Risky Business: The Problem of Short-Term Demand & Sourcing

The past few years have highlighted just how vulnerable supply chains are to disruption. Historically, most companies have sacrificed long-term resiliency in favor of short-term efficiency and lean global models of manufacturing to achieve minimum stock levels, on-time-in-full. But this strategy fails to account for risk and the increasingly frequent disruptions impacting supply chains around the world. In fact, pre-pandemic research found that companies can now expect supply chain disruptions lasting a month or longer to occur every 3.7 years. 

These disruptions are not inevitable. But traditional demand forecasting and sourcing strategies will need to change. Past consumer behavior and supply trends alone are no longer sufficient for predicting future demand in today’s volatile markets. 

In a recent panel at Procurement and Supply Chain Live, Craft general manager Seb Butt discussed what the future of demand forecasting and sourcing should look like.

Stronger Supplier Relationships and Innovative Technology 

Moving forward, supply chain resiliency will depend on greater transparency through multiple supplier tiers and greater supplier engagement and collaboration. To achieve this, organizations need to focus more on nurturing their supplier relationships and invest in innovative technology that can factor in more data and surface insights from complex supplier networks in real time.

The Power of Supplier Engagement

The pandemic and the war in Ukraine have revealed just how fragile and transactional many supplier relationships are. When companies’ main suppliers were disrupted, they had to look for alternatives to fill their demand. But many of these suppliers were reluctant to work with new companies because they didn’t have a trusted relationship. This, of course, exacerbated delays while highlighting just how important supplier relationships are to a resilient supply chain.   

But when disaster strikes, it's too late to build a relationship. Stronger relationships must start with the procurement process and culture—and there is an immense opportunity to make it more innovative. 

For example, instead of approaching potential suppliers with a transactional mindset (i.e., “I need X Item”), companies can take a more collaborative approach, such as “I need an item or solution like this—what can you do for me?” This approach creates a more open-minded collaboration between vendor and supplier, where procurement is more of a partnership than a transaction.

Challenges to Building Supplier Relationships  

Too much reliance on technology over relationships

Supplier engagement isn’t just about collaboration or innovation. It is also essential for building a safer, more transparent supply chain. 

The 2013 Horsegate scandal in the food industry demonstrated this. When food inspectors found horsemeat in beef products sold in grocery stores across Europe, it sent shockwaves through the supply chain, and consumer trust plummeted by 24%

They eventually traced the source back to just four men: two former managers of a French meat processing factory and two Dutch meat traders. These men conspired to incorporate the cheaper horsemeat into the products and then pocket the extra profits. 

People originally attributed this supply chain failure to a lack of blockchain technology. But blockchain technology would not have caught or prevented fraud—the conspirators simply would have input false data. That’s why relationships are so critical. Knowing who your suppliers are and building that foundation of trust can help prevent bad actors from flying under the radar.  

Unwillingness to share data with outside stakeholders

Historically, there has been a culture of closely guarding internal data from suppliers and outside stakeholders. But doing so prevents potential collaboration and innovation. Moving forward, procurement professionals must be more willing to share notes with suppliers to build a more complete picture of their supply landscape. 

Craft learned this lesson while working closely with a large pharmaceutical firm. The pharmaceutical company knew that understanding the multi-tier supply chain would be critical to their demand planning and forecasting capabilities and long-term resiliency. But there are limitations to how companies can capture some information. For instance, mapping n-tier suppliers requires surveying—which is tedious and time-intensive and provides only some of the data companies need. 

Craft surfaces external data and public information from sources like customs, websites, and financial reports in real time. And it found that collaborating with the pharmaceutical company to combine datasets resulted in better insights. 

As Butt explains, “You combine those two datasets together—what we have publicly available and what they brought together from their years of working in the space—and that gives you an optimal result to start to understand their supply chain."

In other words, collaboration is key to surfacing the best information and putting insights into action.

Innovative Technology Drives Agility and Resilience

Supplier relationships are just one piece of the resiliency and demand planning puzzle. Innovative technology is increasingly important for enabling more comprehensive supply chain analysis and delivering true end-to-end visibility. Paired with better supplier relationships, technology can bridge the gap where traditional demand planning strategies have fallen short.

Scale and grow companies

Supply chains are more complex than ever. Companies that are trying to grow and scale their operations need new and innovative technology to help them plan for fluctuating demand. This requires using technology to aggregate and analyze historical data to identify trends in demand and forecast inventory needs with greater accuracy. The better companies can predict demand, the more prepared they will be to meet it. 

Monitor external factors and unexpected events

Similarly, technology can help companies monitor external factors to identify opportunities and alert organizations to emerging and unexpected risks. For instance, technology can help companies identify suppliers that might be located in regions experiencing heightened natural disasters or political turmoil. 

With such extensive supply chains, managing n-tier suppliers manually is increasingly difficult and time-consuming. Most companies don’t have the resources to collect and monitor that much data without the help of technology.   

Apply AI to surface opportunities when data isn’t available

Sometimes there isn’t external or historical data available. When this happens, AI technology can help fill the gaps to predict demand with more accuracy. Using AI to run algorithms on a daily basis, companies can start to predict consumer behavior and use that data to inform future demand. 

Domino’s is already doing this with its online ordering technology. When a customer is on Domino’s website, the software runs in the background to predict what they will order. This impacts not only customer experience in the moment but also has long-term implications for demand forecasting down the supply chain.

Challenges to Applying Better Technology to Solve Procurement Problems 

There’s a huge appetite for more innovation in the procurement space—as evidenced by the increasing number of startups in the industry. In 2021, there were around 210 startups with over $35 million in VC funding. And that number is expected to grow. 

But adopting new technology isn’t easy. In 2015, 70% of initiatives failed due to a lack of stakeholder engagement. In other words, being strategic and realistic about how and when to introduce new technology solutions is critical for long-term success. Procurement leaders need to drive adoption through clear communication and enablement. This means explaining the benefits of the technology, why it’s important to the company, and how it will help the partners and employees. There also needs to be effective training to ensure teams understand how to leverage the technology. 

If these engagement efforts aren’t in place, fewer people will buy in, leading to failed or underperforming initiatives. And the more these initiatives fail, the harder it will be to incentivize people to adopt new technologies in the future. 

By prioritizing both supplier relationships and technology, companies can amplify their efforts in both areas and drive better outcomes across their supply chains.

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