How Improving Supply Chain Relationships Can Increase Profitability In An Inflationary Market

Published January 4, 2023

An old general once said, “pressure makes diamonds!”
 
When it comes to the ever-increasing pressures on supply chains these past two years, we must be getting close to Kohinoor value — which according to experts, is priceless.
 
The overarching question is whether tough, inflationary times represent a challenge or an opportunity for sourcing and procurement professionals to shine.
 
In his July 2021 Spend Matters post, With rising inflation, procurement teams need to pay attention, Jason Busch provides diverse yet coherent insights that clearly reflect his many years in our industry.
 
For example, on the one hand, he highlights the challenges procurement faces when managing through an inflationary “double whammy” environment. It is a double whammy in that you must balance the potential for reducing consumer demands while simultaneously “ensuring continuity of supply, maintaining supplier relationships and, of course, managing costs effectively (i.e., beating the market).”
 
Beyond focusing on what Busch calls “the ups and downs of volatile spending categories and finished parts,” procurement must also broaden its horizon of understanding and insight. The broader horizon he refers to starts with having reliable access “to good internal and market information.”
 
He also talks about “working closely with supply chain and operations functions to balance demand and supply signals to align with procurement.”
 
 
Accidental Agility?
It is safe to say that even the best risk managers and industry prognosticators could not have predicted a generational event such as the COVID-19 pandemic. Add in a ship blocking the Suez Canal – which, although being long removed, still presents significant supply chain challenges, a potential West Coast port workers strike and the war in Ukraine, and you see where I am going.
 
The point is that supply chains must have the agility to adapt to both the expected and unexpected, and agility does not happen by accident.
 
Organizations that have invested time and effort to develop relationships with internal and external stakeholders strategically are in a better position to react, e.g., proactively pivot to the unexpected. Not surprisingly, these are the same organizations that have successfully leveraged existing and emerging technology to gain actionable insights.
 
The bottom line is that the effectiveness of a timely response to any crisis is decided long before said crisis occurs. Or, as the famous Sun Tzu quote puts it, “every battle is won or lost before it’s ever fought.”
 
 
Creative Pivoting
A Harvard Business Review article from July 2020 discussed businesses that “successfully pivoted during the pandemic.” The case examples provided range from local farmers and Spotify to industry giants such as Unilever.
 
The above ability to pivot — especially when it comes to having a business model that is “conducive to short-term survival along with long-term resilience and growth” creates what the authors call “enough value for the customer and the firm to share.” 
 
Therefore rethinking procurement and the associated relationships that drive success and profitability during difficult times requires opportunistic thinking that includes and benefits all key stakeholders.
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