Coronavirus response requires integrated Supply Chain Management — not just Spend Management. Here’s what’s needed.

This Spend Matters PRO analysis piece has been posted outside the paywall to share more information about strengthening supply chains during the coronavirus crisis.

Procurement professionals, like any other, are affected by the current coronavirus pandemic. They will face many challenges in their supply chains. For those who operate within industries where physical supply chains are severely disrupted by the pandemic response, they’ve got bigger issues than analyzing their spend, consolidating spend via strategic sourcing and ensuring that P2P systems are efficiently executing against contracts.

Yet, “spend is what you pay” and “supply is what you get” — and right now, we’re not getting what we need to manage the supply chain in this crisis.

Most of the issues stem from the demand side due to social distancing and stay-at-home orders that starve some industries like travel and hospitality while others like healthcare (e.g., shortages of ventilators, protective equipment and diagnostic testing), telecommunications and consumer packaged goods are strained. Supply-side issues like throttled Asian manufacturing capacity still exist, but the current situation is really a broader story about botched federal responses, lack of basic public-private supply chain governance, naked opportunism, weak supply risk management and the inability to manage the complexity of the problem. That involves not only the physical goods supply chain, but also the human/services supply chain, the physical assets supply chain and the financial supply chain (e.g., to inject capital into the threatened suppliers who supply the supply chain).

What the current crisis also has highlighted, however, is a lack of integrated digital capabilities required to manage the scale of this problem. We have various bits and pieces supporting different parts of the problem and parts of an organization (e.g., “feeds and speeds” supply chain planning systems, tactical event-based sourcing tools, siloed risk management apps, etc.), but there is poor integration across the systems and the functions. We did some research many years ago on the disconnects that exist even between procurement and supply chain groups, and it became clear that there was no single supply management solution that could perform not just basic direct sourcing processes, but also be able to model the information supply networks that manage the supply networks of goods, people, assets and money.

As we described nearly five years ago in a SpendMatters PRO series, such a system would have an underlying data model that mirrors the physical network. More specifically, a supply network information model should have five distinct characteristics: 

  1. A multi-tier resource model that explicitly defines the end-to-end supply network, including manufacturing, warehousing, transportation and labor resources ... down to an individual device level (or worker level)
  2. The ability to model a multi-tier routing and bill of materials (from finished goods back to components and then on to lowest level commodities) through this multi-tier resource model
  3. A time phased view of demand and supply (i.e., capacity and inventory) that is used for planning and execution not just for a supply chain planning group but also for procurement organizations
  4. Geospatial modeling and visualization to link your supply network resources (e.g., supplier sites) in your data model to a global map that can then be used to visualize and analyze the supply chain
  5. Rich metadata (e.g., risks mapped to the supply network model) to link the supply network information model to other external data sources such as device data (the internet of things, IoT), regulatory compliance data, benchmark data, market intelligence data feeds, geospatial content feeds and so on.

 This enables analytics that can transform dumb supply chain mapping and visualization capabilities into a “backplane” and underlying platform rather than just a sexy UI sitting on top of a data warehouse fed by disparate single-tier enterprise application data.

 By having this robust data model, individual applications in areas such as direct sourcing, supply chain, GRC (governance, risk and compliance), and others can be not just tied back to the physical supply chain but also enriched and tied together for use in descriptive analytics, predictive analytics and prescriptive analytics.

This is important because right now, these individual applications are fragmented, incomplete (i.e., they don’t hit all the elements above) and tend to focus on “inside-out” workflow processing rather than “outside-in” intelligence that will drive much more intelligent internal activities. For example, many direct procurement applications are focused on BOM-based component sourcing workflow automation. This functionality is important, but it’s not the most strategic view on how to improve the extended supply network.

Such a system would have been very useful right now in the context of the COVID crisis, and in fact, we’re starting to see these pieces become increasingly robust, but they’re still poorly integrated. One of the things that we highlighted in the 2016 series cited above is that the current market is served by a fairly siloed set of solutions (technologies and services) described below (although we don’t go through all the vendors in these categories like we did back in the original series):

  • Strategic Sourcing / Direct Procurement. Direct sourcing processes are too often very siloed and mechanistic — e.g., BOM-based component sourcing workflows checked against approved vendor lists. They’re not necessarily very supply network aware (e.g., opening up transportation options or looking at multi-tier issues of tier-n critical parts and materials), risk aware, or contract aware when the sourcing decisions are made.
  • Supply Chain Planning (Supply Network Design; Supply Chain Planning / Integrated Business Planning). These applications may in fact be network aware if they have supply chain network design models underneath, but even if they do, they almost never extend beyond raw materials up into the upper inbound supply chain tiers. A good example of this is Llamasoft. Check out its COVID-19 resource page here and demo here.
  • Supply Network Mapping and Visualization. There are many tools here that run the gamut from full-on mapping supply chain vendors like SourceMap that also do some SCM risk management and make basic connections to other areas such as supplier discovery, supplier management, product traceability, CSR and other areas. Other tools like ESRI provide lower-level geo-spatial modeling platforms, and such visualization capabilities are becoming commoditized functionality in various BI platforms. Even so, visualizations can be powerful. Consider the COVID-19 fever tracking maps from Kinsa Health, the now famous manufacturer of smart thermometers and their HealthWeather COVID-19 tracking map. Or consider the open source data and visualization from Johns Hopkins University that many tech providers are loading up into their coronavirus-specific tools.
    • As a final mention in this area, we have to call out GHX for its amazing coronavirus response. GHX is right in the middle of the storm right now in multiple ways. First of all, it acquired Vendormate, a provider that is mission-critical right now to try to streamline its vendor/contractor credentialing process (and systems) and get contingent healthcare workers to the front lines in a way that protects all parties and makes the process fast. Second of all, GHX is a key architect/participant in the healthcare supply chain, and we list it in this section because if you want to know what the critical healthcare supply chain really looks like, check out its supply chain shortage website to see all the manufacturers and distributors of critical goods. The MS-Excel files are intended for supply chain participants, but we can imagine some very interesting supply network visualizations that could be derived somewhat from this information. We truly wish the best for GHX right now and hope to catch up with them soon when they have time to speak with us.
  • Supply Chain Risk Management (SCRM). Just explore products from Resilinc, Riskmethods and Resilience360 to understand this class of solutions. But, they don’t yet provide deeper what-if analytics in terms of dynamically re-designing the supply networks based on time-phased supply and demand. It’s only a matter of time before these tools become woven into the broader sourcing and supply chain technology landscape to provide risk-adjusted supply management. In fact, graph-database powered supply chain analytics vendor Expero discussed some early analytics work with Kinsa Health that modeled flu spread and its impact on supply chain / operations planning. Wouldn’t it have been great if the U.S. government developed an integrated COVID-19 forecast by city/region to help develop a consolidated demand picture of ventilators, PPE and testing so it could conduct consolidated supply planning and sourcing activities? Think about how many lives would’ve been saved (and money saved) through consolidated demand and reverse auctions rather than local/regional hospitals/networks battling each other (and governments) in forward auctions run by profit-maximizing manufacturers, middlemen and opportunists. But that’s a rant for another day!
  • Supplier Management. NOW is the time for buyers to truly become “customers of choice” rather than just in good times when supply is tight. This involves supply chain financing, contract analytics/re-negotiations, collaboration/innovation, and supplier financial risk monitoring when the supplier is “sick” and doesn’t want to tell you.
  • Governance, Risk and Compliance. These corporate GRC systems are only now starting to move prominently out of the “check the box” regulatory management domain, and integrating into supply risk, third party / supplier risk, contract management, etc. We run into ProcessUnity and MetricStream the most here, but Coupa’s acquisition of Hiperos was a wise move.
  • Supply Market Intelligence and Supply Chain Analytics. This is a huge category, but the two main supply market intelligence players Beroe and The Smart Cube have been pumping out a ton of insights, and The Smart Cube is interesting because, besides its turnkey insights on industries/categories, it also offers an alerting service like the supply risk management players, and it also offers a hosted analytics platform to deliver many of its insights. This space is also occupied by all the consulting firms with market intelligence, supply network models, and/or ...
  • Supply Chain Information Networks / Platforms. The whole area of supplier/supply networks is too large to do justice, but supply chain information networks are (or at least should be) the digital twins to the physical supply networks. These providers were a focus in one of our 2016 research series installments, but the point of the series was somewhat to illustrate that multiple types of providers can provide deeper insights through more robust supply network modeling in their applications. For example, Transparency One is an interesting provider that uses graph database technology to support its solution focus of supply-chain traceability. And there's nothing wrong with the "basics" of supplier networks.  SAP Ariba has made its supplier discovery solution available for free until June 30th, and has also launched a freemium pre-built COVID-19 specific supplier survey called "Supply Continuity Pulse") for existing Qualtrics customers (for any version).
  • Internet of Things (IoT) and Supply Chain Execution. We mentioned Kinsa, the smart thermometer firm, but obviously you can image the range of opportunities for using IoT devices and applications within a pandemic context: remote monitoring, fever sensors, physical asset access, employee/contractor badging, and really any type of touchless information processing that can keep humans from transferring the coronavirus alongside supply chain information.

This last area of safely managing workers in a pandemic-addled supply chain is one that we didn’t dive deeply into within the 2016 research series, and although we’ve researched the workforce supply chain from a contingent workforce and services management standpoint, it is important to thread it deeply into the overall supply chain and the coronavirus response conversation. Although the disease can be spread by products/assets in the supply chain, it’s ultimately a story about people, and something that warrants its own analysis. In fact, having the right people in the right jobs is such a big topic that we gave it its own category in Spend Matters’ Coronavirus Response series. The contingent workforce and services procurement area is extremely dynamic right now because as every type of service becomes a potentially outsourced vendor service — and the need for deeper services procurement down to an individual worker level (with associated worker-level sourcing, certification, engagement, tracking, etc.) has never been more important.

The best that we can do at SpendMatters is try to catalog the loosely coupled set of use cases related to the pandemic — and the tools in the market that can help support them. See the introduction to our series, which we’ll continue to update with recommended solutions in the following areas:

  1. Supply risk management solutions that include supply chain risk, CSR risk, supplier financial risk, etc. (Read this category’s PRO analysis and solution recommendations here.)
  2. Sourcing and commodity management, including advanced sourcing, direct sourcing, automated supplier discovery, and commodity management to help dynamically plan and source. (See this category’s recommended solutions for direct sourcing here.)
  3. Advanced procurement analytics to enable direct procurement and/or to perform “spend planning” when demand drops out or spikes. (Its profile for this series is here.)
  4. Procure to Pay (P2P) that emphasizes working capital, dynamic discounting, payment control and related finance priorities to help inject cash into the P2P process — especially for many cash-starved suppliers. (This category is discussed in-depth here.)
  5. Fraud, P2P and vendor management safeguards when new suppliers need to be set up quickly, and also when lowlife fraudsters try to use the pandemic as a way to steal money and IP. (Its profile for this series is here.)
  6. Providers with deep contract analytics from the CLM space and the AI contract analytics area that can analyze a contract portfolio for affected contracts from suppliers (and customers) for not just force majeure clauses, but other related clauses that tie to the multiple risks popping up at once in the pandemic.
  7. Contingent Workforce and Services solutions that are able to, at a minimum, help rapidly ramp up on-demand workers to deal with massive resource shortfalls. We are looking at four categories of solutions: for sourcing remote/online work; solutions for sourcing and managing mobile-first contract workers anywhere you need them; solutions to “direct source” and manage contract workers; and solutions for data management and analytics.

As you can surmise, there are many procurement-specific overlaps and touch points in this coronavirus series relative to the broader supply-chain discussion above (and we need to add more, such as supplier management and other areas). It is these touch points where procurement can really make a difference, not only to take a leadership position in maximizing value from supplier spending but also helping to shape the extended supply network so that it’s more resilient (which makes the business more resilient), in order to absorb the massive shocks from not just this round of COVID-19, but really any type of grey swan (or grey Nazgul in the case of COVID-19) that rears its ugly head. Supply management is about safely tapping the amazing power of supply networks to maximize the value from that supply — which means better supply for every outlay of spend.

Spend management AND supply management have never been more important. And right now, more than money is on the line here.

Also, we'd love to learn from procurement pros and share what you're seeing in the trenches and how we can help. Please contact me personally at pierre@spendmatters.com, or email our team here.

For technology providers and consultants, we’d appreciate hearing from you by filling out our Coronavirus Response survey. Click here.

Through this month, a Spend Matters' special PRO Expert Survival Pack is available to procurement practitioners only* at up to 50% off. The discount applies to PRO subscription content from our analysts and other services. — Learn more

Read all of Spend Matters’ coronavirus coverage here.

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