My Supply Management Predictions for 2016

5th January 2016 | Gerard Chick, Robert Handfield

In this article, Gerard Chick highlights a number of critical trends that are bound to impact supply chain management strategies in 2016

As we stumble back to work following the annual excesses of the Christmas season, be they self-inflicted (too much food, booze, spending or hours in front of the TV) or as a consequence of the weather; we will all be thinking about what the year ahead holds for us. Prediction or at least the development of some sort of coherent forecast is always a good opener for the New Year! Clearly we can all predict more volatility and complexity but how will uncertainty and volatility impact our worlds.

So what do we already know? Well, we have a fair idea that e-commerce will continue to rise in importance and reflect changing consumption habits. It has been widely reported that package volumes lift by almost 20% over the Christmas season; and as we all perform more of our personal and ‘professional’ transactions electronically, be it as consumers on Amazon or at work via the myriad P2P solutions, the interpersonal aspects of supply chain activity may be seen as less important.

Technology continues to impact our working and private lives. As I said in my blog post ‘Top 10 Techno Predictions for Procurement in 2016’: the impact of technology is becoming so great that convergence at some point is bound to happen and this will profoundly change the way that we interact, transact and get work done. Smart phones, tablets, embedded chips, and other not-yet-imagined devices are creating a mobile connected work environment for procurement professionals and suppliers alike.

So it comes as no surprise that the rise of digital technologies will not only avail us of larger and larger pools of data, but we will have collectively up our game to develop credible insights from this data. It is important to emphasise here that these insights will come to those smart enough to invest in developing their in-house capability to monitor and manage the data at their disposal. And if only to up the ante even further, customer expectations will continue to increase, poor performance will not be tolerated, and brand loyalty in an innovation driven market will continue to diminish.

The opportunities presented by digitisation are driving analytics ever higher up the agenda, coupled with the need to develop authentic collaborative solutions which rely on new technological solutions, means businesses will have to find ways to partner that are perhaps more edgy than they are used to.

So my predictions regarding competitive supply management strategy in 2016 predicated on the foregoing include:

No 1. Predictive Analytics

As part of Optimum Procurement Group’s Round Table series a number of the CPOs we spoke to confirmed that the ‘rear-view-mirror’ analysis of money spent last week, month, quarter is of little use. At our Round Table focusing on Analytics, Charlie Clark CEO of Rosslyn Analytics said the best players need to be where the puck is going, not where it is right now. Too many procurement and supply chain managers rely on historical transaction activity; useful for a ‘post mortem’ but no good for prediction. Today’s procurement managers need to understand the utility to be derived from their data; but how it is used is the key issue. Can you form insights, which are actionable, from it?

Once you have collected your data, asking the right questions of it is critically important. If you can’t impute and project data using statistical approaches then you are unlikely to derive any meaningful insights other than those that are correlational in nature; and whilst retrospective transaction analysis will most certainly provide you with insights the bigger picture will remain incomplete.

Businesses need pulling together multiple sources of information, both structured and unstructured, from internal and external sources, to provide themselves with a sense of the variables required for them to develop a strategic business discourse. Knowledge, supported by data, will foster the right form dialogue to support business decisions and drive competition. However, to understand what data you need requires first the development of an appropriate research question!

No 2. Supply Management’s dual focus

Procurement organisations seem to carry out endless iterations and transformation exercises. Looking for the right levels of governance or decision making processes or stakeholder engagement or…; but are they in truth barking up the wrong tree? Value is the word of the minute; value adding activity the Holy Grail! How often do CPOs examine the markets or contemplate the commercial arrangements of the organisation they serve and do business.

End-to-end supply chain management is fast becoming the commercial imperative. This is where the value lies; understanding the relevance of a value chain perspective is where the smart people are today and this is where people need to apply their knowledge and above all else their creativity. This is where procurement adds value.

At one end supporting R&D, and the commercialisation of smart procurement activities, as well as working with marketing or logistics and yes recognising what the after-sales team do. Why? Because it is customer-facing and that means it is critical! Supply Management needs to understand segmentation and coordinate its activities accordingly viz customer requirements, and technological developments; and this requires an acute focus on both.

Procurement leaders need to contemplate how they will respond to incidents and the positioning of assets to enable them to move quickly regarding volatility and change. Prediction is key as it requires effective scanning of the far horizon as well as efficient scanning of the near horizon. Potential sources of risk need to be identified, and understanding must be developed regarding where data needs to be collected and monitored, the form of that data, and how it needs to be consolidated and measured for consumption by decision-makers.

New insights are needed into risk qualification practices that go beyond attempts to simply avoid risky situations. What is needed is a mature attitude to risk aimed at driving better understanding and equipping procurement to make informed business decisions for sustainable supply.

No 3. Supply Management and Corporate Responsibility

Following the publicity generated by incidents with BP, Sports Direct, Tesco, VW and so forth, CSR has been elevated to a critical issue in the Board Room and the importance of integrating corporate responsibility issues into procurement decision making has never been so significant. Whilst the recent Paris Agreement is not perfect, it will go some way to providing a focus on which to ensure that proper consideration is given strategic supply decision and the potential pitfalls they may create.

Procurement must focus on creating centres of excellence, creating indices to provide both quantitative and visual descriptions of Life Cycle analytics across their supply chains, including the financial impacts associated with them. These indices should be practical in nature, and deliver warnings regarding the impact of things such as environmental and labour rights violations to procurement, possible threats to the supply chain and the potential financial impacts to the business.

No 4. Talent strategy

Talented people develop and deploy effective supply management strategies; consequently it is they who are the key to integration, not technology. And yet many businesses don’t think of talent as a critical asset; ask yourself…what is the first asset to go in a downturn? The assumption is that you can find the right people “on demand” and that everyone is easily replaceable. Unfortunately, this isn’t the case. There is a critical shortage of talent to fill the roles being developed in contemporary supply management.

Talent shortages are occurring not just at the management level, but across the organisation as a whole. Talent should be seen as part of a ‘critical asset strategy’, central to building procurement capability and most definitely not as an after-thought.

Given this future state, consideration needs to be the following- the current state, which includes a number of parameters including: Staff Pipeline, Candidate Pipeline, Min/Max/Most Likely Inputs for each Recruiting Activity, % Interviewed, % Hireable, and % Accepting. In addition you should consider too retention rates for employees. Efforts for building talent should be a partnership between human resources and supply management, to truly think about how to achieve the right long-term outcomes.

No 5. – Real-time supply chain analytics

Real-time analytics allows people to respond to what is happening now. Real-time analytics are now possible, but the real issue is what you should analyse. All too often this part gets lost in the discussion. You have to know what the key indicators are, if you are to capture key dimensions of performance and this work must go from your suppliers through to customers. The use of technology will be at the heart of this.

The mantra to adopt is “it’s not how but what we include which sets us apart”. You have to know your key leverage points if you want breakthrough market creation. This is where the next generation of supply chain innovators will run away with the game! In the harnessing of analytical, technological and relational capabilities that sit dormant and undiscovered in a cabinet or on a shelf today, and integrating them in way that is difficult to replicate will create for those capable of it true competitive advantage.

The business of procurement is business

Having given consideration to the forgoing, it is clear that managing assets will have a much greater focus in the future. The opportunity for procurement to use analytics to drive down working capital and to build cash positions will build and, as a consequence, the level of operational and price-based management will be a key focus for supply management in the future.