Category Archives: Supply Chain

Is it time for Supply Driven Demand Creation?

For the past two decades, the goal was JIT DDS — Just in Time Demand Driven Supply — and the ultimate in Sourcing and Procurement was sourcing and procuring to optimize that mode of operation as it minimized costs and maximized revenue. In theory at least. And for a while, more often than not, it did in practice.

When predictability and reliability is high on both the customer side and the supply side, JIT DDS is the ultimate source-to-supply goal. Optimizing delivery time (JIT) minimizes inventory cost and waste, allows shipments to be right sized, and makes cashflow more predictable as spend appropriately correlated to sales. Accurate forecasting (DDS) optimizes sourcing events, minimizes stock-outs, and minimizes waste.

But what happens when:

  • customer demand is unpredictable due to rapid changes in inflation, employment, tarrifs, and other factors
  • supply lines get caught off with little to no warning thanks to strikes, pandemics, wars, and droughts
  • raw materials get scarce or suddenly become unavailable

Supply Stops. Then sales stop. Everything breaks. And there’s no quick fix.

Now, that’s why you have visibility, monitoring, multiple sources of supply, mitigation plans, etc. That works when there are alternate sources, alternate routes, and enough time to react — but when the sources depend on the same raw material or rare component, and that becomes unavailable, one or more of your product lines are brought to a halt. And there’s nothing you can do.

Except for preventing that situation from ever happening in the first place.

The only way to do that is to ensure you are not dependent on raw materials or rare components that could disappear literally overnight.

Which means that if you revenue is heavily dependent on products (and categories) that rely on these raw materials, you need to do your best to identify alternates wherever possible and if those alternates don’t allow you to make roughly the same product, you’ll have to work with marketing and sales to shift demand based on available supply.

In some categories, that won’t be possible — you can’t make certain electronics without rare earths, but you can shift to product designs that minimize them. Depending on the rare earth in question, any change in quantity will affect the design options — not just in material composition, but in size, performance, and cost. If the cost goes up, or performance goes down, it could be difficult to convince the market an alternate design or product is better, but if there are no other real options, that’s what has to happen.

Which is why success in turbulent times is dependent on supply driven demand — and, more importantly, an abandonment of JIT to balanced inventory where enough supply is kept on hand to survive the average delay expected by an interruption, with a buffer.

Is Global Sourcing Still Worth It?

Think about the baseline requirements.

  • Supplier Selection
    • potential supplier identification
    • verification and risk analysis
    • onboarding
  • Purchase Order Generation
    • order creation
    • transmission
    • acknowledgement
  • Route and Carrier Selection
    • potential route identification
    • potential carrier identification for remote trucking, ocean/air freight, local trucking
    • final carrier selection
    • cross-dock identification
    • FTZ identification
    • route selection based on cost and network balance
    • carrier selection
  • Transport Insurance
    • multi-quote obtainment and analysis
    • insurance provider selection
  • (Inventory) Financing
  • Trade Document Creation
    • export document creation
    • (automated) cargo manifests
    • import document creation, inc. security filings
  • Transport & Shipment Tracking
    • loading
    • transit
    • cross-docking
  • Importation
    • holds
    • inspection
    • tariffs
  • Documentation
    • goods receipt
    • invoice acknowledgement
  • Payment, Taxation & Reconciliation
    • payment authorization
    • pre-clearance
    • tax payment
    • supplier payment
    • refund tracking
    • refund collection
    • reconciliation

These are just baseline. Even the most simple global sourcing situation is insanely complicated. On top of this:

  • supplier risk analysis is insanely complicated as you have to consider all the supplier risks and supplier location risks
  • … as well as the raw material risks that affect their ability to acquire the materials and components they need to produce their product
  • carrier risk is also complicated as rapid fuel increases or primary lane closures that cuts off a significant portion of their revenue can take a financially healthy carrier to an almost bankrupt one
  • tariff risk is now a thing as one major country in particular changes tariffs on the whims of its leader; outdoing the chaos Brazil charged when it was changing tariffs weekly
  • insurance risk is real as the increasing risk of natural and man made disasters has resulted in insurance rates going up
  • every year, even though you’re paying more for insurance, more and more exclusions are being added with conflict, war, and piracy on the rise (again)
  • export, manifest, and import documentation, as well as tariff filings, are becoming insanely more complicated by the year … with every country and carrier having different requirements
  • the countries with e-invoice requirements (clearance and post-audit) tend to invent their own, slightly different, requirements and dealing with global invoices from 100 countries requires 100 different rule sets — that’s why there are vendors that just do global e-invoice compliance
  • global e-payments can be complicated as well … not all countries support your favourite e-transfer platform, accept your primary bank’s payment network, or deal with your preferred currency
  • VAT/Taxes can be just as difficult to pay, and ten times more difficult to reclaim

So, if you can get the stuff locally, or next door (i.e. one country over), why should you go global?

Especially when the cost argument doesn’t cut it anymore. Even if the model still comes out making the global source cheaper, the cost of risk, which needs to be taken into account as the potential of any multinational experiencing at least one major disruption a year is approaching 100%, means that the losses in any category will eventually exceed the savings (because the chances of a disruption for any major lane or supplier increase over time — you can’t treat it as an independent event because even coin flips aren’t independent — one is 50/50; but if 9 in a row have been heads, the chance of tails is almost 98%).

In other words, if it’s not necessary, does it still make sense?

Creating a Source-Ready Supply Chain …

It’s never been easy, as there have been challenges since the dawn of time with maintaining trade routes, but we’re at a point where it’s now getting harder by the day.

Disruptions are regular.
Risk is high.
Logistics costs are high and spike regularly.
Suppliers are in constant peril.
Markets are unpredictable.
And the list goes on.

How do you create a source-ready supply chain? We know that, especially in manufacturing, you have to direct source with supply chain awareness. (As per our joint series with Bob Ferrari on how direct sourcing solutions don’t work for direct.) We also know that you have to more finely classify your categories in order to come up with appropriate sourcing strategies and day-to-day Procurement Management. That’s why we created Busch-Lamoureux Exact Purchasing which, based on the pocket cube, is the first framework with a real shot at succeeding because it’s the first to admit that risk, complexity, and impact are all fully independent dimensions and that’s why the Kraljic Matrix, and every 2*2 methodology that evolved from it, doesn’t work. And we know that centralization doesn’t work, center-led is decades behind (it’s a center of excellence that shares knowledge and best practices and orchestrates Sourcing and Procurement, with Logistics and Supply Chain, but doesn’t actually execute), and Procurement as a whole has, more-or-less, learned nothing in the past two decades (see our previous posts).

We know a lot on what not to do, and we know a lot on what to do, but what’s the cohesive strategy for a source-ready supply chain? That’s the 40 Trillion dollar question.

And there is no good, or at least no simple, answer.

But there is one common thread.

Human Centric Supply Chains

There’s been one constant in trade since it began. Two, human, parties working out an agreement to exchange goods, where the goods might be currency that represents the ability to buy goods from a third party.

Supply Chains are not managed by technology, not enabled by motorized transportation, and not designed by agentic systems. This is all done by way of human intelligence who deploy the technology to help them be efficient, use modern transportation to speed it up, and agentic systems to help them execute repetitive processes. But the common thread is human intelligence — intelligent humans applying their problem solving, risk management, and wisdom to solve problems, design processes, and apply the right technology to the task. And, most importantly, ignoring (hallucinatory) Gen-AI and hands-off agentic systems. Intelligent humans use the best augmented intelligence technology to maximize their efficiency and effectiveness, 10X-ing their capabilities compared to peers, but they ignore technology that makes decisions — they keep the decisions and strategic analysis to themselves (and their mental acuity in tip-top condition) and use tech for what it is best at, data crunching and tactical processing.

This means that a source-ready supply chain is one that is staffed by intelligent, educated humans across all key functions and locations who can bring wisdom and problem solving to any issue that might arrive and conquer it. Intelligent, educated humans that never cease their quest to learn, improve, and evolve … intelligently … while applying, when it’s appropriate, all the best practice advice that SI has given you over the past two decades.

Center-Orchestrated Procurement Requires Unique Platforms

In our last few articles, we’ve been writing a lot about the need for center-orchestrated Procurement due to the current global trade environment. As a result of this, a number of policies, processes, and platforms will need to change for a modern global Procurement organization in order for it to be efficient, effective, and even endorsed.

While the core platform requirements don’t change, the unique requirements for the platform are different. When you only have to serve yourself, whatever works for you is good enough. But when you have to serve a diverse base of global users, who have to adhere to a diverse spectrum of global requirement, what works for you is sometimes completely irrelevant.

Then there’s also the fact that center-orchestrated procurement, by definition, requires:

  • orchestration — if the platform can’t orchestrate data streams, workflows, and users, it’s not sufficient
  • common data model — every platform must support the common data model in the central data store to allow for easy data integration and cross organization analytics
  • centralized supplier onboarding — there needs to be a central supplier master and management platform
  • “excellence” — if the platform can’t encode and distribute best practices across the global organization, it’s not the right platform
  • standards — efficiency comes from standardization to the extent possible, if the platform doesn’t support that, it’s no good
  • supply chain awareness — it needs to integrate with the logistics, supply chain, and PLM systems in order to allow for organizational aware sourcing and procurement
  • knowledge management — it should capture all of the knowledge needed to run the orchestrated workflows effectively
  • global risk management — all of the risks must be identified, tracked, mitigated and managed centrally

Breaking this down, you can see that before any sourcing or procurement platform, it needs to support:

  • real orchestration support — it needs a fully defined API that allows all data to be pushed in or pulled out, functions to be executed, and workflows to be configured; it can be a standard REST API or MCP, but it has to be orcehstratable
  • centralized common data model and data federation platform — that can support all sourcing and procurement data collected and generated by all systems with the ability to define the external system mappings as appropriate; this doesn’t mean the organization dumps everything into a lake / warehouse / lakehouse, but builds the foundation for federated data analysis as the best analytics platforms can pull in the data needed on demand when they have a common data model to work off of (pre-defined mappings from the global organizational systems, and a designation as to which system is “master” for any specific piece of data — which means the data model specifies, for each datum, the master system)
  • centralized supplier onboarding — the central supplier master should support global supplier onboarding; if it can’t be localized as needed (language, accessibility, etc.), then it needs to support fine-grained orchestration that will allow a local platform to mimic the global requirements and feed all of the data into the central system
  • excellence — any platform used for centralized operations need to support the creation of specialized workflows for each region, location, and project; moreover, the specialized workflows need to inherit the global requirements while supporting the regional and local overrides with minimal effort; nothing should have to be defined twice and no unnecessary work duplicated
  • standards — the platform needs to support multiple authentication, security, and privacy standards and implementations to meet global requirements; remember, different countries will require different security protocols, login protocols, privacy requirements, government platform integrations, etc. — the global platforms you select must support switching them in and out as needed by the locale
  • supply chain awareness — the platform needs to understand your supply chain data model and be capable of integrating with your supply chain platforms to integrate the required data to make supply chain aware decisions
  • knowledge management — the platforms must capture more than process, they must capture the decision making frameworks used to select and execute the processes and do the required analytics; for the categories, they must cover the strategy; for the suppliers, the soft evaluation criteria based on the objective and subjective rankings; for Procurement process selection — catalog vs. RFQ vs. tail-spend provider — the logic used; etc.
  • global risk management — a solution for identifying, tracking, and monitoring changes in global risk criteria and alerts and pushing out relevant information to the appropriate regions and locations through the tools the end users actually use (using the built-in orchestration capabilities)

In other words, the platform has to be a lot more adaptive, layered, and customizable than most platforms in use today.