Managing Paradox for Procurement Professionals

Overview

The past year has placed pressure on essential businesses and the supply chains supporting them; never in modern history have organizations faced greater challenges. Once again, pressure to meet profitability targets falls on procurement teams. Today’s message identifies the challenges procurement professionals face and provides a solution to overcome these issues.

External factors are straining global supply chains from multiple directions. Global trade policy continues to increase in complexity, especially when it comes to the fluctuation of Tariffs. Currency, inflation and energy costs are at their highest levels in 25 years. Stricter adherence to environmental restrictions are creating supply continuity issues. Starting materials for fermentation products are scarce creating downstream pressure on manufacturers. On top of all these factors, COVID-19 has accelerated freight rates and lead times resulting in unprecedented port congestion creating a seemingly perfect storm.

On the other side of the business internal factors like headcount reductions, employee workload and increasing turnover are creating obstacles from an operational standpoint. Remote work environments are redirecting management’s precious time away from core responsibilities to focus on performance issues. In the meantime, the procurement department’s three main stakeholders are calling for more action. R&D departments are requesting new vendors to meet sourcing requests. Operations are requiring JIT deliveries due to space constraints. Finance is looking for a working capital reduction to meet profitability targets.

Straight out of the board room comes the newest adage – sustainability. Procurement leaders are being asked to develop strategies to make their organization more sustainable. Based on the external and internal factors above, it makes sense why 71% of businesses are already planning to incorporate SDGs (Sustainability Development Goals) in their strategic plans.¹

To reach these goals we believe your strategy should have a balanced supply plan and its deployment should be manageable given your resources and capabilities. Let us offer a step by step guide for developing a more sustainable procurement strategy.

Step 1 – Evaluate Your Current Portfolio

The Procurement Paradox Model helps procurement professionals analyze the use of distributors, such as Prinova. In general there are two axis’: Volatility (Price and Supply) and Influence (Time and Product Knowledge). Each quadrant represents where distributors deliver the most value and provides a structure to help analyze reliance on procurement strategies. Let’s begin by identifying what each quadrant represents when evaluating a product or category.

Procurement Paradox Model

 

Quadrant 1 – Your procurement team is experiencing heavy volatility in pricing and supply coupled with a lack of time and product knowledge. This creates the worst case scenario and is the most critical box to address. In this case, we suggest relying heavily on distribution partners and less on direct manufacturers.

Quadrant 2 – Your procurement team is seeing heavy volatility in pricing and supply, but has enough time and a strong product knowledge. This is the second most critical quadrant to address, with high volatility a distribution partner can help mitigate risk. In this case, we suggest having a more balanced supply plan that leans slightly more towards distribution.

Quadrant 3 – Your procurement team is facing a lack of time and product knowledge, but supply and price are relatively stable. While this is not urgent, addressing the issue of time and knowledge may prove beneficial. In this case, we would recommend a balanced approach between distributor and manufacturer.

Quadrant 4 – Your procurement team is not facing time issues and has a strong product knowledge during a time when supply and price volatility are low. In this case, we would recommend relying more heavily on a direct relationship with a manufacturer. However, this is a good time to explore secondary sources with distributors so when volatility arrives you’re prepared with alternative options and a partner you can trust.

Step 2 – Putting the Procurement Paradox Model to Work

We suggest starting with Quadrant 1 (the products/categories that require immediate attention) and focusing on the largest cost drivers within that quadrant. The next step is to find a distributor that is strong in these products/categories to help get your arms around the situation. So how do you choose the right partner?

Step 3 – Searching for a Distributor

1.       Financial stability – staying power

2.       Strong recognition in the industry for product management experts

3.       Boots on the ground in China & India

4.       Regulatory support, documentation team, Trace Gains

5.       Optimized warehousing locations with BRC AA certifications

6.       Experienced sales and customer service teams

7.       Global footprint for leverage

8.       Multiple sourcing options per product

9.       60 to 90 days on hand inventory positions

10.     Full logistics program

Step 4 – Narrowing Down Your Search

1.       Service – Same day quotations, OTIF above 95%

2.       Quality – Only represent GFSI compliant manufacturers

3.       Price – Competitive and offer contract pricing

4.       Logistics – Strategic warehousing locations with a regional & global footprint

Step 5 – Consider Partnering with Prinova

Utilizing a customer centric approach we are able to offer:

1.       Expedited services

2.       Bundled pricing & delivered pricing

3.       Global warehousing positions holding inventory for prompt sales

4.       Innovation department creating value for R&D

5.       Vertical integration through value engineering solutions

6.       Market updates and insights

7.       Access to our product management team members

8.       Round table experience

9.       Sourcing services

10.     Quarterly business reviews

We understand this is a complex process, so feel free to contact us today and begin a round table experience where we can help organize, collaborate and guide you to a sustainable procurement strategy.

 

References:

  1. Waghorn, T. (2017, December). Sustainable Reporting: Lessons From The Fortune 500. Forbes.