The end-to-end perspective and its (likely) impact on procurement

Supply Chain Management (SCM) connects to almost every business operation: from financial streams to packaging, to the sequence of tasks, to where and when to execute them. SCM is core and center to the big overarching trends in the industry, from near-shoring, to digitalization, Industry 4.0, and the quest for resilience. In recent years, practitioners discussed the need for a holistic end-to-end approach to SCM: what role can procurement play?

Re-imagining the Supply Chain

In the last three years, experts and practitioners started debating end-to-end supply chains. This term indicates a tighter control, coordination and communication across links in the supply chain: all functions are integrated in a single workflow from the raw materials to the end customer. It is not enough for supply chains to emerge organically as an answer to market needs: they need to be designed on purpose.

This timing is not fortuitous. The world became painfully aware of the complexity of SCM: in short succession newspapers reported on the interconnection of supply chain networks (exposed by the 2020 pandemic), the global pinch points (e.g. the Suez and Panama Canal disruptions), the geopolitical reliance on a few players (e.g. TSMC for silicon wafers), and their use as political leverage (e.g. China on processed ores; the US on weapon systems). Even the whims of politicians impact sourcing decisions.

For companies to thrive in this environment, networks optimized on price and speed are no longer enough. An end-to-end approach can bring intentionality in the supply chain. Supply chain networks are not just the outcome of market convenience but are rather designed to balance cost, efficiency, agility, and (sometimes) sustainability.

Procurement with intent

In 2021 Peter Smith expressed how supply chains can make a difference in his Procurement with Purpose. The book put together two decades of discussion on sustainability and the triple bottom line. The outcome is an elegant formulation: procurement is the key to achieving long-term objectives to the benefit of the company, its stakeholders, and the environment.

The expanded scope of procurement is not new and dates back to Lisa Ellram’s academic work in the 1990s. What is new is an enduring and urgent economic rationale and the low-volatility environment of the Great Moderation cannot be taken for granted. There are two main takeaways: The continuity of business operations cannot depend solely on the institutional enforcement of global norms; organizations need to proactively design their supply networks to thrive in the long-term.

In other terms, procurement with purpose can also have the purpose of keeping operations running and the lights on. This translates into the need for greater accountability, transparency, and intentionality in the supply chain. The result is shaping a debate around the lines of a holistic approach to SCM, where resources and flows – material, financial, and data – can be managed from end-to-end.

What may change for procurement?

Procurement is likely to strengthen its coordination role, the ERP provider Oracle suggests. Experts at McKinsey agree: managing the material flow effectively pushes the procurement function to coordinate partners beyond the organization, and to align information flows. SCM discusses these fundamentals as the resources of the value adding process – factors – and the way these communicate among each other – interfaces -.

Factors – pooling resources

Firstly, procurement shall coordinate resources among partners. An excellent report from The Economist Impact surveyed business leaders to discover the “Next-Gen” supply chains. The solutions advanced by practitioners converge into a number of best-practices: expand supplier collaboration; monitor and stress-test the supply chain; and digitally transform procurement.

The transformation in procurement calls for a shift in how the function is perceived within the organization: from a reactive approach to disruptions, to a proactive strategy-setting approach. In the view of Henkel’s CPO Bertrand Conquéret, procurement should coordinate the suppliers in “an ecosystem of collaboration, technological integration and continuous improvement”. In other words, procurement involves managing and developing the capabilities of the upstream nodes.

This new focus is partly the outcome of industry consolidation and expertise. As production specializes, it becomes more difficult to squeeze additional value out of operations. In the words of Sumit Dutta – EY partner for SCM – the wins in manufacturing are no longer coming from within the plant but coming from upstream nodes: “value in manufacturing is based on what you are planning upfront and on your product portfolio”.

Interfaces – connecting data flows

The next level of value gain is at the interface of different functions. By combining material and information flows, procurement can raise the level of decision-making in the organization. Beyond the buzzword, digitalization is the key to interface changes.

Digitalization in this context will signal the seamless integration of different functions: automating the data flows between partners and aligning on communication. In one form, Accenture proposes the idea of the One Connected Supply Chain, linking the data of not just the focal company and its close partners, but tier 1 and tier 2 (and 3) suppliers, and even the public regulators: these systems combine mostly material data (where, how many) with transaction and financial information (what price, which customer, what value).

With end-to-end visibility, clients can see deep into the manufacturer plants and production lines. This change in interface in turn enables a better use of factors since a downstream node can plan more effectively by knowing e.g. the supplier on-time performance. Through predictive tools a company can even smoothen planning operations (as in the recent case Multipharma, a Belgian drug store chain) and act on proactive maintenance (as in Airbus’ Skywise platform).

By aligning interfaces procurement managers can gain greater oversight. A control-tower approach is likely to consolidate the power of the orchestrator which gains a competitive edge over other customers of its supplier base and can nudge its suppliers into serving its interest: Barilla combines visibility and control in its sourcing approach.

Challenges ahead

While end-to-end solutions are good for procurement, these may not align with the goals of the other links in the supply chain. Despite the interest of solution (e.g. SAP, Oracle) and service providers (e.g. Maersk) there are broad challenges in implementing end-to-end configurations.

An end-to-end transformation comes with costs and complexity. However, there is more than just technical issues and path-dependency to hold back this new perspective. From my perspective of a student and a wonk, I see three main challenges ahead:

1. Tensions on data governance between orchestrators and suppliers. Full-system integration may be beneficial to the company capturing the highest share of value from the trade. Vendor managed inventories are shown to put the supplier at a disadvantage and need corrective incentives to work for both parties. Data governance is likely to emerge as an area of collaboration – or competition.
2. The model of supply chain design cannot include all the goals of cost, efficiency, and agility. While previous networks can be optimized for a single metric (e.g. speed) it may be harder to agree on end-to-end KPIs. SAP proposes shared ways to measure value, and yet the need for alignment only comes fourth after collaboration, trust, and centralization. Agreeing on a supply chain design may need a trial and error approach.
3. The procurement role differs between converging and diverging supply chains. This aspect is contingent to the size, scope, and consolidation of an industry: in assembly-oriented supply chains (e.g. automotive, electronics) suppliers may resist coordination to avoid being too dependent on only few buyers; in less specialized industries, suppliers may instead have a rationale for platform models of integration to expand their client base.

What shall we ask academia?

Being locked out of academic journals, I can “only” check open resources and books. The current research on end-to-end SCM may have already found an answer to the implementation issues and summarized the topic into a working supply chain design.

Nevertheless, it is crucial to investigate the elements of continuity and difference across supply chain functions. An end-to-end approach may impact the localization or centralization of network functions; the way a supply chain captain helps its suppliers innovating; the strategic options in a sourcing strategy.

Finally, procurement can oversee the overall efficiency of the supply chain. The value added by purchased goods differs by industry (from 80% in consumer goods to 40% in Pharma and services) yet procurement is central to the coordination beyond the company boundaries. The result is ideal: higher profit margins for the focal company and greater end value for its customers. Researchers should investigate the role of procurement in optimizing the network performance.

With these stakes, scholars are called to separate the wheat – the real transformation – from the chaff – the industry hype -. It is a distinction worth making: by giving a name to the ongoing trend, organizations can make informed decisions and initiate change within their boundaries; by defining the scope of the change, regulators and investors can set the policies needed to accelerate and shape the transformation; and by exploring end-to-end opportunities, customers can have more transparency in their choices.