Supply Networks: The Future of Procurement

By Sean Thompson, EVP of Network and Ecosystem, SAP Procurement Solutions

No supply chain has been spared by the impact of the coronavirus. Some parts of the world are indeed seeing businesses slowly look toward recovery and a gradual move to a ‘new normal’. But we cannot ignore that small shops and multinational corporations alike will continue to face challenges with regard to their manufacturing, distribution, logistics, and demand functions, as well as their overall financial well-being and that of their business partners.

A contributing factor to this disruption is the traditional, linear supply chain model, where each step is dependent on the one before it. Inefficiencies at one stage result in a cascade of inefficiencies down the line. And when the buyer and supplier are located at either end of the chain, it’s easy to see how collaboration breaks down and end-to-end visibility is nearly impossible.

The resulting reactive and uncoordinated response makes it challenging for procurement teams to know exactly which suppliers, sites, parts and products are at risk, and therefore, extremely difficult to secure new sources of supply in a timely manner.

Fostering the Partner Ecosystem

As businesses grapple with the ramifications of COVID-19, they must learn key lessons as they look to recovery. At the crux of this is rebuilding and restructuring resilient supply chains for a better future. This means moving beyond the traditional linear supply chain model to the implementation of a dynamic, collaborative supply network.

Unlike traditional supply chains, supply networks shift away from singular, point-to-point processes to a many-to-many structure that enables 360-degree visibility. Once an organisation is connected to a network, they become both a buyer and a supplier and gain broad visibility into the interconnected operations of their trading partners. Beyond allowing companies to identify emerging trends or issues more easily, access to a network also enables them to collaborate with new partners, improve cash flow, develop new products and accelerate sustainability.

Connecting to a network that includes producers, vendors, distribution centres, warehouses, transportation companies and retailers contributes to a businesses’ overall ability to move with agility, respond more quickly to demand and address unforeseen circumstances like those we’ve seen this year.

Building the Business Pillars of the Future

The global COVID-19 pandemic has suddenly accelerated the need for organisations to transform and respond to the unplanned and unprecedented. As a different world takes shape, longer term strategies for supply chains and operating models need to be re-assessed and prioritised in order for an organisation to advance in the following three key business pillars of the future: resiliency, profitability, and sustainability.

Digital transformation will play a major role for an organisation to withstand future disruptions and help pivot them toward recovery when disruptions do occur. In turn then, supply networks offer a holistic approach that enables greater transparency between trading partners and help organisations make decisions in real-time. Unlike linear supply chains, supply networks optimise operations and break down functional silos to enable organisations to realise the untapped potential of existing capabilities and achieve higher performance as well as greater value. Indeed, this is demonstrated by recent data from Bain & Company, which reveals how companies with resilient supply chains grow faster because they’re able to move quickly when market demand shifts.

When it comes to an organisation maximising its profit margins, resiliency and profitability go hand in hand. Businesses that run reliable, automated supply chains generate increased revenue because digital supply networks can smooth over any friction, and in turn, maximise the output. With automation and transparency in place, the ROI handles itself and the network becomes a profitability-driving tool.

Finally, businesses should always consider their sustainability goals; not only across their organisation, but within their supply network too. Beyond the need for creating long-term value, sustainability can foster innovation and encourage new ways of thinking that can ultimately lead to increased revenues, stronger customer relationships and improved brand perception. One way this is often addressed is by looking to reduce carbon footprints as a result of operations. However, sustainability exists deep within supply chains, like modern slavery and single-use plastics; these need to be addressed in equal measure too.  The use of technology can help spot inefficiencies and risk so that today’s business leaders can instil long-lasting change and dig into the supply chains of their partners and suppliers, prioritising those who are also making sustainability a priority too.

It’s a New Dawn

Transforming from a supply chain to a supply network should support a business’ total digital transformation strategy. By taking advantage of the latest digital tools, businesses can remain resilient and scale at a rate that creates a competitive advantage.

An example of this done successfully is demonstrated by the Danish manufacturing company VELUX Group, which automated 64% of its 20,000 monthly order lines after digitally transforming supply chain operations and streamlining supplier collaboration. Now, the VELUX Group seamlessly conducts transactions with more than 200 vendors and enjoys improved processes, accelerated delivery dates and more time saved.

Digital supply networks are built to anticipate disruptions and mitigate risks. They leverage technology and data analytics to provide a continuous flow of information which allows business leaders to gain a holistic insight to all areas of the business. While moving to a supply network requires fundamental changes to many aspects of an organisation’s planning – from strategy, to business processes, to IT – the ability to keep up with fast-moving market dynamics is essential in today’s business environment more than ever.