Procurement Investments: Building Resilient Organizations

The COVID-19 pandemic and the 2008 financial crisis have exposed the flaws in a business strategy that focuses on efficiency over resilience. While efficiency has its benefits, it does not help firms develop resilience. As companies focus less on efficiency and more on resilience, procurement becomes central to strategy. Investing in procurement can help firms build resilient multi-relational networks rather than linear supply chains. This can lead to the creation of value constellations, where stakeholders of all sorts are connected holistically and dynamically, resulting in a system that is more effective and resilient.

Investing in procurement can help organisations build long-term-value-creating systems

By investing in procurement, organisations can create resilient multi-relational networks instead of linear supply chains. This involves moving away from a just-in-time strategy to a just-in-case strategy, which prioritises risk management and the ability to withstand disruptions.

To achieve this, organisations should focus on developing long-term relationships with suppliers, rather than solely focusing on transactional efficiency. This can be done by creating value constellations, where various stakeholders are connected holistically and dynamically, each playing multiple roles as a producer, seller, buyer, and partner.

Additionally, organisations should aim for collaboration and joint process improvements with suppliers, treating them as partners rather than adversaries. This can lead to cost savings, improved operational viability, and stronger relationships.

By investing in procurement and adopting a strategic approach, organisations can build long-term-value-creating systems that are resilient, dynamic, and adaptable to shocks and disruptions.

It can help organisations withstand exogenous shocks

The Covid-19 pandemic and the 2008 financial crisis have exposed the flaws in a strategy that prioritises efficiency over resilience. The pandemic, in particular, has revealed the dangers of a just-in-time strategy, highlighting the need for a just-in-case approach that emphasises resilience.

The shift towards a stakeholder economy, where firms are accountable to a wider range of stakeholders, including employees, customers, suppliers, investors, and society at large, further underscores the importance of resilience. To navigate this new landscape and satisfy competing interests and values, firms need to adopt a strategic approach to procurement that focuses on building resilient multi-relational networks rather than linear supply chains.

By investing in procurement, organisations can create dynamic and resilient value constellations that connect stakeholders holistically. This approach enables organisations to accommodate incompatible value holders, withstand exogenous shocks, share loads, and grow dynamically.

For example, Rolls-Royce, a propulsion-technology company, chose to focus on long-term relationship management with its suppliers, customers, and other stakeholders. They offered airlines power-by-the-hour contracts, where airlines paid for propulsion consumed rather than purchasing engines and spares. This decision, along with their focus on building a trusted network of procurement partnerships, rapidly propelled them to become an industry leader.

Additionally, the European Patent Office (EPO) orchestrated information-exchange standards and IT platforms to improve patent processing and create a new Patent Information industry. This strategic approach to procurement ushered in a new era of online interactions and became a key element in the success of the broader European Patent System.

In summary, investing in procurement enables organisations to build resilient networks that can withstand exogenous shocks and adapt to unforeseen challenges. By prioritising procurement and focusing on creating value constellations, organisations can enhance their ability to navigate disruptions and emerge stronger in the face of adversity.

It can help organisations share loads

Investing in procurement can help organisations share loads by creating resilient multi-relational networks. This approach moves away from the traditional linear supply chain and instead focuses on building dynamic and holistic value constellations.

For example, IKEA treats its clients as suppliers and vice versa, creating a dynamic and collaborative network. This approach allows IKEA to co-produce value with its stakeholders, fostering a more effective and resilient way of generating and maintaining value.

Another example is Rolls-Royce, which created a trusted procurement partnership network with various entities, including airlines, overhaul shops, producers of systems and parts, financial institutions, and even nations. This network facilitated the sharing of risks, rewards, and knowledge, resulting in a resilient value constellation that benefited all involved parties.

By investing in procurement and creating such networks, organisations can share loads and resources, mitigate risks, and enhance their ability to withstand disruptions. This approach enables organisations to become more agile and responsive to challenges, ultimately contributing to their long-term success and resilience.

It can help organisations grow dynamically

The Covid-19 pandemic and the 2008 financial crisis have exposed the flaws of a strategy that prioritises efficiency over resilience. In response, organisations are shifting their focus from just-in-time to just-in-case strategies. This shift requires a change in the way procurement is approached.

By investing in procurement, organisations can create dynamic, resilient, multi-relational networks that benefit all stakeholders. This approach allows organisations to build value constellations, where stakeholders are connected holistically and dynamically, rather than simple linear supply chains.

For example, IKEA treats its clients as suppliers and vice versa, blurring the lines between producer, seller, buyer, and partner. This approach creates a resilient system where value is co-produced by multiple actors interacting simultaneously, resulting in effective and resilient value generation and maintenance.

Another example is Rolls-Royce, which focused on long-term relationship management with its suppliers. By offering power-by-the-hour contracts, Rolls-Royce sold propulsion as a service rather than a good, rapidly becoming an industry leader. This strategy only worked because of the strong procurement partnerships Rolls-Royce had established.

By investing in procurement, organisations can create dynamic, resilient, and collaborative networks that benefit all stakeholders. This approach enables organisations to build value constellations, foster innovation, and drive growth.

It can help organisations create resilient multi-relational networks

Investing in procurement can help organisations create resilient multi-relational networks by shifting their focus from linear supply chains to dynamic value constellations. This involves moving away from the traditional model of transactional efficiency, where firms order from suppliers in ways that are tightly aligned with their production schedules, towards a more networked and collaborative approach.

By prioritising procurement, organisations can build holistic and dynamic connections with various stakeholders, including suppliers, clients, employees, customers, investors, and society at large. This shift in perspective allows for the creation of resilient value-creating systems that can accommodate conflicting interests and withstand unexpected disruptions.

For example, IKEA treats its clients as suppliers and vice versa, blurring the traditional boundaries and creating a dynamic network of interactions. Similarly, Rolls-Royce developed a highly persistent network of trusted procurement partnerships with various entities, including airlines, overhaul shops, and financial institutions, demonstrating the power of long-term relationship management.

Additionally, organisations can leverage digital tools and data analytics to enhance their procurement processes. By utilising advanced analytics, organisations can make procurement automated, proactive, and predictive, further contributing to their resilience.

In summary, investing in procurement enables organisations to create resilient multi-relational networks by prioritising dynamic value constellations, embracing collaboration, and leveraging digital tools to build robust systems that can withstand challenges and drive long-term success.

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