A Pandemic, Supply Chain Disruption, and Logistics Procurement: Lessons for the Future (Part I)
A lot has been said about the impact that COVID19 has had on supply chains, and what potential strategies organisations are likely going to use in the future to deal with such massively unpredictable mega impact events, and hence I will not talk about that.
I am going to restrict my musings to the rather inconsequential matter of Logistics Procurement, and whether the buying strategy (if it exists) or the process of logistics procurement impacts the ability of the organisation to respond to black swan events. This is a perfect time to look at the role of Logistics procurement strategy and its impact on logistics execution and the ability to respond to company, industry, economy, or civilization level disruptive events.
A large part of Logistics procurement is related to getting things moving at the lowest possible cost. And other things like size of Logistics Service Providers, their ability to scale up support, help launch new products or enter new markets, digital readiness for visibility and planning, ability to remain afloat in bad financial periods, customer centricity, and capacity to help improve core Supply Chain capability of the customer are evaluated to varying degrees by customers. In many cases Logistics is considered like a transactional service, which can be procured from an infinite pool of providers, and the more this belief, the more we tend towards Logistics Procurement being a L1 decision, lowest cost bidder wins, if he/ she fails, the next lower cost provider wins.
And then equilibrium is found for a short while, churn continues, partnerships are not built, common programs not undertaken, and when a crisis strikes, we go looking for the L1 provider who can execute in crisis. We are not able to respond because we are like a couple coming to the Olympics Figure Skating Pairs event without any rehearsals, not knowing what mettle the partner is made of, and whether they can pull off the pair spins, lifts, jumps, death spirals or not. A perfect routine in a high stakes high pressure arena comes good based on expertise, fitness, character, and years of practice together, which in turn creates trust, intimate knowledge of strengths and weaknesses, and understanding of the role of each party.
I am trying to suggest that deep partnerships based on assessment of capabilities, long term roadmaps, joint investments, and a response process honed through simulation and execution may significantly contribute to our ability to respond to Supply Chain Disruptions. A global crisis is not the time to go looking for the L1 provider on spot rates but a time to be able to work with the chosen partner(s) in confidence that this team has the strength and the playbook to navigate the crisis, and the Logistics Service Provider is not only capable but is invested into the customer relationship to switch on their best game for the customer.
Will we see organisations reflect on Supply Chain execution failures in times of COVID19 and say some of this could have been avoided if we had a Logistics Procurement Strategy, if we had the concept of core partners, if we had a Lead Logistics Partner, if we had built joint roadmaps for capability development, if we had simulated response to disruptive events together, and if we had not worried so much about L1.
The optimist in me says that organisations will look at Logistics Procurement and Partner selection as a key element of supply chain risk management. The Realist in me is not so sure.
Sometimes the best opportunities come in a crisis, this is a great opportunity for Chief Supply Chain Officers to reimagine the role of the Supply Chain inside the organisation. My worry for the community is that we will all go back to L1.