Budget Planning 2021: 9 Supply Chain Things to Know

The booming e-commerce marketplace opens access to new segments of consumers seeking direct delivery on a growing list of staples previously procured through brick-and-mortar channels. Meanwhile, end users seeking personal protective equipment, sanitizers, cleaning supplies and other products required for contagion response will create new revenue streams for organizations nimble enough to shift supply chains and adjust processes to meet fluctuating demand.

Responding in this environment, executives who prioritize supply chain strategy will be best positioned to not only meet and exceed customer expectations, but also control costs that jeopardize bottom line profit.

Looking ahead to the remainder of 2020 here are some looming trends I expect to emerge, as well as recommendations for how a supply chain master can continue to control business performance, even through the disruptions that are bound to happen in 2021.

4 Supply Chain Predictions Influencing 2021 Planning

Looking ahead to the remainder of 2020, ongoing marketplace awareness informs a few predictions that will determine priorities for 2021.

  • The recovery will be a saw tooth, with an upward trend. There will be ups and downs as economic activity re-emerges, particularly in regions that experience fluctuating levels of COVID-19 outbreak and control. Companies have to really protect themselves for that and plan alternative ways to serve their customers and compensate for workforce disruption. As Gartner points out, the path to recovery will be unique for every organization as they respond, recover and renew.

  • Companies that deal in non-essential goods will struggle, and they need to be the most agile. Consumer spending will continue to shift, largely toward e-commerce channels. There’s going to be fluctuating demand for hand sanitizers, cleaning products and personal protective equipment. A lot of companies can maintain workforce in the manufacturing realm by pivoting to secondary products that support pandemic response and recovery. Expect demand spikes, particularly related to the back-to-school and Christmas shopping seasons. Organizations impeded by shipping limitations, will depend on a nimble supply chain to access available shipping channels.
  • Boards and executives will expect robust contingency planning to deal with disruptions. Contingency planning is one of the most critical pieces that informs everything else about how you respond to another likely disruption, whether it be a COVID relapse, an unexpected stop in production or depletion of raw materials.
  • Companies that invest in process and technology during this time will see the best long-term growth. These companies will be in the best position to take advantage of consolidation in their respective industries.

Five Recommendations for 2021 Planning

Organizations creating budget plans for 2021 should consider these recommendations to maintain customer service levels while controlling costs.

  • Treat the 2021 budget as a range and be prepared to adjust as conditions on the ground evolve. In many ways budgeting will be a guessing game, and companies need to put together a plan based on contingencies. When revenue doesn’t meet expectations, have a plan for cost-cutting measures to implement. If earnings swing the other way, identify investments to make. Executive leaders must commit to evolving cost management so that scarce resources and funds consistently flow to the most valuable business outcomes.

  • Leverage supply chain resources to determine corporate impact (cost, service, risk) of plans produced by the other departments (sales, procurement etc.). Experts working in supply chain possess analytical capabilities and a global picture of an organization’s total business. This supports acute awareness of the control levers that affect cost and service. When you put supply chain masters in the role of trusted advisor, they are in the best position to help those executives and leadership boards navigate tumultuous waters.
  • Take a partnership approach with all relationships. The supply chain is dependent on everyone succeeding. Often, by working with an expert supply chain partner you can access end-to-end transparency that facilitates more opportunities across your network. That visibility allows you to be a better partner to your domestic and foreign vendors. With good clear communication around sales information, time-in-shipping data and other key performance indicators, you can help predict when you will need to reorder supplies and track trends that can help drive production guidelines. This supports a workflow that keeps your shelves stocked with the right items, and customers happy with the efficiencies of their orders.
  • Aggressively evaluate the entire supply chain and take an open-minded approach to the long-term structure. Ensure the supply chain strategy aligns with corporate strategy – and leverage analysis and expertise to inform that strategy. This is especially important as e-commerce demands continue to drive increased expectations for flexibility in customers’ end delivery options. You may be getting product shipped out the door – but are you making any money on it?
  • Low water exposes a lot of rocks. Take the opportunity to evaluate internal processes and systems. Balancing resiliency and efficiency, supply chain leaders can secure their networks. A recent Gartner survey revealed that only 21 percent of respondents believe their supply chain is resilient enough to provide “good visibility and the agility to shift sourcing, manufacturing and distribution activities around fairly rapidly.”

A global pandemic changed priorities for many supply chain leaders, elevating the agility of their network alongside the balance of service and cost. As Gartner points out, more than half of its survey respondents expect their supply networks to be “highly resilient” within two to three years. 

Master your 2021 Budget Planning

The first half of 2020 provided painful lessons for many organizations, some of which still face jeopardy. The businesses that quickly adapted to dramatic marketplace changes have often done so through an effective strategy for risk management. 

Future success relies on your ability to assess potential risks that exist in your network and create alternative ways to plan demand response. Contingency planning today, especially in light of network weaknesses revealed in the past six months, will position your business to not only weather the storm but also seize growth opportunities.

While you are in the midst of managing your business, a supply chain master can provide the risk assessment and strategic planning required to establish a flexible responsive network. With that, you will always satisfy customers in the most cost-effective way.

7 Pitfalls Imperil Indirect Spend Management

Indirect Spend analysis requires different processes and technology knowledge from those of direct procurement. There are more stakeholders, segment complexities, and varying levels of expertise at the suppliers. Some items are commodities, and others are specialized for a business unit and rely upon a continually changing and improving set of technologies.

Efforts to improve Indirect Spend management relies on a complete understanding of the wide variability in factors that affect the cost of an item, the cost of procurement and issues that arise for vendor and buyer .

7 Variables Complicating Indirect Spend Management

  1. Low Average Spend: The product volume is generally on the smaller side because of the wide assortment of product and service categories and a large number of suppliers. In this case, the procurement group is unable to coerce better pricing or terms during negotiations with suppliers.
  2. Frequent low-volume purchases: Often, the frequency of purchases of small individual values, makes indirect sourcing difficult and resource-intensive.
  3. Maverick/Uncontrolled/ Non-negotiated Spend: Maverick Spend is the purchase of legitimate goods but using unauthorized buying arrangements or unapproved suppliers. Companies understand the value of robust management of direct spend, but may not recognize the benefits of managing Indirect Spend. The fact is that cost savings for indirect procurement does not originate from a specific bill of materials, as with direct procurement. Often, companies underestimate the Indirect Spend totals and the potential cost savings. Indirect Spend purchases usually are not covered by a contract negotiated in collaboration with a professional procurement group. Items purchased outside of an agreement could be a one-time purchase of office supplies, or travel expenditures, or expenditure on critical ad-hoc technical troubleshooting services. These costs add up over hundreds of items, categories, suppliers, and transactions.
  4. Driven More by Internal Stakeholders: Indirect procurement professionals may not have any mandate over an internal stakeholder’s budget. Unlike with direct spend, the procurement group has less say concerning Indirect Spend. Internal stakeholders hold on tightly to their approved budget and spending authority. Also, many of the expenditures require in-depth industry knowledge and experience to specify a product or service. These factors and this complexity make it more difficult for the procurement function to control indirect spending. The company’s procurement team must act as an internal advisor, influencing decision-makers about optimizing spend and getting more from suppliers.
  5. Hard to Evaluate: There exists hundreds of categories, adjacent categories, item suppliers and distributors, and each mandates an exceptional understanding to procure cost-effectively and also with an eye on long-term value to the company. Each of the tens of thousands of suppliers invests in a sales team assigned to each buyer. Motivation for those sales teams may not always be in the buyers’ best interest.
  6. Measuring Suppliers: It can be more challenging to measure the quality of indirect goods and services. There might be metrics for individual vendor performance, but there are few industry standards against which to benchmark those metrics. In some cases, delivery of indirect products and services is not in a company’s ERP system, so tracking contract renewal and evaluating vendors can be spotty. 
  7. Requires Diverse Experience: Purchases are as diverse as safety products, marketing software, maintenance items, and electricity supply. This breadth of categories requires a procurement group with expertise and a willingness to learn the full range of products and services.


Indirect Spend Management Requires Broad Capabilities

Organizations working to manage Indirect Spend must maintain a variety of skill sets within the operational areas tasked with overseeing these critical budget areas. 

Facing these diverse needs, companies are often challenged to maintain the level of expertise that a trusted procurement partner can often provide:

  • Professional purchasing experience or training
  • Broad category expertise
  • Project and change management
  • Influencing, engaging and advising budget-owners (stakeholders) across the company
  • Specification, facilitation, negotiation, and supplier management
  • Data analysis, creating business insight from raw data
  • Technological know-how
  • Recognizing supply risk from issues like constraints on industry capacity, regulation, or rapidly rising demand
  • Acknowledging the market’s preference for sustainability and the ability to cost-effectively comply
  • Understanding of current market conditions and market pricing trends

Strategic Sourcing Supports Procurement Decisions

Buyers are not all the same. Many procurement decisions have an economic buyer, the person who makes the money decision, and a needs buyer, the person with a job-to-be-done.

Guidance from a procurement group can help meet the requirements of both of these buyer-types. Proper specification of the product or service delivers what conforms to the need, while aggregating volumes and dutiful negotiations keep prices low.

By employing a Strategic Sourcing mindset, these procurement experts look across all activity to address planning, supplier qualification, item specifications, technology advances, training, support, outsourcing, contract negotiation and periodic contract review. Strategic Sourcing identifies the lowest total cost − not just the lowest purchase price. It embraces the procurement lifecycle, from specification to payment.

Strategic sourcing often creates a close, partner-like relationship with a supplier to meet the needs of all buyers, and in turn, improve service to end customers. For more information on employing a strategic sourcing mindset to control Indirect Spend costs through improved procurement practices, download Transportation Insight free guide, “Uncover Indirect Spend: Control Cost with Strategic Sourcing.”