To do this, we recommend that business leaders take a leaf out of the playbook of the Big Tech companies who think about suppliers and procurement in a very different way to most other companies and whose approach has helped them prosper during the pandemic.
If they do this, they can ensure that suppliers help them tap all the key sources of competitive advantage: not just cost savings, but also innovation, quality, sustainability, speed, and risk management. That’s a mismatch with potentially existential consequences for companies and goes some way toward explaining why so many companies are struggling in the current crisis.Īs we argue in our new book, in a fast-changing world business leaders need to put suppliers at the core of the business, empowering the Chief Procurement Officer and procurement function to elicit maximum value from these crucial relationships. In other words, they spend next to no time either thinking about or being actively involved in how their companies spend more than half of their budgets. Today, CEOs spend, on average, just 1 percent of their time with suppliers. And not just the semiconductor supply chain - while the shortage of semiconductors may be keeping them awake at night right now, in the future their sleep may be interrupted by a shortage of some other critical components - such as, batteries or tires. We don’t just mean their direct or “Tier 1” suppliers, but also the suppliers of their suppliers: the companies that design and make semiconductors the companies that provide those manufacturers with silicon wafers and the companies that package the semiconductors - basically every mission-critical company in their supply chain. How can business leaders prevent this from ever happening again? Very simply, they need to transform the way they interact with their suppliers. economy” and “could cut nearly a percentage point from GDP growth.” government noted in its “Briefing Room” blog, the paucity of semiconductors has not only been affecting the automotive industry, it has also been “dragging down the U.S. And what goes for automakers also goes for many industrial companies because they too rely on semiconductors in their products. We forecast that they will cancel a further seven or eight million in 2022 and four million in 2023, as demand for semiconductors outstrips supply by 10 per cent. In 2021, automakers were obliged to cancel plans to build ten million cars. The auto industry has been brought to its knees by the scarcity of a tiny, and normally ubiquitous, piece of technology: the semiconductor.
How automakers must wish they had listened to this wise observation. “It takes 2,500 parts to build a car,” Peter Hasenkamp, former head of supply chain strategy for the Tesla Model S, once said, “but only one not to.” One or two tactics won’t work to ensure resilience and success, what’s needed is a systemic approach that puts procurement at the core. Tesla is an example of a company that has done this phenomenally well. Instead, they need to follow the procurement-centric model of Apple and other Big Tech companies by reengineering and rebalancing the way they collaborate with direct and indirect suppliers, specifically: initiating one-on-one conversations with supplier CEOs working with suppliers to develop mutually profitable joint business opportunities making commitments about loyalty during future semiconductor and other crises – in general taking procurement to a more strategic level. Currently, CEOs typically spend a tiny fraction of their time with suppliers. How can business leaders prevent this from ever happening again? They need to transform their business by putting suppliers at the center. Plans for millions of cars have been cancelled and the damage will continue for years to come. The auto and other industries have been brought to their knees by the scarcity of a tiny, and normally ubiquitous, piece of technology: the semiconductor.
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