A recent North Carolina State University (NCSU) study finds surprising misalignments between supply chain and procurement executives on top business priorities and resiliency. In this article, I take a look at three key findings from that study, and what this misalignment can mean for achieving business objectives.
Key finding #1: Misalignment on priorities
A core finding of the study was that although procurement and supply chain executives were generally aligned, they had differing views on the top priorities for the business. Procurement executives rated “achieving lowest cost” as their No. 1 priority, followed by “on-time delivery” and then “resilience.” Supply chain executives rated “on-time delivery” of supply as their No. 1 priority, followed by cost and then resilience.
As you may have noted, the order of their top two priorities was exactly flipped. Procurement focused on cost and supply chain focused on on-time delivery. Although this may fall in line with our traditional perceptions, in a highly disrupted environment this misalignment on the most essential priorities can cause and magnify problems.
Normally, these slightly divergent visions co-exist decently in the majority of cases. In a normal environment, theoretically, cost and speed can be more easily balanced and important decisions can be weighed and planned ahead of time.
Yet, the reality of today’s fast-paced and disruptive environment is that making judgements in silos – and having competing priorities – can pose nagging problems and be quite costly.
We’ve heard growing concerns about just such problems, for instance, when procurement focuses on low-cost suppliers while not considering the increased transportation costs and risks associated with those suppliers. A specific cost KPI may be maintained, but the larger total costs to the organization due to increased transport costs, reduced resiliency, and business interruption are perhaps not being properly considered.
Today, we are seeing almost every single category of material and commodity at a record high price and every form of transportation also at a record price. And this demands a greater degree of shared alignment to combat the inflationary effects.
Key finding #2: CSCOs standing alone on resilience
Another curious finding of the survey was that resilience ranked as the No. 3 priority for both procurement and supply chain respondents. You would think it would be the No. 1 priority.
According to other studies GEP commissioned since the onset of the pandemic, including those with The Economist Intelligence Unit and Harvard Business Review Analytics Services, resilience is the No. 1 priority of chief supply chain officers (CSCOs) and chief procurement officers (CPOs). Yet, the NCSU study found resilience was not the top priority.
A deeper analysis was conducted to understand why resiliency was not ranked as the No. 1 priority. And when researchers examined priorities from the perspective of different seniority levels within an organization, a surprising schism emerged: CSCOs and CPOs were focused on resilience as their No. 1 priority in the current environment, but mid-level and operational management were hyper-focused on their traditional priorities and measurements. For procurement managers, the central focus is on managing costs in the face of inflation, and for supply chain, it is ensuring delivery of supply amidst shortages.
While CSCOs and CPOs are proclaiming resilience their top priority, mid-level managers are hyper-focused on their day-to-day functional priorities at the expense of prioritizing resilience.
C-level executives have their vision on resiliency, but they may be unaware that their organizations are on auto pilot and continue to operate as usual. It appears mid-level managers are heeding to instinct and struggling ever harder while still sinking in the quicksand or the swamp.
Top executives might think that the people who report to them are in alignment with them, but the reality is that their teams are buried in their immediate challenges.
Key finding #3: You don’t know what you don’t know
Adding even more fuel to the misalignment fire is the fact that supply chain and procurement executives believe they are aligned with each other when that is not the case.
One question in the survey asked executives to rate the relative alignment of procurement and supply chain across a series of priorities — from reducing financial risk to focusing on low-cost suppliers. Although nearly 30% of executives understood they were not aligned across these priorities, between 60-70% of executives, depending on the priority, viewed themselves in alignment with their colleagues.
So, to recap, the NCSU study clearly shows that there is misalignment between procurement and supply chain – and there is a schism between CSCOs and mid-level management. However, the majority of executives are not even aware that such a problem exists.
It’s the old “you don’t know what you don’t know” problem. A problem of misperception.
Such misperceptions can give executives a false sense of security – and be the hidden cause of underlying future disruption in the supply chain.
The NCSU report warns that this misalignment and misperception can derail progress in achieving greater resilience and meeting business objectives. The current disruptive environment only magnifies the problems.
We recommend taking the following actions to achieve your strategic vision and operationalize resiliency:
- Define resilience and clearly communicate about shared objectives
- Operationalize resilience through systems and processes
- Focus on enabling key capabilities, particularly shared data, visibility, and technology
The essential starting point is for organizations to align on their vision, prioritization, and definition of resilience, and then operationalizing or integrating it.
Operationalizing resiliency requires alignment of procurement and supply chain operations to address key pain points and weaknesses in the supply chain.
First in line in terms of priorities for improving processes is closing the gaps in the supply chain: gaps in process, information flow, and technology, which predictably result in a drag on the supply chain’s productivity and optimization and present openings for errors and increased risk.
Up to 59% of surveyed executives rated the procurement and supply chain gap as a “major issue.” This was rated as the No. 1 gap in the supply chain, according to the survey.
In this increasingly complex and disruptive environment, I believe that “convergence” – the uniting of critical processes, information flows, and technologies across the supply chain and the ecosystem – is the key to operationalizing resilience and closing the gaps.
You can delve further into these topics by downloading and reading the full NCSU report, Supply Chain Convergence in a Disruptive Environment.
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GEP helps enterprise procurement and supply chain teams at hundreds of Fortune 500 and Global 2000 companies rapidly achieve more efficient, more effective operations, with greater reach, improved performance, and increased impact. To learn more about how we can help you, contact us today.