Posted 23rd Apr
The Covid-19 crisis is causing a huge range of short-term alterations to behaviour and approaches across the public and private sectors. One of the longer-lasting effects is likely to be a change in our approach to resilience in supply chains. A recent Financial Times opinion piece, https://on.ft.com/3cECnH6 , highlighted the need for a rebalancing within supply chains to ensure that resilience is prioritised over short-termism and a “beggar-thy-neighbour approach that destroys the chain altogether” .
Right at the heart of category management is the concept that a great category strategy meets a formal set of business requirements that have been developed with stakeholders. Our 20 years plus experience in this area, and latest global research, suggests that business requirements tools are often poorly used by procurement teams, if at all, and regularly default to criteria that are heavily skewed towards price reduction. Unfortunately, this fundamental concept is often missing from Big 4/strategy consultancy led category management programmes.
Although we emphasise the need for organisational input when developing business requirements (which is why they are called ‘business requirements’ not ‘procurement requirements’), this aspect can often be lost in the heat of strategy creation. The problem with this is self-evident: if we are not basing the category strategy on what the business needs, then it is very unlikely to satisfy those needs, and therefore the use of the strategy will be resisted by stakeholders. Which is exactly what happens.
This takes us to the core message in the Financial Times article, which states that “… companies should now aim for an ‘antifragile’ approach, that goes ‘beyond resilience and robustness’ so that they can adapt to, and even thrive on, disorder”. The implication for procurement teams is that supply chain resilience is going to become a key focus area.
If we examine our existing category strategies (you do have good category strategies, don’t you..?), we can pull out the business requirements, test them for supply chain resilience factors, strengthen them where required, and then re-examine our chosen strategic options. It is likely that there will be a need for adjustments to the options and value levers chosen.
Even where we have adapted our category strategy, there is a need for vigilance and adaptations as the business requirements flow through all subsequent activities including RfPs, negotiations, contracts, SLAs and performance scorecards. Making sure we can see each link in this chain operating and based on the enhanced business requirements will ensure that we are truly servicing the needs of the business. Ultimately, we might see different suppliers, different physical supply chains, different stock levels, different stock management approaches, and more.
To address the observations in the FT article, our firm recommendation is that procurement leadership scrutinise the business requirements in their top category strategies, and their use in subsequent strategic procurement activity. If there needs to be a minor course correction in order to increase resilience, this can be done speedily. If business requirements are not yet part of your category strategies, this should be addressed as a priority. This is an effort, but will bring you closer to the business, demonstrate that their needs are central to the strategy direction and provide a needed vehicle to improve supply chain resilience.
by Mark Webb