The roles of logistics and procurement in an efficient supply chain cannot be overstated. According to Paul Myerson, reports Industry Week, up 70 percent of a company’s costs come from procurement and logistics operations. Meanwhile, this large volume of expenses is directly related to 80 percent or a company’s working capital via inventory and accounts payable. However, both logistics and procurement often become isolated in modern companies, resulting in inefficient practices and a sluggish production value. Due to this problem, the only logical solution is to increase collaboration between the supply chain managers and procurement teams.
Collaboration is poised to enable better flow of information and resources in both directions for both parts of the supply chain, which will inherently lead to more efficient processes and data-based decisions. But, the divide continues. Let’s take a closer look at the current problem and its possible solutions.
With the Digital Age in Full Swing, Why Do Gaps Exist?
The age of technology has the potential to dramatically reduce inefficiencies in the supply chain. Technology has advanced light years beyond previous limitations within the supply chain, and more companies have access to real-time data on consumers than ever before, explains Jason Busch of Spend Matters.
For example, subscription-based services, such as self-driving car giant, Tesla, and the shaving guru, Dollar Shave Club, are able to collect an insurmountable amount of data on consumers, feeding back into the company’s forecast model.
These patterns can be further leveraged to generate real-time change throughout the company, including procurement needs and changes to current logistics processes. So, why do supply chain managers not take advantage of this data with respect to procurement?
Supply Chain Managers and Procurement Professionals Avoid the Conversation.
The biggest problem in the supply chain is a disconnect due to ideals and changes in standard operations. Many companies may not even truly understand where their procurement operations are. This is even expanded in companies that have outsourced procurement practices entirely. Meanwhile, supply chain managers have become so focused on increasing production value that they have overlooked the importance of procurement.
In some cases, supply chain managers may feel that dealing with procurement is beneath their duties, such as the disconnect identified by Amy Clark of Supply and Demand Chain Executive. Unfortunately, these disconnects are feedback into a growing divide and problem with supply chain talent availability. As technology has grown, the roles of people have diminished in the global view, but people are on the front lines of the supply chain.
Supply chain managers must work to make the supply chain more attractive to new workers. Yet, the positive feedback loop can be changed slightly by making procurement practices more involved in everyday operations. This is a simple concept that works to entice people to learn more about the supply chain and how goods are purchased and transformed into final products. In other words, bridging the divide by increasing awareness will lead to better collaboration as more people become involved in a symbiotic relationship with the industry’s growing level of technology.
What About Suppliers? Aren’t They in It For Themselves?
Most of the problems surrounding the disconnect today relate to a mistrust between suppliers and manufacturers, reports Gerand Chick and Robert Handfield of Supply Chain Quarterly. This led to subpar purchasing practices and a limited supply chain value. While every business wants to have high-profit margins, the power of competition is even greater than self-motivation. This means that restoring trust in the relationship can lead to more confidence and lower prices in the long run.
Suppliers are directly affected by demand, and the supply chain is directly affected by consumers. This is the demand-driven supply chain. Consumers can get anything they want without ever leaving their home. But, the age of technology has gone further as mobile technology has enabled consumers to purchase anything from practically anywhere.
For example, Amazon is working tirelessly to get the two-hour delivery window open to its consumers. But, while the technology for drone delivery is only beginning to be explored by major companies, Amazon has opened dozens of new small centers in local cities.
In Lubbock, Texas, reports The Dallas Morning News, Amazon recently opened a pickup and drop-off location for purchases and returns, taking advantage of Texas Tech University’s proximity to the area, enabling greater distribution of goods to college students. But, the true insight from this new location is found by carefully looking at its window of delivery. It means incoming shipments to Lubbock can be processed faster, enabling faster delivery to students. In the coming years, this store and others like it may be the launch sites of Amazon Air for rural areas
The Big Picture.
The feedback loop is growing ever more complex, and more data are being entered and tracked on consumer purchasing habits than ever before. This information is being used to empower vast logistics operations, including reverse logistics and service parts, and Amazon is making strides with Amazon Air’s upcoming launch plans.
If supply chain managers do not bridge the divide with procurement officers and operations, parts of the supply chain, like your company, could be lost to the power of Amazon. Ultimately, your inefficiency is what will be your downfall, but you can change that fate by taking advantage of the new technologies identified in this podcast and using them to improve collaboration between your supply chain processes after receiving raw materials and your procurement operations.