Proactive Versus Reactive: Enabling Procurement to Get Ahead and Shape the Future of B2B Commerce

Thanks to the global COVID-19 crisis, we all got to see just how fragile our supply chains were. The early days of the pandemic saw companies experience incredible difficulties moving products around the world using the routes and channels they had previously.

Now the worst days of that crisis are behind us, we still find ourselves assailed on all sides by ongoing geopolitical events, from the Russian invasion of Ukraine to the UK’s exit from the European Union, which are still conspiring to make the business of getting shipments where they need more challenging than at any other point in living memory.

Delayed shipments, rising prices, increasing regulations, and more are leading many B2B business leaders to reconsider the way procurement is overseen and to weigh up the advantages of switching from a reactive supply chain model to one which is more proactive.

Reactive is Risky

Most businesses out there source products reactively. That is, they order stock as it’s required by the needs of the business. However, this method has been proven to be risky as it puts those businesses at the mercy of any disruptions which can cause delays in processing, restocking, or shipping.

Reactive supply policies can also lead to uneven distribution across locations or departments. For example, reactive procurement can often fail to consider the differences in regulations between states and lead to unacceptable delays in shipments reaching their destinations.

Reactive procurement is also more wasteful. When products are bought on the fly as they’re needed, businesses often end up paying more for them than they would have with a better and more regularly supplied proactive arrangement. Things can get particularly expensive if you’re desperate for a product and your usual supplier is out of stock, forcing you to purchase from one with which you don’t have any kind of purchasing agreement.

"Even before the pandemic occurred, it was standard practice in most companies to have a Supply Chain team that had to react in real time to unforeseen circumstances,” reports Supply Chain Game Changer. "Late deliveries, supplier quality problems, equipment downtime, resource shortages, defective materials, missing inventory, manufacturing capacity and quality issues, demand fluctuations, natural or manmade disasters, and more all have the impact of stopping production and shipments.”

This is why we are seeing an increasing number of procurement leaders switching from a reactive supply chain model to one which takes a more proactive approach.

The Future is Proactive

According to research from McKinsey, 93% of supply chain executives said they planned to make their supply chains more flexible and resilient. A big part of this shift involves moving to a more proactive model of procurement.

However, we are seeing a marked difference between those companies which had already started on the journey before the pandemic and those which have only started playing catch up now. Companies with little or no risk-management experience tended to invest in new software tools, while higher-maturity organizations mainly focused on the implementation of new practices, elegantly reflecting their varying positions within the proactive supply adoption journey.

"The proactive monitoring of supplier risks was the primary focus of these efforts, yet significant blind spots remain in most companies’ supply-chain risk-management setups. Just under half of the companies in our survey say they understand the location of their tier-one suppliers and the key risks those suppliers face,” said McKinsey. "But only two percent can make the same claim about suppliers in the third tier and beyond. That matters because many of today’s most pressing supply shortages, such as semiconductors, happen in these deeper supply-chain tiers.”

Advanced analytics are playing a significant role in this transformation as well over half of the respondents in every industry surveyed stating they have implemented additional analytics approaches during the past 12 months. This increases to nearly three-quarters [71%] when you control for those organizations which have suffered procurement issues over the proceeding twelve months.

However, this should not be taken to mean that the ship has sailed for adopting proactive procurement processes. Like adding salt during the cooking process, earlier is best, but later is better than never. Now is the time for change if your organization hasn’t already begun the process.

Final Thoughts

Proactive procurement has the potential to outperform reactive in almost every metric. From efficiency and cost savings to reliability and speed, proactive procurement will make your organization a leaner and more agile machine, far better equipped to cope with a rapidly evolving global market.

Proactive procurement is sure to be on the agenda at B2B Online Chicago 2023, being held in May at the Marriott Chicago Downtown, IL.

Download the agenda today for more information and insights.