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Managing uncertainty in procurement and the supply chain

Procurement and supply chain leaders face an unprecedented level of uncertainty in the business environment. This stems from a range of factors including tough economic conditions worldwide, natural disasters, political upheaval, and the globalisation of supply and demand.

PA’s Managing Uncertainty survey found that businesses responding most effectively to the current uncertainty are following three key principles: respond faster than the competition, remove inefficiency while protecting competitive advantage and plan to come out of the crisis stronger than you went in.

Supply chain and procurement professionals can take a lead from these high-performing businesses.

Respond faster than the competition

  • Firms whose supply chains are responsive to customer and market demands are disproportionately successful, with double-digit growth contrasting with double-digit contractions for less responsive firms. So supply chain and procurement leaders should take action now to capitalise on opportunities to improve procurement strategy and capability and restructure the supply chain

  • Implementing more effective procurement, and improving the way customer and supplier relationships are managed in particular, creates higher levels of innovation and collaboration. It drives product differentiation, increases speed to market, optimises service throughout the supply chain, and ultimately delivers growth in revenues and margins

  • In taking action to improve supply chain performance, leaders must be aware of the need to manage risk created by uncertainty. This includes identifying and managing critical suppliers and keeping a close watch on suppliers’ own supply chains, contingency plans and financial health. Supply chain leaders should also seize opportunities to strike strong deals with suppliers operating below full capacity.

Remove inefficiency while protecting competitive advantage

  • Cuts in headcount and closure of business units are common responses to tough business conditions. But bigger savings can be achieved through procurement and supply chain improvement. Businesses that reduce costs in the supply chain can protect revenues avoiding disruption and costs associated with restructuring

  • Implementing more effective procurement and improving supply chain performance can reduce costs for purchased goods and service by up to 12%. Based on spend analysis conducted with many clients, these cost reductions equate to 3-4% of total revenue for a financial services firm, or 6-7% for a manufacturing business.

Plan to come out of the crisis stronger than you went in

Procurement and the supply chain are a potential source of differentiation beyond cost and quality. Procurement and supply chain leaders also benefit from faster, more radical innovation, shorter lead times, and greater flexibility. Ultimately these improvements all drive increased shareholder returns. Procurement and supply chain leaders should exploit this in two ways:

  • articulate and sell a strategic agenda for procurement and the supply chain to other functions and top managers within the business

  • develop a performance management regime that encourages staff to balance the immediate demands of procurement and the supply chain with the need to meet longer-term strategic objectives.

To find out how we can help your business manage uncertainty in procurement and the supply chain, please contact us now.

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