Bridging the Procurement-Supply Chain Divide

Procurement teams are good neighbors with their counterparts in supply chain management. But they really need to become family. If they can find ways to interact more closely, they may find they can cut total inventory levels across the value chain by at least 15 percent—and lower overall supply chain costs in the bargain.

Although many companies have been focusing on improving the effectiveness of their procurement operations, relatively few have had much success with properly integrating suppliers into their supply chain operations. There’s a mismatch: companies and their suppliers optimize their operations to suit their own environments. The consequences are far-reaching—everything from significant supply shortages and excess supply inventory to frequent write-downs and excessively long shipment times.

You don’t need to look far for tell-tale signs of this misalignment. We know of a food processing company that stored excess raw material inventory while its packaging supplier was also burdened with finished goods inventory. There is a consumer packaged goods producer that suffered from shortages of a common raw material after it introduced a new product that shares the material with the company’s old products. And we have come across a medical device manufacturer that moved to a local production footprint to improve the responsiveness of its supply chain, but then found that it had to ship raw materials around the world.

The misalignment is not the fault of one side or the other. Each has evolved naturally toward efficiencies that make sense for its immediate objectives, but not for the whole. But a root cause of the supplier-customer mismatch is the disconnect between the customer’s procurement and supply chain operations. Procurement, the primary face to suppliers, usually takes a static view of business requirements to drive cost reduction while the supply chain operation’s main goal is to deliver products and services that satisfy end-customer demand, which is dynamic by nature.

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