It’s been a while since I’ve written a free research paper – especially one on the topic of sourcing (which is how I got into the procurement sector in the first place). Most of my writing these days is on Spend Matters PRO, offering research and analysis for our members. But today, I'm excited to announce my first return in months to the “free” procurement essay, this one titled When Sourcing Becomes Supply Chain. Readers may also find of interest our Spend Matters Plus/PRO premium articles covering indirect, direct, and services sourcing (and e-sourcing), as well as our free research on the e-sourcing market.
I began the paper with the suggestion that in many companies, even manufacturers, the view of supply chain is quite different from that of procurement. Even though supply chain involves both in-bound (supplier) and out-bound (fulfillment/ sales) processes to move goods and/or services, unlike procurement it is largely a demand-driven function based on forecasts, orders, and so forth. At its core, supply chain is data-driven and quantitative.
The goal for many supply chain practitioners is simple indeed – have enough inventory on-hand , but don’t get stuck with too much of it, regardless of what part of the supply chain (shop floor, warehouse, tier one suppliers, etc.) you are looking at. Of course this is easier said than done, but the rise of supply chain efforts and intensified supplier/customer collaboration in areas such as just-in-time, lean, available-to-promise, capable-to-promise, and sales and operations planning (S&OP), just to name a few, have put analytics and insight at the heart of the function.
In contrast, procurement as a general function is still becoming data-driven. There are certain exceptions to this. For example, sourcing efforts are increasingly relying on spend analysis initiatives to pinpoint the biggest opportunities for cost reduction (spend aggregation, supplier rationalization, buying off common price/terms, using escalation/de-escalation clauses to track underlying commodity price swings, etc.). However, we would be hard pressed to describe the typical procurement organization today as data-driven at the core. Purchasing – yes, it is still too often just “purchasing” – is ruled by instinct, habit, and negotiation of all sorts. It is about as scientific as astrology in most companies.
Yet the migration to data-driven analysis as a constant must take place in procurement – and it will. It’s happening right now in the increased analytical skills we see coming into many procurement groups, including more data-driven specialists from other parts of the business (e.g., finance) as well as new recruits from business schools and consultancies. There is a subtler driver of this transition as well – the introduction of new techniques into the sourcing process itself that allows procurement to take greater responsibility for a range of design, specification, buying, inventory, fulfillment, and related decisions as part of a single buying process.
In essence, what we are describing is a world in which sourcing – sourcing specifically, mind you, not all of procurement – is becoming supply chain. We can now make integrated decisions that used to occur within business silos as part of a sourcing process that determines what a supply chain will look like – not just how it will operate once it’s defined.
This is truly an awesome shift and it’s one that can reshape what strategic procurement can do for organizations of all types, industries, and sizes. By taking into account a wide range of criteria and data as part of a sourcing process that encourages options and supplier creativity (even multi- tier supplier creativity), we can at the same time explore a universe of potential supply chain and procurement outcomes and quantify the cost of any particular “constraint” or request that gets factored into an ultimate decision.
And we can do this for just about any category or, more broadly, an entire line of business— even taking into account customer, demand, and sales-side considerations.
In the rest of this Spend Matters Perspective, I aim to introduce readers to supply chain possibilities based on actual case examples. These cases include how to optimize a global production network and optimize assets (and supply) at the same time. Another case explores a deep dive CPG example: when margin, brand, sourcing and category management meet.
The case studies will expand your mind. I promise. Spend Matters readers can go ahead and download When Sourcing Becomes Supply Chain in our free research library right now. I’d personally like to offer a special thanks to Trade Extensions for underwriting its availability to all of our readers.