Supply Chain Uncertainty: How Can Procurement Tackle the Challenge?

08.08.2022

Topic: Procurement | Supplier Portal

Container ship congestion in the North Sea; the aftereffects of Corona shutdowns at ports in the Far East; severed supply chains due to the war in Ukraine and frozen relations with Russia. And then there are the repercussions of rising inflation, the labor shortage, and as for example in Germany, a forthcoming Supply Chain Act. Procurement teams are currently facing multiple multi-layered challenges.

Some of these issues have been looming for quite a while. What is unprecedented, though, is the combined force with which these acute challenges are hitting procurement teams. Have the challenges peaked and will the situation ease soon? Or have we merely reached a plateau, the much-vaunted “new normal” in an increasingly volatile global economy?

Only time can answer these questions. The one thing we can be sure now of is that uncertainty and new challenges will keep arising going forward. The strategic goal of many companies, therefore, is to build the resilience of their supply chains. So what does this mean in operational terms?

Digitization helps alleviate increased workloads

Digitization can simplify, speed up, or even fully automate many steps of the purchase-to-pay process. For example, a standardized digital process can be used for internal demand creation and approval; a portal can serve as a central platform for communicating and exchanging documents with suppliers; and incoming documents such as order confirmations, delivery notes, and invoices can be processed automatically.

There are numerous ways to digitize, and they all have the potential to make work easier for purchasing teams. In light of current challenges, however, it makes sense to automate in the area where heavier workloads have become particularly apparent: in dealing with supply chain uncertainty. On one hand, the workload for purchasing staff has increased dramatically. On the other hand, though, purchasing involves a recurring standardized process that is perfectly suited for digital automation. 

Order confirmations: when the exception becomes the rule

Not so long ago, in around 2019, this was the usual procedure: purchasing sent a PO to the vendor. Top vendors, at least, would respond with “confirmed as ordered.” Occasionally, the quantity, delivery date, or price did not meet specifications, but this was a rare occurrence.

The world looks very different today. For example in Germany: according to the results of a survey published by the German Institute for Employment Research in July 2022, around 80 percent of companies in Germany employing 250 people or more experienced difficulties due to supply bottlenecks in 2021. Inputs and intermediate goods were particularly affected.

This means that in the day-to-day work of purchasing departments, “confirmed as ordered” is no longer the rule; it is the exception. For some types of products —especially certain raw materials, intermediate inputs, and intermediate products — the following challenges now arise frequently:

• There is a discrepancy in the delivery date. Congestions in the Suez Canal and on the North Sea along with COVID shutdowns in Asian ports have severely disrupted supply chains, and the situation is far from returning to normal. As a result, deliveries are being significantly delayed.
• There is a discrepancy in the price. High demand is causing the prices of many raw materials to rise, particularly in the construction industry. But uncertainty with regard to Russia and increased inflation are exacerbating fluctuations and causing high prices in numerous other industries too, from food to microchips.
• There is a discrepancy in the quantity. This problem is increasingly affecting companies that purchase semi-finished products and individual parts from their upstream suppliers. Meanwhile, the latter are facing the same challenge of not being able to procure the raw materials they need — and then not being able to supply the downstream products.

These manifold challenges mean that in several areas, the situation has been reversed: it is now no longer the exception that the confirmation differs from the order — it is the rule!

As a result, the time needed purchasing staff to handle discrepancies when processing order confirmations has increased dramatically. In addition, partial and delayed deliveries have dramatically increased the total number of incoming confirmations. 

So the workload in this small area alone, this one step of the process, has ballooned. Our advice for summer 2022, then, is if you want to automate your procurement processes in SAP, start with the processing of incoming order confirmations!