Execution Capacity has Always Been the Competitive Advantage in Supply Chain

And The Key is Still Automation, NOT AI!

A recent article over on Global Trade Magazine on Why Execution Capacity Is Becoming the Next Competitive Advantage in Supply Chain gets a number of things right.

1. Procurement and Supply Chain leaders are constantly being asked to do more with less, and, yes, this has been going on for years (and, to be precise, decades).

2. They are managing larger supplier ecosystems, responding to geopolitical disruptions, navigating inflationary pressures, adapting to shifting tariffs, and controlling costs across increasingly complex global operations. At the same time, executive teams expect procurement organizations to move faster, identify new savings opportunities, and strengthen business resilience.

3. The challenge is capacity.

Most enterprises already have capable procurement teams, well-defined sourcing strategies, and clear objectives. What they often lack is the bandwidth to execute those strategies consistently across thousands of suppliers, transactions, and commercial opportunities.

With one supply chain catastrophe after another of the man-made and natural variety (port strikes, border closings, tariffs, wars, strait and canal closings, factory fires, droughts, wild fires, volcanic eruptions, earthquakes, tsunamis, mine collapses, etc.), the constant uncertainty in your supply chain and underlying costs, and supply lines disappearing without warning, execution gaps are becoming increasingly visible, disruptive, and costly.

In order to manage these turbulent times, your organization needs alternate suppliers, alternate supply lanes, the ability to re-allocate orders daily, the ability to re-route shipments in real-time, and the ability to optimize your suppliers, supply lanes, order allocations, and shipment routings. And, most importantly, the ability to identify, and manage, these (alternate) suppliers, supply lanes, re-allocations, and re-routings across all products that must be sourced globally! In other words, execution capability across the Procurement and Supply Chain organizations.

But, as the article notes, in an average organization, only so many new suppliers can be identified, existing supplier relationships can be optimized, products can be strategically sourced, orders can be re-allocated, and shipments re-directed.

This is because, while most organizations have invested heavy in classic analytics, supplier intelligence, sourcing platforms, and risk management tools, they have simply invested in visibility, not execution!

According to the article, the answer is to go from “AI Assistance to AI Execution”. But that’s not the answer. It’s not “AI Assistance to AI Execution”. It’s “Tech Assistance to Tech Execution”, whatever form that tech may be … and for the most part, it’s classic automation, which, we’re sad to say, has existed for over a decade, and been largely ignored for that time.

Let’s take each of these requirements one by one:

Supplier Discovery: when the organization needs to source, or re-source, a product, the tool automatically searches the supplier network for all suppliers that supply a similar product and then weights them on key dimensions of product similarity and organizational supplier scoring criteria for suppliers in that category (based on information on the supplier in the network)

Supplier Optimization: for a product/category, automatically run analyses that identify the right mix of current and potentially new suppliers based upon a combined ability to supply the organization’s demand with enough “slush” to allow for a supplier becoming unavailable due to supplier issues, supply chain issues, or other issues without adding unnecessary bloat to the supply base. (Considering that organizations typically spend 80% or more with 20% of suppliers, most organizations have too many suppliers but not enough for key products or materials.) This mix will be automatically optimized with the right automation solutions.

Order (Re) Allocation: re-run forecasts weekly/daily, re-allocate orders based on stock-levels, probabilistic forecast predictions, current and expected lead-times, expected supplier/lane availability, contractual commitments, etc. and choose a balanced solution that will satisfy all the probable outcomes (using optimization, not random AI predictions)

Real-time Re-routing: for every multi-modal lane, re-routings can happen at every waypoint (where modes shift, cross-docking at warehouses/FTZs is utilized, or where stops occur); re-run the models based on supply chain updates daily and if carriers/routes for segments are expected to become unavailable, costs become too high, or delivery times would stretch out too long (or could be stretched out to lower costs), possibly issue re-routing orders

Required Data: Automation can automatically pull/push data on a daily/real-time basis

When you consider that modern AI falls into Gen-AI which is literally “make stuff up”, you can’t depend on it for critical supply chains where one mistake can be catastrophic. But, fortunately, there are systems out there that do all of the above reliably on classic RPA, optimization, and analytics. (And have been for about a decade.) Plus, with the recent SaaS price compression as a result of the AI Hype wave, it’s all very affordable.

So if you want to succeed, get these systems. They’ll allow you to manage all suppliers, all items, and all lanes. You’ll be able to execute on your strategy, provided you can come up with a strategy that is adaptive enough in today’s global economy.

Procurement is NOT a Place of Comfort!

A while ago, Garry made a great point in one of his post on how a surprising amount of leadership is simply holding the line on reality.

And, more importantly, a surprising amount of leadership is the acceptance and confrontation of uncomfortable reality. You see, in most organizations, leaders believe it’s their job to be optimistic and keep the team happy and comfortable. They tell the team “we’re almost there … the project’s almost done” even when it’s a dumpster fire. “The pipeline is strong” when all the pipeline consists of is a list of companies who indicated they might be interested in a solution that falls in the category of solutions the company offers and they have not been vetted beyond a third party discovery call. “It’s just timing” when the RFP only gets 3 responses from 7 suppliers after extending the deadline by two weeks. “Once we hire X, it’ll be fine” when the reality is that things will get worse since “X” won’t know how to fix anything until trained (and someone will have to stop fire-fighting to train X, which will allow the fires to consume even more).

A good leader addresses the discomfort.

“Okay, things went to sh!t with this project but we succeeded in the root cause analysis, we can get back on track in two months, and, more important, we also identified three other oversights in the project plan, corrected those, and forced the vendor to upgrade capabilities that will allow us to be more productive than planned when we go live. We’ll just have to work harder to ensure the revised plan doesn’t hiccup“.

“Losing MegaCo to our biggest competitor, whom we know can’t serve MegaCo, was a big hit. We had to cut our simultaneous sales efforts in half and what’s left in RFP stages doesn’t even equal MegaCo’s potential when combined, and we know we’re only batting 50% when we get to that stage. We need to refill the pipeline with active targets fast, and we know that the leads given to us by DealSourcingCo are not well qualified based on our few conversations. Since we also didn’t have time to review many leads the past quarter, those wankers really slacked. We have to shape up, do our own pre-sales and qualification, work overtime, and re-jig the entire pipeline over the next two weeks. However, even if only a third of the “pre-qualified” leads pan out, which is the current success ratio, the good news is that we’ll have more than enough to keep us busy and get back on track for next quarter.”

“It’s not timing. If 4 / 7 potential suppliers didn’t answer the RFQ, then we really f*cked something up. We need to contact each of them, and find out why. We’re we not specific enough on our requirements? Was our guaranteed commitment too low? Was the timeframe too short for them to respond? Were we asking too much in the RFQ for no guarantee? Did we misjudge the supply/demand and they just don’t need us? However, I just licensed us a category management system where we can encode all the knowledge we gain from every sourcing exercise to make sure this situation doesn’t (unnecessarily) happen again as we will know what we need to get it right“.

“Bob quitting and taking all his knowledge was a big loss. We’re totally underwater as we don’t have his category knowledge, know which of the 10,000 spreadsheets he was using for the last events, or who really managed the relationship at the supplier. The fact my predecessor never made Bob properly track anything left me with a hole I’ve ben struggling to figure out how to fill, especially since every time I pushed for better data organization he kept being more insistent he just didn’t have the time with his workload.
However, I did license an AI tool that will scan all his files, attempt a categorization by category, and extract the likely supplier, contact, products, and prices. I did license a category management tool that all of this data, once reviewed by an independent expert, will be pushed into.
And I did go out and find a few independent consultants who are real veterans with 20 years of category experience and engage them for the next quarter to sit down and help us get everything organized. (Independent, not fresh-faced known-nothing MBAs from a big consulting co.) The next three months will be hell, but then things will be better than they ever will before because we’ll all know where all the key category knowledge is at all times and we’ll be able to bring Bob’s replacement on and have that person be effective day one. For now it sucks, but if we can hit our targets, I’m going to expand your bonus pool by giving you some of mine“.

That’s leadership. Telling the team as it is, making sure they understand it’s not going to be comfortable for a while, but that they will get through, you’ll be there with them, and you’re doing whatever you can to make it possible.

A Key Leadership Skill for Procurement … Is NOT What You Think.

There’s a lot of great posts on leadership, so we’re not going to discuss what a leader is. (And if you don’t know, go find them and come back.)

But leadership is more than just what you think about. It’s not just the attributes you associate with command, authority, and communication … and the greatness you expect from people that attain the position. It’s also the attributes you associate with submission, anarchy, and concealment … which you might associate with followers, lack of leadership, or walled organizations. (But that’s another post.)

But the most overlooked skill for Procurement, as Garry point out in a LinkedIn post on the leadership skill no one talks about, is the ability to end things. In fact, a CPO’s ability to end things is more important than a CEO’s ability to end things. (But that’s likely another post as well.)

In Procurement, especially a poorly functioning Procurement organization, a lot of things will need to be ended:

  • the people who were placed in, but don’t belong in, Procurement will need to be removed — if the organization won’t transfer them, they’ll need to be let go
  • the supplier relationships that aren’t working will need to be ended as soon as possible
  • the consulting relationships offering no value (and just billing hours for nothing) need to be axed
  • the processes that aren’t working need to stop (and they will need to be replaced with modern processes that do)
  • the data silos that aren’t connected, aren’t up to date, and aren’t usable need to be connected and updated or deleted
  • the systems and software not meeting Procurement needs must be disposed of

That’s a lot of endings that need to occur before new beginnings can take place.

And if these endings don’t happen, Procurement will collapse and maybe even take the organization with it. As Garry notes, organizations don’t collapse from lack of beginnings, they collapse from an inability to stop!

Turst is Real Procurement Currency — And That’s Why AI CANNOT Do Procurement!

A couple of months ago Garry addressed a point made by the Peter Smith, the Bad Buying Bard, which boiled down to an issue more important than anything technical where AI is concerned … and that point is Trust.

In his original post, Gary asked if AI would change Procurement. However, after reading Peter’s comment, he realized the real question is whether Procurement is trusted enough that the organization will accept Procurement setting the rules around how AI is used. As Garry notes, that’s the crux.

When it comes to trust, it’s not whether or not the suppliers trust Procurement that’s the real issue, it’s whether Procurement is trusted internally. If Procurement is not trusted, it will be bypassed, ignored, and even sabotaged. This includes the (mis)use of AI. If Procurement is not trusted, it will not have any authority, and the organization will not heed their warnings (based on logic and the research they are used to doing), charge ahead with AI, and become yet another failure contributing to the 94%+ failure rate (while costing the organization millions upon millions of dollars and wiping out any savings Procurement may generate, especially if the C-Suite dictates an AI-first solution for Procurement).

Furthermore, you can’t use tools that you cannot trust. And you can’t trust any Gen-AI Procurement platforms built on hallucinatory LLMs. Since hallucinations are a core feature, results can’t be guaranteed, and LLMs can’t even be counted on to follow explicit instructions (and will corrupt your documents and data even when explicitly told not to), you can’t use Gen-AI/LLM-based AI.

And, unless your data is clean, categorized, up-to-date, and easily accessible through modern APIs, “classic” AI won’t work either. Good Procurement Pros will remind you that you can’t jump straight to AI. Just like you couldn’t expect a tribesmen from a culture with no written word who never set foot in modern civilization to begin reading lessons on the works of Shakespeare accessible only on a modern tablet, you can’t jump decades of technology. Or process.

Successful Procurement requires:

  1. getting your processes in order
  2. getting the supporting data in order
  3. implementing classic technology with high-degrees of deterministic, dependable, determination

And then, and only then, do you sit down, identify where there are still inefficiencies and/or a lot of tactical bit-pushing work, and try to figure out where AI will actually help. This means that most organizations are still years behind where they need to be to successfully implement any AI. In the classic Hackett journey to best-in-class, which will take an average large multi-national 8 years, it will be at least 4 years before the organization is far enough along on any process to consider advanced AI. (For a mid-size, this journey can be reduced to 6 years, and then it’s 3 years before Procurement is ready for advanced AI. It’s always People, Process, and Data before AI!)