We’re continuing our foray into the top barriers to success that we outlined in our top barriers post that chronicles the barriers that keep coming up over and over again in every Procurement survey in our effort to ensure that you don’t have to read another state of procurement study for the next 5 years. Today it’s a matter of priorities.
A Brief History …
Once upon a time, in the Industrial Revolution and the Gilded Age that followed, there was only one priority for a business. Make profit. That was it. The rich controlled the businesses, the government, and the economy, so their only priority was their priority, and their priority was to stay rich and get richer. (Now, it could be argued that this is the situation today, and in many countries, it certainly is, again, but there was a period of time that it wasn’t.)
But then workers, tired of giving up 9.5 of every 10 cookies made to their rich bosses who did nothing but sit around all day in their sitting rooms and lodges, rose up and formed unions. Despite the best efforts of union busters, these unions became prominent and workers slowly got rights. About the same time, the masses, who were pursuing votes for all (and I mean all, in the early days in some countries, only the rich men could vote; and while we all, hopefully, remember women’s suffrage, before that the working class men had to go through the same thing in many of these countries and, honestly, really should have been more understanding when the women demanded equal voting rights, but this is neither a history site nor a feminist site so we will end this discussion here), slowly managed to elect officials that cemented the rights of unions and the working class.
Initially this led to fair compensation and worker’s rights that had to be respected, but when it became clear that companies were not only poisoning workers with unsafe working conditions (starting with the creation of asbestos and then hazardous chemicals and pesticides and PFES and so on), but the environment as well, then you had environmental laws to contend with. Then when mass marketing mania began in the 1960s, consumers began to realize how much power they had when there were alternative options to meet a household’s needs (as the increasing pace of innovation meant that it was only a few years before a competitor came out with a competing product), and the importance of brand management magnified. Then you had more laws, and sanctions, around import and export as global trade expanded and so on. Of course, this led to the rise in Human Resources departments, Risk Management departments, and even Brand Management departments in the larger corporations. Moreover, let’s not even discuss “Diversity Initiatives”, which fall under HR in the many countries they still exist in (because they have evolved from equal “opportunity” through equal “outcomes” to “outcome targets” and that is NOT equal opportunity)!
The Problem
Now, for every decision that needs to be made, you have a profit priority, an environmental/sustainability/carbon priority, a risk priority, a geographic priority (near/friend shoring, forced or corporate mandated sanctions, etc.), a workplace safety priority, and so on — and the “top” priority is different for every single department. HR: worker well-fare. Procurement: savings. Supply Chain: supply assurance. Logistics: carbon or cost, depending on the country. Manufacturing: quality. Brand: ESG. And so on.
The Necessary Realization
It’s a mouthful, but its existed for decades: multi-objective optimization subject to absolute and preferred minimums and maximums, and the estimated cost of breaking a preferred minimum or maximum relative to the dominant priority.
Basically, the C-suite agrees on an overall hierarchy of priorities as well as absolute and relative minimums/maximums and goals for each priority that have to be adhered to by each department, who will, of course, strive to put their priority first (but can only be allowed to do so to the extent that the other priorities aren’t compromised).
This means that, for supply chain, they can optimize for supply assurance and on-time availability provided that they meet the:
- organizational carbon target
- geographic priorities
- cost targets (based on contracts, procurement models, etc.)
- quality and safety targets
and that they can only
- go above the carbon target,
- choose higher risk countries,
- increase the cost, or
- decrease the overall quality
if the percentage increase in assurance is double the increase in carbon (or some other agreed upon multiple), prevents a significant stockout loss, etc.
Then, all of this can be fed into an appropriately defined optimization model that will present one or balanced scenarios that meets the absolutes and only misses a goal if it’s necessary to hit another goal or brings about more benefit on one dimension than detriment on another.
While not everyone will see the solution that Procurement, Supply Chain, Logistics, or (Brand) Marketing comes up with as optimal, at least their baseline requirements will be met and it will be easier to get agreement and encourage collaboration.
There’s no perfect answer here as there will always be multiple viewpoints, but if you can show that you took everyone’s priority and requirements into account, it will open opportunities for collaboration and get everyone started on the same page.
The Technological Requirements
The technological requirements are considerable and require supply chain aware sourcing and sourcing aware supply chain and expertise from source to sink and back again on both sides.
A continuing reminder that if you want guidance in the short term, hope that your favourite provider reaches out to Bob Ferrari of Supply Chain Matters or the doctor and enables us to focus on writing the series (or in-depth e-book) explaining what modern Procurement and Supply Chain Tech needs to look like (and how it needs to be implemented) to address the challenges, reduce the risks, and address the priorities versus just dripping out tidbits as free time permits.