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Supply Chain Nightmares? It’s Time to Optimize your Procurement Processes
Be afraid. Be very afraid. ‘Shipageddon: The Sequel’ has taken supply chain nightmares to a whole new level.
This modern-day horror series made its debut at the end of 2020, as America’s last-mile delivery carriers struggled to cope with a huge surge in e-commerce demand in the lead up to the holiday season. But this year, as befits a big-budget follow-up, it’s the entire global supply chain that’s causing panic and threatening Christmas for many – especially those expecting Santa to deliver new toys.
“I’ve been doing this for 43 years and never seen it this bad. Everything that can go wrong is going wrong at the same time,” Isaac Larian, founder and CEO of toymaker MGA Entertainment, told Bloomberg in October.
“The supply chain is a disaster, and it’s only getting worse,” echoed Jay Foreman, CEO of Basic Fun, whose Care Bears were stranded in northern China.
But it’s not just toys. Across the board, the shelves of many retailers are more bare than usual thanks to a whole range of factors largely resulting from the coronavirus pandemic. They include labor shortages, factory outages, the rising price of raw materials and shipping, and reduced production – especially of microprocessors (‘chipageddon’).
And like a puppy, it seems this crisis isn’t just for Christmas. According to Simon Geale, executive vice president of Procurement at Proxima, a supply-chain consultancy, the current problems will take a long time to fix. “The supply system is not optimized. Workforces are not optimized,” he told Forbes. “The weaknesses that underpin our supply chains have been found out.”
“Bring me the head of Procurement”
As lockdowns have started to end in many parts of the world, life has begun to return to something approaching normality. But for a considerable number of businesses in a wide range of sectors, this is far from the truth, as they attempt to navigate the latest challenges of the supply chain meltdown. For Procurement organizations, that means demonstrating even more of the agility they showed last year at the onset of the pandemic.
“Stress levels have really gone up for Procurement departments, because they don’t know where the gaps in supply are going to come next,” says Divya Krishnan, director of product marketing at Celonis. “If your main supplier goes down and you only have backup suppliers in three or four locations, what happens if they go down too? The person whose head is likely to be on a stake is the procurement leader.”
At a time like this, if you’re that Procurement leader, the last thing you need is for your processes to be letting you down. But we’ve found that for many, this is sadly the reality. In the State of Business Execution Benchmarks Report 2021, we surveyed Procurement professionals around the world on how their departments are running and what could be holding them back. 39.3% said they were hindered by broken or inefficient processes. And 40.7% complained of a fragmented data landscape, often the result of trying to consolidate multiple ERPs.
Unsurprisingly, there’s a big gap between the companies executing Procurement processes at full capacity and the rest. For example, the average company spends upwards of $15 to process a single purchase order (PO), while the most efficient organizations spend just $1.35. That’s particularly significant as Procurement departments find themselves under pressure to cut costs. And it’s the same when it comes to reducing spend — the average company influences 47% of its total spend, while top performers achieve 75%.
“There’s tremendous pressure on the Procurement function to reduce the total amount of spend going out of the organization, but at the same time they still have to give the business what’s needed to create the products that will drive top line revenue gains,” says Krishnan. ”It’s a very difficult balancing act.”
Enter Process Mining
How do you join the ranks of companies that are executing so much better than the rest?
The answer starts with process mining which gives you a living, breathing, moving picture of your Procurement processes in real time – so you can see where the inefficiencies lie and take action automatically to fix them. It’s easily integrated with your existing systems and can be up and running in 40 days.
Leading companies are already reaping the benefits. Vodafone increased their ‘Perfect PO’ rate from 73% to 96% in a year and reduced the cost of each PO by 11%. And Chart Industries saved $6M in material purchase prices, while Zalando reduced maverick buying by 75%.
Check out our ‘Power up Procurement’ ebook to find out how process mining could help you optimize your Procurement processes.
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