The Paradoxical Goals of Cost Control and Supply Chain Resiliency

February 16, 2023

What is "normal"?

The last few years have been, by all accounts, anything but normal. A series of 'once in a lifetime' events changed the world as we know it. As organizations worldwide continue to navigate choppy supply chain waters, they now find themselves between the proverbial rock and a hard place: stubborn inflationary pressures and the uncertainty of a recession on the horizon. As their focus shifted to revenue, capital preservation, and efficiency, C-suites are looking at better ways to "do more with less" to weather the storm and get out of it stronger. 

Every procurement leader we have the privilege to interact with is telling us their immediate imperatives are Cost Control and Supply Chain Resiliency, paradoxically opposite goals in today's reality. So how are the ones 'ahead of the pack' doing it?

Understanding Cost Control and Visibility 

Costs need to be identified and controlled systemically - every procurement organization will confirm that they have a pretty good grasp of unit cost and price variances, but they often operate within the realm of what they see and are able to influence; herein lays the problem: There is still a lot of spend that is not visible, well understood or to a certain extent and for lack of better wording, neglected. And for good reason! Procurement's bandwidth is focused on the more significant, visible opportunities, so spend below this threshold often gets relegated to long-term contracts (catalogs, anyone?) as a way to control and manage it somehow. 

We are also often told that this is the tranche of spend that requires a bit more attention, often affectionately referred to as 'tail', so much so that it normally represents a more significant opportunity than some of the largest and most strategic categories an organization has in their category management sights. To put it simply, it was normal to focus elsewhere then, but that luxury is quickly fading in the new "normal" we operate in today.

Procurement, by challenging purchase requests via a quick bid process before they are committed to a supplier, provides visibility and the ability to influence more spend, generating more information that allows them to think long-term. While that principle is not new, some of the concepts being leveraged by organizations to do this at scale are indeed novel.  By using the 'community' concept and 'big data' that is inherently associated with it, organizations can tap into insights that go well beyond what their current spend dashboards can tell. In other words, there is a difference between knowing which supplier you've been buying something from and the supplier you could be buying something from that yields a more aligned business outcome.

The Role of Technology in Spend Management 

Spending time and resources to manage smaller or tactical transactions strategically was traditionally a dubious proposition due to the inherent costs of the approach. As a result, companies have tried solutions like Robotic Process Automation (RPA) or Business Process Outsourcing (BPO) within their buying process to manage this spending better. While a degree of effectiveness exists with them, the question remains around the real benefit behind these options' direct and indirect costs – sometimes in the form of a hidden opportunity cost. Alternate AP routes can also be explored, for example, around PCard spend so that companies can at least recoup some of the costs in the form of rebates or moderate working capital improvement, but again, at what opportunity cost?

When a technology-based solution that relies on machine learning and deep learning to do most, if not all, the thinking for you for these transactions, allowing you to understand what you buy, who you buy it from, what the capabilities are from the sources of supply and systematically learn and adapt based on what not just you but other organizations are doing, we have a foundation for intelligent automation. An intelligent automation technology that does not rely on your organization to tell it what to do but rather consistently acts according to what's "normal out there" to explore and capture opportunities that otherwise would go unnoticed. 

What if you have more suppliers than you think you do for a given type of request? How important is that information in a world where supply chains change by the minute, contract leakage "is what it is because we've been doing it this way for a long time”? Can you do that while at the same time improving cycle time, ESG, and compliance metrics? What if? 

AI enables a strategic management approach to tactical spend. And that strategic approach can consider the new "normal" that may not be apparent when you look at your existing reports and dashboards. The outcome is simple: focus on capital preservation by sourcing more, sourcing better, capturing more opportunities to keep inflationary pressures at bay, if not capturing savings outright, while at the same time ensuring there are ample sources of supply beyond the visual horizon of your data.

Should that not be the new "normal"?

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