Why Procurement and Supply Chain Functions Need to Converge
Disruptions like Covid-19, supply shortages, global trade barriers, high customer expectations, and inflation all add tremendous pressure on supply chains to perform flawlessly while imposing added layers of complexity.
Supply chains must do better at orchestrating processes and activities across functions and applications. The integration of multiple entities into a unified process that operates seamlessly to bring about a more resilient supply network is known as “supply-chain convergence.”
Gartner articulated the concept in 2008 when it found that functional silos prevented supply-chain organizations from driving greater value. Enterprises initially applied the idea to transportation and warehouse functions and later integrated supply-chain planning and execution into a unified process.
The convergence of procurement and supply chain will be the next evolution of supply-chain convergence. This shift will allow companies to build resilience, mitigate supply-chain risk, and drive innovation.
Even more, supply-chain convergence represents a fundamental shift in how organizations think about enterprises, changing from discrete entities into elements in a multifaceted ecosystem.
The Next Level for Enterprises
Supply chain’s purpose has traditionally been about operational efficiency—delivering value by making sure that orders arrive from suppliers on time and in full, and delivering finished products.
But in fulfilling that mission, increasingly specialized departments inadvertently developed into silos. While they may increase local efficiency, silos create gaps in information and processes that inhibit effective orchestration of supply chains—both inside and outside a company’s four walls. Supply chains that continue to operate among silos will not have the resilience or agility to respond quickly or effectively enough to disruptions.
Supply-chain convergence enables businesses to achieve more seamless, more effective cross-functional collaboration, which is key to building the resilience to withstand disruptions. As more and more enterprises establish supply-chain convergence by aligning processes and technology, those that do not will lose their competitive advantage and face greater impacts from disruptions.
Three Benefits of Convergence
By aligning procurement and supply chain more tightly, companies gain:
- Increased resilience. Disconnects in the supply chain tend to happen at the linkage points, such as between suppliers and the company, or among departments.
Tighter integration helps procurement better support supply chain functions when disruptions happen, or even prevent disruptions through early action.
Convergence enables better collaboration and agility across departments to coordinate responses for exception management through a well-designed workflow. Similar to management by exception, exception management is a practice in automated supply-chain processes that enables teams to focus only on issues that require actions.
- Improved risk management. By breaking down silos between procurement and supply chain, enterprises can acquire better awareness of threats and ensure that procurement is aware of and aligned with supply chain’s specific requirements.
In addition, convergence enables companies to see the impacts of risks across their organizations and downstream, helping them prioritize actions. Collaboration among teams allows for faster and more effective responses to risks.
- Accelerated innovation. Increasing convergence of procurement and supply chain enables organizations to develop new operational efficiencies and use innovation from suppliers through redesigned or automated processes.
High-Impact Areas
For enterprises with lower supply-chain maturity levels, where does supply-chain convergence make the most sense? High-impact areas for organizations to focus on include supplier collaboration, cost management, and new product development.
Supplier collaboration. To adapt to changing demand signals, companies must collaborate with suppliers on demand planning and forecasting, capacity planning, orders, and quality management. Because of the complexity of supply chains and how quickly markets can change, companies need real, process-oriented collaboration that goes beyond communication. Sharing the right information and enabling decision making and action are the keys to this effective supplier collaboration.
Cost management. Procurement tends to focus solely on managing supplier costs; direct and indirect spend are managed separately. The gap between procurement and supply chain keeps enterprises from managing their spend and costs holistically. Supply-chain convergence creates a unified view of spend and cost across both procurement and supply chain to enable companies to connect their direct and indirect spend. With increasingly complex supply chains, convergence is the way to enable a view into the end-to-end costs and manage spend more effectively.
New product development. Integrating supply chain with internal departments allows supply-chain teams to accelerate new product development. Rather than trying to guess the cost of new items or seek only the lowest-cost supply, procurement can understand the strategic requirements for new products, perform more accurate should-cost modeling, and plan better to control costs and minimize delays. Convergence helps enterprises advance long-term innovation, which is critical for business growth.
First Steps
To build supply-chain convergence, software platforms are an important place to start. If different departments are operating on different software with different technical architecture, it’s not easy to build applications to talk to each other and connect seamlessly.
But companies also need to align their end-to-end processes and metrics to enable cross-functional collaboration among departments and multi-enterprise collaboration with external suppliers and partners across the entire supply network.
For organizations to perform to the high expectations placed on them, supply chain needs to converge with procurement and break down silos among business units, functions, and processes. Convergence is the next evolutionary stage that will allow supply chains to solve increasingly complex challenges and continue to drive value for both companies and customers.
To learn how GEP’s comprehensive portfolio of software, strategy, and managed services can help your enterprise build an agile, intelligent, and resilient supply chain, visit gep.com.