Have you ever faced a situation where a commercial team has made a business commitment, but the back-end supply chain is not yet established?
In these cases, the onus is often on the procurement department to ensure uninterrupted supplies. Unfortunately, examples like these are becoming more common, as business requirements change and commitments to sustainability increase.
Under the circumstances, procurement professionals are opting to shift arrangements to fix the gap. Altering prioritization of a company's product mix, sharing long term forecasts, or onboarding alternate suppliers, are common short-term tactics.
However, to build a resilient procurement strategy, companies also need to tackle these situations from a mid- and long-term perspective. Here are six strategies which can help.
1. Design for sourcing
Involving procurement professionals during the design phase of the product can help ensure the supply base that’s needed for the product’s success.
If a restaurant chain is looking to add a new item to the menu, getting the procurement team involved early can help to work with suppliers to set key KPIs upfront. Even during a crisis, steady and hassle-free supplies require well-coordinated lead times, minimum order quantities, and an adequate number of suppliers to be qualified upfront.
2. Partner with suppliers on projects
Many companies have taken a public pledge to move to post-consumer recycled content, commonly known as PCR, for their packaging material in the coming years.
To meet these sustainability initiatives, companies have pitched many new products with recycled formats. However, there is a very limited availability of the PCR resin in the market due to a complexity of process and stringent regulations for applications.
In situations like these, working directly with a supplier to jointly address challenges can not only help come up with innovative products, but also secure long-term supplies. It could also lead to future strategic alliances or joint investments that build up capacity for future requirements.
3. Assess each product's value
Products sometimes have features that increase their cost but do not add value to consumers.
For examples of how to do this, look at your e-commerce sites. The display image used for most items is of the final product. The secondary or tertiary packaging is of no significance to customers from aesthetics point of view and it can be optimized to make supply chain resilient. After all, customers buying tubes or bottles for home use are not looking for a box that goes with it.
4. Conduct a functional assessment
Have you noticed some shampoo bottles come with extra space at the top? This can be reduced to save on the material cost.
Companies can set goals to reduce material requirements by a certain percentage and achieve these by reviewing the product’s design with the customer use in mind. Take McDonald’s, for example: Faced with a shortage of food bags, the fast-food chain chose to give diners trays instead. It helped them to continue business as usual without impacting the sales.
Procurement professionals should regularly push the design, operations and packaging teams to optimize product requirements for both short- and long-term functionality.
5. Decide: Make or buy?
Companies need to go back to the drawing table on make-versus-buy decisions for key items and products.
Semiconductor shortages have taken the entire industry by storm and companies are considering setting up their own semiconductor fabrication plants. It shows how previous decisions to "buy" products may not hold up in a shortage environment.
Even in less supply-tight environments, make-or-buy decisions can and should be continually reexamined. If a company is looking to venture into a new category, it may go for a "buy" strategy with a third-party manufacturer to test and learn about the new category’s performance. If the product does well, the company could choose to switch to a "make" strategy.
Supplies are currently the weakest link in the chain for most companies. Procurement professionals looking to build a resilient supply chain need to take this as an opportunity to revise corporate strategies with a long-term perspective in mind.
This story was first published in our weekly newsletter, Supply Chain Dive: Procurement. Sign up here.