sourced from somewhere else through a network with a lot of capacity, at only a slightly higher price point, then you don’t really care about that transportation network.

If you’re dependent on two factories, and you aren’t monitoring the turnover, the influx of new workers, and the output of future workers in the local economy, you will someday, without warning, find yourself needing to find a new factory with a new supplier that will need to customize their production lines, processes, and workforce to your needs … which they may not be able to accomplish in time to keep your supply chain flowing and main product line in stock — which could risk your entire business model.

Meanwhile, you don’t notice the risk above where

  • 60% of the rare earth you depend on for your magnets are coming from different suppliers in China, so when a pandemic strikes and China institutes a no tolerance policy against a virus that can’t be eliminated, your supply goes up in smoke (and you had no warning to secure as much supply as you could while you still could)
  • you weren’t watching for events that could close the Strait of Hormuz (thinking the Red Sea was the end of it) and aren’t watching the Strait of Malaca (which carries almost 25% of global trade … so if the pirates leave Africa …)
  • you will get shocked when the ILWU contract expires on July 1, 2028 and the US West Coast ports shut down as the pay increase that was negotiated in the last round is NOT keeping up with the inflation your current administration is creating;
  • and so on.

And if you attempt to solve your supply chain risk identification by acquiring a multi-tier supply chain visibility and monitoring solution, you’ll get sucked down every risk rabbit hole that is identified based upon every raw material used anywhere in your supply chain and detected impact event.

Unless you are properly categorizing your purchases using Busch-Lamoureux Exact Purchasing, identifying those categories both high-risk and high-impact, and identifying what risks would be devastating to you, you aren’t addressing the right risks and any attempt at a structured conversation will be a waste of time.

And only then will you be able to identify:

  • where the impacts will be felt,
  • which functions need to be involved,
  • who should own the risk,
  • why identified monitoring via subscription data feeds is needed,
  • when a risk-related event is significant and needs to be manually assessed/addressed,
  • what needs to be done if significance is determined, and
  • how response success will be determined.

And then you can use the tips offered up by Greg Schlegel in his We Discuss Risk Regularly post to have truly successful risk management conversations.

Sourcing Excellence IS Optimization!

Sourcing Excellence requires optimization. Not AI. Optimization. We have finally reached a point where nothing else will get you there.

And Sourcing Excellence requires Paul Martyn. You need someone who has built and led programs, evaluated and employed multiple tools, and has the decades of experience to bring the insights you need instantly to the table. With many of the sourcing optimization greats (who founded CombineNet, VerticalNet Tigris, Trade Extensions, etc.) retired or moved on, the number of people left who have over two decades of practical experience are countable on your fingers (just like the number of analysts who have been consistently covering this space for two decades). Paul Martyn is one of the few, true, optimization masters left. So if you want to save your supply chain, reach out to Paul.

If you want to understand why, as well as why sourcing excellence truly requires optimization (as it’s time has finally come), since I know you won’t listen to me, read Paul’s ongoing Sourcing Excellence series, which just saw Part 11 published.

  1. Part 1: (Optimization is Thinking)
  2. Part 2: (Optimization Frames Reality)
  3. Part 3: (Optimization is More than a Capability)
  4. Part 4: (Optimization Changed the Game)
  5. Part 5: (Optimization Must Always Be On)
  6. Part 6: (AI is NOT Yet Fly in Procurement)
  7. Part 7: (Innovation is Just an Input)
  8. Part 8: (Orchestration is the Key)
  9. Part 9: (Value is a Game)
  10. Part 10: (Constraints Dictate)
  11. Part 11: (Constraints Vary)

When a Conflict Starts, It’s Already Too Late For Procurement To Pay Attention!

Supply Chains are not only hurting, they are breaking, and they have been since the US and Israel renewed the conflict with Iran and more-or-less brought the Strait of Hormuz to a close for pretty much every western country that is associated with the US.

A Strait that is critical not only for

  • global energy (as it normally sees 20% to 25% of global oil passing through it daily)

but also for

  • natural gas (up to 25%, at least it will further delay the AI Data Centers)
  • fertilizer (as it saw up to 50% of urea, ammonia, and sulphur supply passing through it daily, with the former a key fertilizer component)
  • methanol (but at least bootleggers will have to use real grain alcohol now) and petrochemicals
  • etc.

In other words, the Strait being close off is not just a logistics nightmare for the shipments you were expecting that needed to pass through the Strait on time, it’s a nightmare across your entire supply chain as all of your suppliers dependent on the oil, natural gas, chemicals, gasses, etc. that normally pass through the Strait daily are also suffering their own nightmares. Delays will compound through the chain for the lucky ones, and the rest will see shipments just stop.

And articles that tell you this is a leadership moment are missing the point.

Where it was critical, you should already have known your exposure, had monitoring in place, and been alerted the day the conflict started that an issue was coming your way.

Where supplier Force Majeure was unacceptable, you should already have had the flexibility in your contract to shift, pause, or end the contract immediately upon supplier failure.

Where supply was critical, you should have been geographically dual-or-tri sourcing with order escalation clauses built into the contracts so you can quickly secure supply when potential shortages are detected.

Where margins are tight or costs can vary widely based upon external events, your cost models should already be taking this into account, should be monitoring for market price changes, and should be updated upon such changes with immediate alerts if prices shift beyond typical market fluctuations.

And strategic and critical suppliers will already be treated as such. They will be given fair margins, access to buyer expertise that will help them with efficiency and negotiating their own raw material contracts, and placed in a financial position where they too can dual or tri-source and explore optionality in their own supply chains.

Because, as Paul Martyn commented on one of the many articles on why the conflict is apparently time to pay attention and step up (even though, as we stated in our opening, it’s already too late):

If you:

  • defer supplier investment –> you pay in disruption
  • squeeze supplier margin –> you pay in resilience loss
  • ignore (supply chain) optionality –> you pay in constrained decisions and lack of supply

The answer, of course, is to be paying attention to any high risk or high impact category from the day you identify it to the day you end the last product line that uses it. And to use the Busch-Lamoureux Exact Purchasing model to properly place your category, determine which cost factors and risks you need to track, how often, when alerts should be triggered, what mitigations can be taken up front, and what actions need to be taken when an issue likely to cause a disruption arises.