Where’s My Beef? Sourcing Strategies in Capacity Constrained Markets (Part 1)

As procurement professionals and consultants, we spend far too much time thinking about creative ways to save money. Reduce the number of suppliers to drive volume discounts and rebates. Aggregate demand internally and/or with suppliers. Practice demand management. Drive compliance. Change payment terms. Negotiate through better sourcing practices. Reduce inventory. Claim rebates. The list goes on.

I must admit that some of these activities, such as sourcing, are not only mentally stimulating, but contribute to the entire reason I got into the function in the first place -- because they're downright fun when done right. Coming up with the right lotting strategy or the right scenarios and then watching your programs played out in front of you as suppliers respond and stakeholders smile is like composing a score of music and listening to an entire orchestra perform it -- the Invisible Hand Symphony if you will!

Yet overall, I'd have to say that the most challenging aspect of procurement has nothing to do with driving savings -- it's all about securing capacity and costs in tight markets and/or getting creative with the rest of the business in finding alternatives. Over on Beef Central (our favorite source of trade magazine brain protein), there's a great case example looking at McDonalds' challenge of securing global hamburger raw material capacity given the overall growth of the business and its counter cyclicality.

In Australia and New Zealand, which is contributing to the overall growth of the company through new stores and continued expansion, McDonald's focused a substantial part of its procurement efforts on securing supply in creative ways. As Philip Southworth, McDonald's purchasing manager for Australia/NZ points out in the article, this involves getting creative with ingredients, such as substituting lamb for bovine meat. As Southworth points out, "We've been working on the lamb project for the past 18 months, and learned a lot along the way, examining potential supply and testing the product amongst consumers."

This has included recruiting and developed "20 certified raw suppliers in Australia and NZ to the lamb program." Now that's one capacity constrained sourcing strategy that can help answer the rhetorical question: where's the beef (or mutton)! But there are other approaches as well. Stay tuned as we explore this topic.

- Jason Busch

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