In our earlier blog we discussed the first imperative to build an agile supply chain – understanding the value proposition of your internal and external stakeholders.
The second imperative is – UNDERSTANDING THE ECOSYSTEM.
An organization does not function in isolation. It influences and is influenced by its immediate surrounding and the society at large. It is therefore necessary to understand the ecosystem. This involves keeping a tab not only on the competition but also and perhaps more importantly keeping a tab on how the changes in the ecosystem will impact the key commodities that you source.
This involves having a strong system for collecting market intelligence. Global market intelligence forms an important attribute in formulating sourcing strategies. Commodity prices get impacted due to numerous reasons – ranging from small regional issues to larger macroeconomic issues. The changes in commodity prices can have a huge impact on the sourcing decisions of procurement professionals considering the direct impact on the company’s bottom line.
Consider this case study for instance;
For a high spend category, “Rubber Gloves” sourcing managers of a multinational company were struggling to win over price fluctuations. They were finding it difficult to bring about amendments into the price quoted by suppliers considering the arrangement they had gotten into. They were evergreen contracts with the suppliers due to which making the changes to the prices was difficult.
The key challenges faced by sourcing professionals in this regard were,
- Lack of visibility into category cost drivers.
- Lack of supplier negotiation power.
- Information disparity between buyer and market.
These challenges can be resolved by using technology, which can help in the following way;
- Track global commodity indices on a single platform.
- Analyze price trend and link it to spending patterns of the commodity in question.
- Include escalation/de-escalation clause that provides alerts on market changes beyond anticipated levels.
In our next post, we will discuss the third imperative to build an agile supply chain.
