Supply Chain Security Is Becoming More Important By The Day: Part I

We’ve known for decades the benefits of good supply chain security. (We talked about many of them 20 years ago on this blog.)

They included:

  • higher supply chain visibility
  • improved supply chain efficiency
  • better customer satisfaction
  • improved inventory management
  • reduced cycle and shipping time
  • improved product safety
  • improved inventory management
  • improved product handling
  • process time reduction
  • efficient clearance
  • better customer satisfaction
  • resilience

However, good supply chain security is now now just a nice to have, it’s an absolute must. Supply chains are as fragile as they have been in decades and, even worse, today’s prime targets for theft, sabotage, and terrorism. Including of the legal variety. Let’s discuss.

  • tariffs, trade wars, and trade barriers:
    in the midst of these spats, governments are looking for reasons to block or seize shipments — and a lack of security (where you can’t prove the goods weren’t swapped for counterfeit or sabotaged) can increase your chances that your goods will be turned away, stuck in customs indefinitely, seized, or even destroyed
  • pillaging pirates:
    the pirates are back on the Ivory Coast with a vengeance (they never really went away, but for a while they were less active as the generation of the 2000s retired)
  • military target proxies:
    we’ve already seen this in the Red Sea and the Strait of Hormuz in particular, the Strait’s open, then it’s not, and if you’re a ship registered, or going to, the US or Iran, you’re a target
  • terrorism targets:
    sales and purchases of large quantities of fertilizer and other chemicals and materials that can be used to make bombs are carefully tracked in most developed countries, and flags are (supposed to be) raised, so it’s pretty hard to do a domestic bombing and get away with it; on the other hand, most private food shipments are not well tracked, even by the shipping companies, so it’s a lot easier to break into a truck when the driver stops to eat or sleep (and keep him that way with the help of chloroform) and inject a few hundred almond cakes with cyanide; spray the lettuce with a concentrated salmonella mist; replace the shipment of grain alcohol with methanol; etc. twenty years ago warnings were everywhere about next generation terrorism (and we discussed some of them here) — now that terrorism is on the rise again, the methods, and mass impact, is going to be much worse
  • natural disasters:
    they’re not going away — with the weather getting more extreme, plan on more (flash) fires, floods, tornados, hurricanes, tsunamis, etc. especially in routes traditionally at higher risk

In other words, your supply chain is under constant (threat of) attack, which makes security paramount. So what do you do?

Part 2 tomorrow!

VENDOR ROIs ARE A LIE!

Recently asked and realized I haven’t addressed this in a while.

(Summarized) question from an experienced Director Level:
“I’ve never seen vendor ROIs materialize. Where’s the gap?”

First, the 30% to 40% gap has been known since the early 2000s when AMR (swallowed by Gartner) reported it.

Reasons:

1) Formulas assume best case scenario

2) Formulas assume all savings are captured … sourced must be purchase-ordered at the right volume from the contracted supplier using the right logistics at the right volume at the contracted price

3) Payables must check the invoice against the … PO (for price) logistics tables (for freight rates) against received (for quantity not shipped) …. and ensure that there is received inventory not paid for (as some suppliers will keep resubmitting the invoice until paid, leading to duplicates without PO numbers)

Also, most “suites” miss one or more of these capabilities and there goes 20%+ the day you buy it!

Then there is org maturity to ensure

* contracts get switched
* maverick spend is properly assessed
* “expedited” and “surcharges” are within range …

Spend analysis service providers love to dive into utility, contract services, and “tail spend” for a reason: they can find overpayments of 15% to 30% they can go after, and then keep 33% of what’s recovered (that you could do yourself with a cheap tool and a week of training). It takes a long time to ensure contracts get switched across a mid-size or larger organization!

Providers that like to get rich off of overpayments, once you implement proper m-way invoice matching, will switch to the new trick of “identical” SKU substitution. I.E “we don’t have the 8-packs/20-pack/10000 screw boxes in stock, but we have the same product in 4-packs, 10-packs, 5000 screw boxes — is that okay?” … you say yes, they ship, but the half size packs cost 75% of the normal size pack, so you end up paying 50% over contract rate!

Of course, there’s always exceptions for “expedited” or “surcharges” that will creep in on orders suddenly too small, too big, or shipped fast … if those aren’t indexed and checked, well, we all know the fraudulent 800,000 shipping charge for a hammer (and a small package of emergency parts) was true!

You’ll never see more than half of what they promise in an average organization as:

  • you won’t be able to source/procure more than a 1/3 of the spend through the system in a given year (if that!)
  • there will always be exceptions
  • there will always be missing features that suppliers can exploit to overcharge you, and by the time audits find them, most of that won’t be recoverable
  • they assume you, and your team, are all seasoned Procurement experts
  • they assume you have mastery over a tool they just installed with little to no training

In short: always discount the promised ROI by at least half if you want a reasonable estimate! Vendor ROIs are a lie!

Feel Free To Discuss!

Supply Management in the Decade Ahead: Same Old, Same Old — Only the Pendulum Swings Part II

Almost 20 years ago, back in 2007, I wrote a 2-part series on Supply Management in the Decade Ahead: The Eight Major forces (Part 1 and Part 2) where I discussed the various external forces that will impact a company’s supply chain, as verified by CAPS, AT Kearney, and their clients.

And just like you don’t need to read another state of procurement report for five years! because, except for the tech-du-jour, nothing has really changed in the past five, ten, and even twenty years; you don’t really need to do an extensive study or survey to realize that the core supply chain issues are more or less the same, it’s just where the pendulum happens to be in it’s swing on each major issue.

Today we discuss the last 4.

Customer & Channel Dynamics

The downstream supply chain will continue to change rapidly due to economics and government policies in some industries. In other industries, supply chain dynamics will be influenced by the poor financial condition of major trading partners in the chain. The impact of private equity firms will also be significant, who will continue to take public companies private, slash costs, raise prices, and change business relationships. (PE, which currently controls between 15% and 20% of the US economy, continues to get more powerful by the day … in fact, it won’t be long before they are twice as powerful as the stock markets, which only generate between 8% and 12% of the GDP per year. They may have a market capitalization equal to 2X to 2.5X of the US GDP, but we all know that’s meaningless because some of that results from foreign investment and an AI-triggered crash is coming.)

The only difference between conducting business today and conducting business in the years ahead with respect to channel dynamics is that these changes will continue to come at an accelerating pace and you will have to continue to adapt faster than you do today. That will require Human Intelligence (HI!) and Human Experience to accomplish. AI can make recommendations, but these are generated based on probabilities generated on unknown training data and can be useful or as useless as the AI telling you to eat one rock a day and strawberries with 2 “r”s. (And I’m not sure what those are, FYI.)

Increased Product Variety & Shorter Life Cycles

Variety will continue to mean more models, brands, and products tailored to different geographies and price points. Consumer tastes in emerging and newly developing economies will be new and different from traditional markets. Traditional lines of competition will continue to blur as companies try new products and markets.

While I was right that you don’t want to browse the web on the screen the size of a credit card, that only goes for developed economies (and in economies where the only devices most people have and the only internet they can afford is their phone, they are quite happy with that), it’s still a fact that you don’t want your fridge to tell your local grocery store that you consumed six litres of rocky road this week, and that you don’t want the ability to cut yourself seven times in a jagged fashion simultaneously while shaving. Amongst the big winners will be the companies that realize sometimes you just want a phone, a fridge, and a straight razor – and not all the garbage Gen AI-based hallucinators are trying to shove into these products today. And, oh yeah, there comes a point where it doesn’t matter how many fractions of an ounce less it is than the previous product, how many extra cubic inches you squeezed into the door, or how fast it vibrates (at least in the case of the razor).

People will want better (faster) and cheaper, but they will want it to meet the need better than last gen tech, not just different, and they don’t want to sacrifice what they have just to get something different. And while Weird Al lamented that his computer was obsolete before I opened the box, we’ve entered an age where most products are obsolete once the first unit is produced … which could be months before it gets into the hands of consumers.

Social Responsibilities

Companies in developed economies will continue to be held to high standards wherever they do business in the world. Companies will have to monitor working conditions in their supply chains all the way back to basic extractive and farming practices. Supply management will have to ensure that the supply base meets environment standards. Commitments to a diversified supply-base will become more important in developed economies, and in a significant sub-set of those now insist on DEI requirements (while one country now insists on no DEI).

However, we are still in the age of CSR: Corporate Social Responsibility. While it’s been proven again and again that consumers won’t pay more (than 1% to 2% above the lowest price) for CSR brands, if products and prices more or less equal, they will generally choose the responsible brand over the irresponsible one.

Environmental Responsibilities

Twenty years ago we said that continuing the social responsibility theme, customers, consumers, shareholders, non-govermental organizations, and governmental bodies will all increase their scrutiny of corporate environmental practices in all regions of the world and demand that companies take environmentally friendly actions. Companies will be forced to meet the environmental expectations of the general populace. Environmental issues will become brand-related issues and influence how companies are viewed in the marketplace. And with the exception of the United States, which is rolling back environment legislation faster than Walmart is rolling back prices, ESG laws have continued to be rolled out … and with the damage that “AI” data centers are doing, in most countries, expect another round of legislation to come later this decade or early next decade.

To meet environmental requirements, if you still don’t have across-functional team with executive leadership to monitor environmental concerns in the extended supply base, it’s time you get one. Carbon restrictions are going to come into effect in (more) countries, water restrictions will emerge, and other pollution control acts will also come into play. An organization will need to keep tabs on what’s being proposed, because, in many countries, proposed legislation eventually becomes reality (although it usually takes longer and gets watered down). It’s always cheaper to be in compliance before an Act comes into effect than scrambling later.

Supply Management in the Decade Ahead: Same Old, Same Old — Only the Pendulum Swings Part I

Almost 20 years ago, back in 2007, I wrote a 2-part series on Supply Management in the Decade Ahead: The Eight Major forces (Part 1 and Part 2) where I discussed the various external forces that will impact a company’s supply chain in the years ahead, as verified by CAPS, AT Kearney, and their clients.

And just like you don’t need to read another state of procurement report for five years! because, except for the tech-du-jour, nothing has really changed in the past five, ten, and even twenty years; you don’t really need to do an extensive study or survey to realize that the core supply chain issues are more or less the same, it’s just where the pendulum happens to be in it’s swing on each major issue.

Today we discuss the first four.

Global Competition Contraction

Twenty years ago, we were dealing with the rise of China hitting full swing as a result of the outsourcing craze that started to pickup in the eighties (as a result of pushes by McKinsey and counterparts), as well as other secondary markets becoming more accessible — and a host of global options for just about everything you could buy.

While this hasn’t changed, since the world’s dependence on China is still at an all time high (from about 5% of Global GDP in 2005 to almost 20% in 2025), and there are more and more companies popping up every year to satisfy your needs, their relative availability to you has changed. With canals and straits being shut down on a regular basis, sanctions coming fast and furious, tariffs costing out supply, and so on, the competition you can access in some countries (especially the United States and Europe) is shrinking by the day. The pendulum is swinging back from Globalization to Deglobalization/Contraction, and, as usual, you have to keep track of where the pendulum is and what direction it is (still) swinging in.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies are still attempting to increase in size, scale and market power to ensure they survive stagflation and recessions. Others, in financial (di)stress, need to do whatever they can to survive. This will thus force many companies to continue the merger and consolidation trend that has been ongoing in fits and spurts for the past few decades.

Similarly, in the supply chain software space, paralleling the procurement software space, due to the impacts of the Age of AI Hype, we will see a lot of M&A as the bigger companies, with their legacy SaaS, acquire smaller “AI” players to add the “AI” propaganda to their own marketing, and the smaller legacy companies, struggling to sell their SaaS, put themselves up for (fire)sale to “AI” and I2O (Intake to Orchestrate) providers who need real capabilities and larger companies trying to complete their suites.

Increased Government Regulation

Governments continue to do what they do best — create red tape for the private sector, sometimes with the best of intent, sometimes to fatten their pockets, and sometimes just to keep busy. Sometimes the regulations help competition, sometimes they protect consumers, and other times they just add cost and process for absolutely nothing. Either way, they won’t stop.

This continues to lengthen your supplier / partner research and contract negotiation cycles, which must discuss relevant government regulations, privacy legislation, DEI (must [not] have), AI, and who’s on the hook when (import/export) tariffs get introduced out-of-the-orange. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will continue to have a large impact on supply strategies.

Technology Advances

(Proclaimed) technology breakthroughs continue to cause major changes in how products and services are provided, especially in the software and control systems spaces. Properly applied technology improvements (i.e. real AI vs. Gen-AI LLMs) will revolutionize design, planning, and production systems and continue to lower total cost of production and the consumer’s total cost of ownership. Aggressive early adopters who overpay for the hammer when they don’t have any nails (just screws) will drive up costs while driving down efficiency and organizational capability (as they lay off workers they actually need and freeze hiring) are increasing their costs significantly and reducing their consumer base. If they can’t rapidly correct, they’ll end up being part of the new M&A frenzy (if not the next bankruptcy), while those who can successfully adapt modern, proven, tech with a plan will win big.

For the rest of the decade, and possibly part of the next decade, the winners will continue to be those that adopt the right SaaS solutions (because, while we may be in the SaaSpocalypse, it’s only going to weed out those overcharging for commodity software and capability, and the companies that survive the next few years will be those that offer true value. The reality is that even agentic (and AI) is still SaaS, it’s just SaaS that requires less (to no) human intervention [beyond maintenance by the provider] for the tasks it is assigned.