Why predictive procurement is already THE supply chain trend of 2022

Supply chain disruptions in 2021 were commonplace. As procurement continued to be fighting against the undertow in a reactive state, in many organizations internal processes could not improve.

For several years, there’s been a strong argument that your organization should be adopting predictive procurement. Making the shift from procurement being reactionary has put some companies on top during two years of pandemic-fueled supply chain chaos. Many companies that failed to make the shift have struggled to survive.

Understanding why shortages happen, the relationship between procurement and supply chain, and how procurement’s internal processes can be improved and structured to remedy supply chain disruptions are going to be a business imperative in 2022.

That’s why predictive procurement is already THE supply chain trend of 2022.

Internal business processes and supply shortages

Why does a supply shortage happen in the first place?

You may be surprised to learn it is not necessarily market dynamics, but the inflexibility of internal business processes.

If there are three suppliers that make a particular part, and one is suddenly out of commission, then 33% less supply must now meet the demand for that part. A backlog ensues, which puts additional stress on the remaining suppliers. This can have a cascading effect.

If an organization was able to improve the speed of its order process or spread orders out to cover the deficit, they would be able to control how shortages impact their businesses. Companies that can alter their internal processes and accelerate quote approval are able to avoid shortages altogether. Businesses might be wondering why that would continue to be a priority in a post-pandemic world. As Black Swan events like extreme weather continue unabated, it’s clear that procurement is not out of the danger zone.

Post-pandemic global supply chains will still face a host of challenges

Back in 2020, a Harvard Business Review article analyzed what the global supply chain will look like in a post-pandemic world.

Harvard Business School professor and economist Willy C. Shih wrote:

“The supply shock that started in China in February and the demand shock that followed as the global economy shut down exposed vulnerabilities in the production strategies and supply chains of firms just about everywhere. … Manufacturers worldwide are going to be under greater political and competitive pressures to increase their domestic production, grow employment in their home countries, reduce or even eliminate their dependence on sources that are perceived as risky, and rethink their use of lean manufacturing strategies that involve minimizing the amount of inventory held in their global supply chains.”

So far, this prediction has been entirely true. In the first half of 2021, 62% of new jobs in America have come from reshoring efforts — but it will be months before the supply chain feels the positive effects of reshoring. Despite help being on the way, procurement continues to face challenges.

Since that HBR article was published, there have been further developments — and they are not good.

The situation is even more challenging than envisioned

What’s the concept of a post-pandemic world? We’re nowhere near that yet.

Much of the world remains unvaccinated. New Covid variants like delta and omicron are driving elevated infection rates even in countries with high vaccination rates. That’s impacting worker availability and closing borders again, with major supply chain ripple effects.

In addition, fuel prices have shot through the roof this year. At one point in 2020, average gasoline prices in the U.S. were below $2 per gallon. That average price is now near $3.50, more expensive than it has been since 2014. In 2020, no one was concerned about inflation. In fact, price deflation was a risk that was on the radar. Today, a combination of strong consumer demand and constrained supply has led to inflation rates not seen since the 1980s.

Meanwhile, a shortage of semiconductors that was just beginning to be felt in 2020 has become a supply chain disaster. Many sectors have been impacted, but the auto industry has been the poster child for how bad the situation has become. The lack of computer chips has idled factories and left dealerships without cars to sell. In the latest projection, it’s now estimated the chip shortage cost automakers $210 billion in lost revenue in 2021.

In addition, the world is feeling the catastrophic effects of global warming in a big way. November flooding completely shut down the port of Vancouver, Canada’s largest port and a key point of entry for goods coming to and from China — just in time for the holiday shopping rush. The floods also knocked out rail traffic to Canada’s West Coast.

Companies that react to all of these variables are going to be in trouble. At this point, there should be no question about why Predictive Procurement Orchestration is going to be the supply chain trend of 2022. But how does your organization get there?

How do you ensure your organization is ready for predictive procurement orchestration?

The most important step to achieving supply chain resiliency, remaining competitive and keeping costs under control — despite an ever-expanding list of supply chain challenges — is predictive procurement.

Predictive procurement is based on three main components:

1. Predict — Manage projects in the pipeline to exceed targets.
2. Prioritize — Set targets using forward-looking KPIs that matter.
3. Produce — Deliver business results and impact.

To employ this strategy, your organization needs to adopt technology that captures every bit of data related to procurement, then uses predictive models to determine if the data is valid and actionable. This analysis can identify risks and growing trends in time for your procurement team to do something about them. Add in real-time predictive KPI reporting so you can see at a glance if anything in the procurement process is deviating from plans. With predictive procurement, your organization becomes proactive and strategic instead of reactive and tactical.

Reporting after the fact takes time and effort, and it shows what went wrong in the past. Using predictive procurement instead allows teams more agility and flexibility to achieve goals. Supply chain disruptions are inevitable, and throughout 2021, that was proven time and time again. Orchestration can forecast the outcome of a sourcing event before it happens and keep your business ahead of the market instead of struggling to catch up.

As Q1 kicks off, ask yourself: Is my team working in a reactive state?

Fight the undertow with predictive procurement.

Edmund Zagorin is the Founder and CEO of Bid Ops.