The era of scarcity will shape the future of procurement

I think it’s safe to say that there’s no debate that we’re living in an era of unpredictability. That’s true of business in general and supply chain in specific. Who could’ve predicted that after living through a pandemic, business would come to another hard stop as a result of an extreme winter storm in Texas or a ship endlessly stuck in the Suez Canal? A Russian invasion of Ukraine might have been foreseeable, but the likelihood of Ukraine putting up a ferocious defense that would put Russia on its heels? I don’t think so.

There is a debate, however, as to whether the impacts of those disruptions are permanent or transitory. One camp argues that we’ll soon get over this hump and return to business as usual. The other suggests that the decades of growth, abundance and endless consumer choice are winding down. Not just in emerging markets, where supply has always been tight, but in developed economies like the U.S.

Put Len DeCandia, Johnson & Johnson’s former global chief procurement officer, among the skeptics. “I never believed that the supply issues we’re facing are demand driven and transitory,” DeCandia says. “Rather, we’re moving from an era of abundance into an era of scarcity.”

DeCandia explores the era of scarcity in depth in an article I’ve just posted on SCMR.com titled “Supplier Relationship Management: A new era for growth.” You can access the article by clicking here.

I don’t want to steal DeCandia’s thunder – read the article – but here’s a teaser. Part of his argument is that after the fall of the Berlin Wall, business operated in a more open environment, with new trade pacts and greater collaboration than ever. With supply abundantly available, businesses invested where the money was: The customer.

As a result, the customer has more channels, access to more information and more ways to interact with the companies they do business with than ever. When it came to supply chains, we invested in efficiency and cost reduction. Suppliers were an after thought; so were the skills for nurturing supplier relationships. If anything, the trend in recent years has been to partner with fewer and larger suppliers rather than to develop new sources of supply.

You could think of it as investing in CRM – the customer – rather than SRM – the supplier.

Now, faced with endless disruptions from labor shortages, political instability, energy spikes and extreme weather events, supply chains designed for abundance are sputtering. It may be time to flip that script, says DeCandia: “This new era of scarcity is going to require a new definition of where we invest.”

The companies that will grow their market share in an era of scarcity will be those that have product in the warehouse or on the shelf when a customer makes a buying decision. That will in all likelihood come down to organizations with the competencies to develop a supply base and nurture supplier relationships. That is a whole different set of competencies. “We will need to decide on the competencies we need to be competitive, and then we will need to invest in those,” DeCandia says.

Think of it as SRM versus CRM.

Here are some of the areas that DeCandia believes will require a new competencies and new investments.

Geography: There has been a lot of news coverage around the redesign of the supply chain, including strategies like China Plus One, re-shoring and near shoring. “We forget that when before we can invest in new geographies, we need competencies in those regions,” says DeCandia. “Look at computer chips. If we want to make them here, what competencies do I need to create a competitive advantage? And, what competencies do I need to source or partner? We need to identify those and invest in them.”

New view of leadership: DeCandia says that when decisions are made, most organizations invest in managers as leaders of the people within their organization. It’s an internal focus. “We’re given people and budgets,” he says. “But 99% of the time, those budgets are spent with third parties.” What’s needed, he argues, are the competencies and tools to manage those external supplier relationships. That is an external focus.

Look beyond price: Historically, procurement’s primary role could’ve been described as: But what have you done for me lately? The goal was price containment and cost reduction. In an era of scarcity, DeCandia believes that the ability to accelerate and scale innovation will trump a narrow focus on price. “We have to develop a strategic view on how to do that, or we’ll fall behind” the competition, he says.

Become internal collaborators: As procurement undergoes digital transformation, a number of traditional tasks, such as creating RFPs and purchase orders, are being automated. DeCandia’s question: If we’re going to free up procurement professionals to do more, what are they going to do? “We need to become internal collaborators,” he says. “We can help organizations as they make this journey from abundance to scarcity.”

Become an influencer: A corollary to becoming a collaborator is to become an influencer. “No matter where you sit in your organization, you need to be an influencer, and you can only be that if you can solve problems,” DeCandia notes. One example: Integrate procurement early into the new product development process, and it can be the bridge between research and development and commercializing a product.

Further ESG: There’s no question that, at least for now, Environmental, Social and Governance, or ESG, will no longer be owned by marketing. It is moving from the board room to the C-suite to operations as customers and Wall Street pay attention to a company’s actions. “We’re moving into an era of greater transparency,” DeCandia says. “We can’t make promises that we can’t keep, and those promises are extending to our ability to influence our network of suppliers to meet corporate goals and regulatory compliance.”

Supply chain in general, and procurement in specific, have important roles to play in ESG. One example: DeCandia notes that during his tenure as CPO, J&J doubled its diverse supplier spend, which has been important in building the company’s innovation pipeline. “It is critical to use the supplier base to introduce scale, speed and growth,” he says. He adds that having a portfolio of diverse and local suppliers who were able to keep operating during COVID helped J&J navigate through the pandemic.

What excites DeCandia most about the future of procurement? “More than any other time,” he says, “procurement has an opportunity to be part of growth and not just cost containment.”

In an era of scarcity, that’s a good position to be in.

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