Three Ways to Manage Supply Chain Crises
Indirect procurement professionals face a potent cocktail of challenges but there are steps they can take to reduce risk in their supply chains
It’s been a tumultuous few years for Maintenance, Repair and Operations (MRO) professionals and the most recent Indirect Procurement Report, published by RS and the Chartered Institute of Procurement and Supply (CIPS), indicates that 2023 will be no different.
The report, based on a global survey of indirect procurement professionals, reveals that 82% of respondents regard inflation as a major challenge over the next 12 months. The impact of COVID, Brexit, and the war in Ukraine remains apparent too, with 76% of respondents citing supply chain disruption as serious threat to procurement and 63% mentioning global political uncertainty. Research by contract management software provider DocuCollab likewise found that poor supply chain visibility and risk management featured in the top five procurement challenges of 2022.
All this is on top of day-to-day business pressures such as the need to cut operational budgets and deliver annualized savings, both of which were mentioned by more than 50% of respondents to the RS and CIPS survey.
Yet despite these difficult circumstances, many MRO procurement professionals retain an optimistic outlook, with 57% of those contributing to the Indirect Procurement Report saying they were confident that they could still deliver on the Environmental, Social and Governance (ESG) targets set by their organization.
1. Build Strong Relationships with Suppliers
What tactics can indirect procurement professionals use to help them manage these various crises? Focus on supply chain stability, says Martin Wakelin, UK Head of Indirect Procurement at dairy company Müller.
“Number one [priority], without question, is security of supply”
Martin Wakelin, Head of Indirect Procurement, Müller UK
“Number one [priority], without question, is security of supply,” he states. “Of course, inflation is important to a business like ours, but there are supplies like chemicals to clean our production machinery without which we would not be able to manufacture anything.
“So, security of supply falls out as number one, regardless of everything else.”
Helen Alder, Head of Knowledge & Learning Development at CIPS, agrees. “We’ve seen over COVID that there were certain supply chains just stocking out or stopping completely,” she says. “When that’s happening all over the place and in all sorts of supply chains, that’s a big problem.”
“A really good vendor understands your business and can add value”
Helen Alder, Head of Knowledge & Learning Development, CIPS
Alder’s advice is to talk to suppliers and build relationships based on trust and openness – and don’t underestimate their willingness to innovate to meet your changing needs.
“Collaboration is a really good idea,” she says. “You should be looking at not just collaborating with individual suppliers but collaboration within your whole supply chain. A really good vendor understands your business and can add value. It’s about the added value and not just about the price paid anymore.”
Costi Campi, Senior Vice President of Global Procurement for RS Integrated Supply, says that trust is the foundation of the relationship with strategic partners. “Our objective is to work collaboratively with our key partners on a mutual relationship built on trust. They need to understand our business to introduce ways to transform what we are doing and how we are doing it. Working together with trusted partners drives procurement and overall business process improvements.”
“Trusted relationships provide suppliers the freedom to speak their minds and explore more meaningful solutions.”
Costi Campi, Senior VP, Global Procurement, RS Integrated Supply
“RFPs don’t allow your suppliers the opportunity to demonstrate how they can drive efficiency and innovation,” Campi says. “Trusted relationships provide suppliers the freedom to speak their minds and explore more meaningful solutions.”
Research from the global consultancy firm McKinsey supports this call to build trusted relationships with suppliers. It found that compared to other businesses, companies with best-in-class procurement secure a 42% higher return for shareholders. To get to this position, procurement leaders need to ask questions such as do we deeply understand our suppliers’ industries and their dynamics and how are we sharing our insights with other functions to help protect revenues and margins?
2. Obtaining and Analyzing Data
Deeper understanding of your supply chain is part of effective risk management. As Jim Bureau, CEO of US-based provider of cloud-based business automation technology Jaggaer, told the website Procurement, “In the past, risk management was more of a reactive process.
“True resilience requires a 360-degree view of your supplier ecosystem. Procurement should know who their organization is doing business with. They need to know their vulnerabilities from every possible angle – quality, value, diversity, compliance, financial health, ESG and performance.”
This is particularly important in today’s high-risk environment as actions taken by the procurement team, and how they respond to challenges, affects the whole business, says Campi.
Procurement teams must actively monitor what’s happening in their markets, she added. Data has a critical role to play in this, regardless of industry or sector, as this enables tracking of spending and details of what money is being spent on.
“The most common hurdle to a successful procurement program is poor data.“
Robert Kline, Chief Technology Officer, RS Integrated Supply
“The most common hurdle to a successful procurement program is poor data,” says Robert Kline, Chief Technology Officer, RS Integrated Supply. “Regardless of how capable your procurement team is, without proper and reliable data, they will struggle. They won’t have visibility to the trends and any leading indicators. Poor data really ties their hands.”
3. Embrace Resilience
“Clearly, there are lessons to be learned. We must recognize the opportunity we’re presented with and take advantage of it.”
Costi Campi, Senior VP, Global Procurement, RS Integrated Supply
Times may be tough for those working in MRO procurement, as the RS and CIPS study shows, but Campi believes that by understanding the lessons being taught during this difficult period positions procurement teams to develop stronger strategies. “Clearly, there are lessons to be learned. We must recognize the opportunity we’re presented with and take advantage of it.”
A report from McKinsey supports this view, demonstrating that lessons learnt from current issues can inform innovation in procurement processes and structures. If handled well, current challenges allow indirect procurement professionals to better manage the future crises that will no doubt emerge.
Indirect procurement professionals face numerous challenges, including inflation, supply chain disruption, and global political uncertainty. To overcome these challenges, procurement professionals must focus on building strong relationships with suppliers, obtaining, and analyzing data, and embracing resilience. By doing so, they can reduce risk and improve their supply chains, ensuring their organizations remain competitive in the ever-changing global market