Aligning Supply Chain Strategies With Cost Goals

𝐑𝐞𝐟𝐥𝐞𝐜𝐭𝐢𝐧𝐠 𝐨𝐧 𝐚𝐥𝐥 𝐭𝐡𝐞 𝐬𝐮𝐩𝐩𝐥𝐢𝐞𝐫𝐬 𝐈’𝐯𝐞 𝐬𝐨𝐮𝐫𝐜𝐞𝐝, 𝐨𝐧𝐞 𝐭𝐡𝐢𝐧𝐠 𝐢𝐬 𝐜𝐥𝐞𝐚𝐫: 𝐩𝐫𝐨𝐜𝐞𝐬𝐬 𝐦𝐚𝐭𝐭𝐞𝐫𝐬. Taking shortcuts can lead to wasted money and a world of headaches downstream. (𝘙𝘢𝘪𝘴𝘦 𝘺𝘰𝘶𝘳 𝘩𝘢𝘯𝘥 𝘪𝘧 𝘺𝘰𝘶'𝘷𝘦 𝘦𝘷𝘦𝘳 𝘣𝘦𝘦𝘯 𝘢𝘴𝘬𝘦𝘥 𝘵𝘰 𝘧𝘢𝘴𝘵-𝘵𝘳𝘢𝘤𝘬 𝘙𝘍𝘗 𝘳𝘦𝘲𝘶𝘪𝘳𝘦𝘮𝘦𝘯𝘵𝘴, 𝘰𝘳 𝘩𝘢𝘥 𝘭𝘦𝘢𝘥𝘦𝘳𝘴 𝘱𝘶𝘴𝘩 𝘧𝘰𝘳 𝘤𝘦𝘳𝘵𝘢𝘪𝘯 𝘴𝘶𝘱𝘱𝘭𝘪𝘦𝘳𝘴, 𝘪𝘨𝘯𝘰𝘳𝘪𝘯𝘨 𝘮𝘢𝘵𝘦𝘳𝘪𝘢𝘭 𝘳𝘪𝘴𝘬𝘴?!) 𝐖𝐡𝐚𝐭 𝐈'𝐯𝐞 𝐥𝐞𝐚𝐫𝐧𝐞𝐝: 💡 𝙁𝙤𝙘𝙪𝙨 𝙛𝙞𝙧𝙨𝙩: Be specific about your needs in RFx docs. If you’re unclear, suppliers will be, too. Before going to RFP, always have quantifiable evaluation criteria finalized and approved by the Spend Owner. 💡 𝙄𝙩’𝙨 𝙣𝙤𝙩 𝙟𝙪𝙨𝙩 𝙥𝙧𝙞𝙘𝙚: The cheapest option often costs the most in the long run. Prioritize value over price. Suppliers who price things materially lower than benchmark norms usually cut corners somewhere to meet margins. 💡 𝘾𝙝𝙚𝙘𝙠 𝙧𝙚𝙛𝙚𝙧𝙚𝙣𝙘𝙚𝙨 𝙩𝙝𝙤𝙧𝙤𝙪𝙜𝙝𝙡𝙮: Source independent references via your network. Past performance tells the real story. Ask the right questions and listen closely to the answers.  💡 𝙏𝙝𝙞𝙣𝙠 𝙖𝙝𝙚𝙖𝙙: Can the supplier grow and evolve with your business? Are they innovative and flexible? Does their company culture and ways of working align with yours?  💡 𝙆𝙣𝙤𝙬 𝙩𝙝𝙚 𝙧𝙞𝙨𝙠𝙨: Most suppliers come with some level of risk, the key is understanding and managing it. Conduct due diligence on short-listed suppliers. Outputs should inform the down-selection process, with material deficiency action items included in the contract. 💡 𝘾𝙝𝙤𝙤𝙨𝙚 𝙥𝙖𝙧𝙩𝙣𝙚𝙧𝙨, 𝙣𝙤𝙩 𝙫𝙚𝙣𝙙𝙤𝙧𝙨: The best suppliers care about your long-term success and aligning with your goals.  Look at proposals holistically, thinking beyond the transaction and into value creation. 𝐇𝐞𝐫𝐞’𝐬 𝐭𝐡𝐞 𝐭𝐡𝐢𝐧𝐠: Looking back, I’ve been at firms in seasons where costs were prioritized over total value, often leading to short-term gains but long-term challenges. There were times I should’ve taken a firmer stance about material supplier risks identified and bias in the selection process.  As procurement peeps, we provide recommendations based on long-term value, risk management, and partnership potential. This includes having the courage to speak up with informed and actionable guidance when things don't pass muster. The goal is to ensure sourcing outcomes build a foundation for success, not just a quick win. 📢 𝙋.𝙎. 𝙒𝙝𝙖𝙩 “𝙨𝙘𝙝𝙤𝙤𝙡 𝙤𝙛 𝙝𝙖𝙧𝙙 𝙠𝙣𝙤𝙘𝙠𝙨” 𝙨𝙤𝙪𝙧𝙘𝙞𝙣𝙜 𝙡𝙚𝙨𝙨𝙤𝙣𝙨 𝙬𝙤𝙪𝙡𝙙 𝙮𝙤𝙪 𝙨𝙝𝙖𝙧𝙚 𝙬𝙞𝙩𝙝 𝙮𝙤𝙪𝙧 𝙮𝙤𝙪𝙣𝙜𝙚𝙧 𝙥𝙧𝙤𝙘𝙪𝙧𝙚𝙢𝙚𝙣𝙩 𝙨𝙚𝙡𝙛?

Procurement and supply planning are NOT enemies. This document shows 7 ways procurement & supply planning work together: 1️⃣ Shared Supply Plans ↳ Supply planners provide supply plans early, enabling procurement to anticipate volume requirements for materials ↳ Win: better pricing negotiations, reduced stockouts, and fewer rushed orders 2️⃣ Joint Supplier Evaluation ↳ Both teams assess supplier performance (lead times, quality, flexibility) ↳ Win: a unified view of supplier capabilities helps avoid capacity bottlenecks or late deliveries 3️⃣ Collaborative Lead-Time Optimization ↳ Procurement negotiates shorter or more reliable lead times; supply planners adjust inventory policies to capitalize on them ↳ Win: Less buffer stock needed, freeing up working capital and warehouse space 4️⃣ Data-Driven Reorder Policies ↳ Supply planners set reorder points and safety stock; procurement factors in supplier constraints and MOQs (Minimum Order Quantities) ↳ Win: Balanced inventory that prevents both overstock and stockouts 5️⃣ Building Scenarios ↳ Procurement and supply planners run “what-if” analyses together to evaluate alternative sourcing or shipping options ↳ Win: agility considering sudden demand spikes or supplier setbacks 6️⃣ Brainstorming Cost-Benefit Trade-Offs ↳ Procurement highlights price breaks for bulk purchases; supply planning weighs the carrying cost of extra inventory ↳ Win: decisions reflect both cost efficiency and operational realities, avoiding unintended supply chain issues 7️⃣ Driving Improvement Cycles ↳ Both teams regularly review supplier scorecards, forecast accuracy, and inventory health to refine strategies ↳ Win: continuous improvement culture, including better supplier relationships, leaner inventory, and higher service levels Any others to add?

Procurement shapes business strategy. But too often, procurement operates in a vacuum—reacting to demand rather than influencing it. Along with Tom Mills and Tanya W., we have recently posted about the different functions of procurement. Yesterday I posted about the different supply chain planning horizons. Here's the role procurement plays in each of these planning horizons. The best companies integrate procurement into every planning horizon: 1️⃣ Strategic Business Plan - Category Management: Defines long-term supply strategies that align with company growth plans. - Strategic Sourcing: Identifies key suppliers for innovation, sustainability, and risk management. - Procurement Operations: Establishes global sourcing models and supplier partnerships for scalability. 💡 Without procurement at the table, companies set goals without understanding supply risks. 2️⃣ Annual Planning & Budgeting - Category Management: Aligns category strategies with financial targets. - Strategic Sourcing: Runs sourcing events to secure cost efficiencies and lock in supply. - Procurement Operations: Establishes cost-to-serve models and tracks inflationary impacts. 💡 Budgets fall apart when procurement isn’t involved in forecasting cost drivers. 3️⃣ Sales & Operations Planning (S&OP) - Category Management: Balances supply flexibility with financial targets. - Strategic Sourcing: Ensures supplier capacity and contract terms support demand fluctuations. - Procurement Operations: Coordinates lead times, MOQs, and supplier constraints with planning teams. 💡 Without procurement integration, S&OP becomes a theoretical exercise detached from supply realities. 4️⃣ Sales & Operations Execution (S&OE) - Category Management: Supports rapid supplier adjustments in response to short-term changes. - Strategic Sourcing: Enables quick spot buys and expedites when plans shift. - Procurement Operations: Manages PO execution, inbound logistics, and supplier performance. 💡 Procurement is the first line of defense when the plan meets reality. 5️⃣ Performance Measurement & Course Correction - Category Management: Refines sourcing strategies based on market shifts. - Strategic Sourcing: Tracks savings vs. plan and assesses supplier compliance. - Procurement Operations: Monitors service levels, costs, and execution gaps. 💡 Procurement’s job isn’t just to buy—it’s to create business value across the entire planning cycle. Companies that embed procurement into planning drive resilience, agility, and growth. Where does procurement sit in your planning process? A strategic partner or an afterthought? Let’s discuss. --------- If this insight was valuable to you, follow me for more supply chain and procurement expertise. Like, comment, and share if you found this helpful!

We've been covering the fundamentals of inventory planning and control looking at EOQ, Reorder Point Calculations, and ABC Analysis. But as we all know, everything in supply chain is interconnected, and the three foundational methods discussed should not be treated in isolation. When combined, they actually form a framework that small businesses can leverage to help structure inventory management. 1️⃣ Start with ABC Analysis. Not all inventory should be treated the same. ABC analysis is a method that categorizes items into classes (A, B, C) according to their relative importance, typically measured by annual consumption value or contribution to overall business performance. ABC classification gives small businesses a structured way to focus on SKUs that drive the most value, and channel focus and resources where they will have measurable impact on cash flow, fulfillment, and profitability. ➡️ Segment inventory into A, B, and C groups based on annual consumption value, margin impact, or demand frequency. ➡️ Manage each class differently: A items reviewed frequently and forecasted closely; B items monitored on a standard cadence; C items managed in aggregate with broader parameters. ➡️ Set service-level targets by class to align customer needs with cost efficiency. ➡️ Reevaluate classifications regularly to capture shifts in demand, seasonality, or business priorities. 2️⃣ Use EOQ to Establish Quantities. The Economic Order Quantity (EOQ) model determines the order size that minimizes the total cost of inventory by balancing two opposing forces: ordering cost and carrying cost. EOQ provides a structured way to find the order quantity where these costs are lowest and inventory investment is most efficient. ➡️ Gather key inputs: annual demand, ordering cost per order, and annual holding cost per unit or percentage. ➡️ Calculate EOQ using √(2DS ÷ H) to identify the order quantity that minimizes total cost. ➡️ Validate assumptions and adjust for real-world limits such as supplier minimums, transportation constraints, or storage capacity. ➡️ Review and recalculate as demand, cost, or lead-time conditions change. 3️⃣Apply Reorder Points. The reorder point calculation defines the inventory level at which a replenishment order should be placed to prevent stockouts during the lead time. It connects demand, lead time, and safety stock into a single control point that dictates when to act. ➡️ Determine expected demand during lead time by multiplying average daily usage by supplier lead time. ➡️ Add safety stock to buffer against demand variability or lead-time uncertainty. ➡️ Set and automate reorder triggers to ensure consistent, timely replenishment. ➡️ Review and adjust safety stock or lead-time inputs as conditions change. Together, these methods form a closed-loop framework: ABC prioritizes, EOQ defines order quantities, and reorder points determine timing to keep inventory aligned with demand and cost efficiency.

Spending $100M+ on ingredients taught me something most CPG founders don’t expect: When you’re scaling across multiple SKUs, co-packers, and suppliers, certain patterns become impossible to ignore. Not all suppliers are created equal. And the difference has nothing to do with price. Over time, two very different types of partners always show up. First: True scaling partners. - They communicate before you have to chase them. - They flag risks early before it impacts production or retail commitments. - By the time you hear about an issue, they’re already working on a solution. These are the partners that help you scale into retail without constant fire drills. You don’t re-shop them every quarter. You build around them because they make your supply chain predictable. Second: There are transactional vendors. They look great during onboarding. Pricing is sharp and capabilities sound strong. But once volume increases: Timelines start missing. “Unexpected” costs show up. And when something breaks, communication disappears. At a small scale, you can manage it. At retail scale, it becomes expensive very quickly. Here’s the lesson that changed how I evaluate every supplier: Most supply chain issues in CPG don’t come from operations. They come from misaligned incentives. It’s rarely bad luck, it’s usually the wrong partner structure underneath the product. That insight is exactly how we built Source86. We don’t optimize for short-term wins. We build long-term alignment because that’s what actually protects cost, quality, and supply at scale. That means: → Staying ahead of issues. → Being transparent when things go wrong. → And taking ownership before it impacts the brand. Because in CPG, your supply chain isn’t just operations, it’s your ability to grow. The real differentiator isn’t cost. It’s alignment. When you think about your current suppliers, who’s actually helping you scale, and who are you constantly managing?

Top Procurement Strategies to Cut Costs Without Sacrificing Quality Here are some effective procurement strategies companies implement to reduce costs while maintaining quality and operational efficiency: • Strategic Sourcing Consolidate spend across departments to negotiate better pricing while ensuring supplier quality and reliability. • Supplier Relationship Management (SRM) Build strong partnerships with key suppliers to unlock innovations, preferential terms, and service improvements. • Total Cost of Ownership (TCO) Approach Focus on the full lifecycle cost — not just the purchase price — to make smarter, long-term savings. • Category Management Manage procurement by spend categories to leverage market expertise, control costs, and mitigate risks. • E-Procurement and Automation Use digital tools to streamline purchasing, reduce errors, speed up processes, and enhance spend visibility. • Demand Management Control internal demand through proactive planning and approval workflows to avoid unnecessary spending. • Global Sourcing and Nearshoring Balance sourcing from low-cost countries with nearby suppliers to optimize cost and reduce supply chain risks. • Supplier Diversification Avoid over-reliance on single suppliers, ensuring continuity of supply and strengthening negotiation positions. • Framework Agreements and Long-term Contracts Lock in competitive pricing and supply security through multi-year agreements for key goods and services. • Sustainability and ESG Procurement Choose suppliers aligned with environmental and social goals to capture cost efficiencies and future-proof operations.

You’re unlikely to get away with no cost increases But there are loads of levers to reduce the hit Here are 9 classics… 1/ Should Cost Modelling → Build costs from bottom-up: raws, packs, conversion… → Identify what’s real cost inflation vs profiteering 💡Fact-based negotiations reduce emotional hype 2/ Index Price Challenge → Ask supplier to share their cover position (% fixed by month) → Align timing of increases to actual exposure, not headlines 💡Index ≠ Price (your supplier is probably buying below index) 3/ Specification Challenge → List out all spec attributes: variety, size, granularity, colour… → Set attributes to cheapest. Then dial up just to where needed 💡When prices surge, it’s amazing how specs can be relaxed! 4/ Network Optimisation → Review footprint of manufacturing, distribution, customers → Shift quantities to lower cost plants and lanes 💡These flex options should have been tested in quieter markets 5/ Phased Price Increases → Requested staged increases vs one big hit → Tie increases to triggers: month, volume, further market shifts 💡Likely supplier has stock in system made with lower costs 6/ Give and Get Trades → Ask suppliers what matters to them: cash, longer contract… → Then trade. Eg you need lower price now; they need cash 💡Value comes in many forms – never assume anything 7/ Spot vs Contract → Assess whether buying spot is cheaper → There can be good opportunities such as ‘day-ahead’ energy 💡Requires robust governance and clear guidelines NB – probably best to do no more than 20% spot to cap upside risk 8/ Packaging & Orders → Recheck pack formats, pack specs, MOQs, order frequency → The price difference of 3X6T monthly vs 18T/3months is significant 💡If you’ve got cash & storage, larger batches drive supplier efficiency 9/ Demand Challenge → Check inventory levels and challenge forecasts → Eliminate waste, slow movers and over-ordering 💡We often carry more stock than we realise – check your larder! What’s your favourite lever to minimise inflation hits? 👇 Frost Procurement Adventurer 🔔 Follow Simon Frost for more on cost inflation ♻️ Repost to help others faced with cost pressure As a footnote to the above – we should cast our minds back to 2020-2023 during Covid and the geopolitical tension. Remember how creative we became?! There were no sacred cows to secure supply and minimise cost – reignite this mindset again

Why Your CEO Still Sees Supply Chain as a Cost Center (And the One-Page Strategy to Change Their Mind) Your CEO thinks supply chain is just a cost to cut. They’re wrong. And it’s costing your company millions. Here’s a story you’ve seen before: A sharp supply chain leader, let’s call her Maria, presented a plan to renegotiate supplier contracts, optimize inventory, and cut logistics waste. Her CFO loved it. Savings! But when she proposed investing in predictive analytics to prevent stockouts, the room went quiet. “Too expensive,” the CEO said. “Stick to cost-cutting.” Six months later, there was a major material shortage due to a supplier delay. Late orders backlog just accumulated. Operating revenue dropped. The “expensive” analytics would’ve paid for itself in a week. The problem? Most CEOs see supply chain as a cost center, not a growth machine. They measure success by savings, not revenue protection, customer retention, or market agility. And because supply chain leaders keep framing their value in cost terms, the cycle continues. Here’s how to flip the script: 1. Stop talking about savings first. Lead with revenue. Example: “This supplier partnership cuts costs and lets us launch in Europe 3 months faster.” 2. Link supply chain to customer pain. CEOs care about churn. Say: “Our delivery delays are pushing 12% of customers to competitors. Here’s how we fix it.” 3. Use their language. Replace “inventory turns” with “cash flow.” Swap “lead time” for “time-to-revenue.” 4. Show the hidden cost of not acting. A $500K software investment avoids $2M in lost sales. That’s not a cost, it’s insurance. 5. Put it on one page. CEOs skim. Put the problem, solution, and impact in bold. No jargon. The result? When you reframe supply chain as a growth lever, budgets open up. Projects get approved. And suddenly, you’re not just saving money, you’re making it. How’s your CEO viewing supply chain? Like this image of a messy warehouse? Still stuck in cost-cutting mode? Try this approach and watch the conversation shift. Or keep doing what you’re doing and hope they figure it out. — ♺ Reshare to your network—someone’s fighting this battle right now. ► Like this? Join my newsletter: https://lnkd.in/dMGaUj4p for more no-BS supply chain wins. #SupplyChain #Leadership #CEO #Strategy #Operations