“The Grocery Code of Conduct is a significant step toward improving the resiliency and efficiency of the grocery supply chain. The primary objective is not to directly rebalance market power, regulate fair dealing, or set the level of retail fees, but rather to improve supply chain relationships through principles of predictability, transparency and fair dealing.” – DH Canada (January 17, 2023)
It wasn't that long ago that I wrote an article regarding the largest Canadian grocer – Loblaws, and their headline-grabbing stare-down price dispute with the global brand Frito-Lay. Here is the link to that post titled The Inflated Supply Chain: How To Navigate The Complexity Of Doing Business During A Period Of Rising Inflation.
The primary focus of the piece was – as the article’s title suggests, understanding the impact of inflation on supply chains. However, beyond the big picture story in which inflation takes center stage, there is an underlying theme. The theme I refer to is how buyer-supplier relationships affect inflation and other supply chain disruptions.
The buyer-supplier relationship's impact on inflation, not the other way around, is not a typo. As the age-old saying goes, it is not what happens to you but how you react to it that matters.
High-Level Overview
For the sake of expedience, the following high-level bullet points should provide a solid understanding of the Loblaws and Frito-Lay situation at the time and the government’s intervention to resolve the dispute. This overview will help you better understand why the government is introducing the grocery conduct code.
Is inflation on your mind? You’re not alone. Rising costs lead to rising overhead—and rising stress about sourcing.
Not only is it more expensive to get crucial goods and services today, but supply chain issues and labor shortages create extensive delays. These disruptions significantly affect large and small companies' production and inventory.
Plus, rising fuel costs mean that getting everything from hand soap to building supplies requires an even bigger financial commitment, which could be going toward marketing, R&D, or expansion.
And yet, despite all the talk about the financial impact of inflation on sourcing, there’s an important point missing.
Inflation, at its core, isn’t really about money. It’s about uncertainty.
This is good news because organizations that solve for uncertainty can maximize value and thrive despite economic change.
How to Mitigate Uncertainty
There are five key factors that are crucial to navigating sourcing uncertainty when inflation, supply chain issues, fuel shortages, and labor issues mean certain goods and services are in short supply.
First, companies that can see what’s available and act quickly have a significant edge. Agility and increased visibility are key competitive advantages.
So is having the right partners. Solid relationships with a variety of vetted and trusted suppliers not only make it easier to purchase what’s needed. These relationships also significantly mitigate risk, reducing the likelihood of overcharging or receiving poor-quality goods and services.
Third, having the ability to easily participate in community buys can dramatically increase leverage, reducing costs and increasing purchasing power.
There are no shortages of headlines such as the one above linking supply chain disruption to inflation. While I don't want to oversimplify the current situation, when supply can't meet demand for various reasons, inflation is the end result. External forces such as the above reference to the war in Ukraine and the now seemingly endless COVID-19 pandemic are the most notable contributing factors. And let’s not forget the Suez Canal blockage and its extended impact around the globe.
Undoubtedly, the “interconnectedness of global supply chains” means that these events have far-reaching implications impacting “labor, energy and transport costs.” As a result, the consumer price index (CPI) - which has been somewhat stable for the past few decades, has seen a significant rise in prices.
How significant?
In December 2021, reports indicate that the CPI was “5.4% higher than a year previously in December 2020.” In other words, even though supply chain disruption and its link to inflation are not new, the breadth of its impact globally has created a sense of urgency like never before – at least not in the 21st century. Nor are there any signs of relief on the near horizon, as a recent New York Times article proclaims that we are not likely to see the return to a “normal supply chain” in 2022 (or anytime soon.)
Along with senior buy-side executives, joining SIG’s Stephani McGarry on the call was the Everest Group. In what I can only refer to as a “captivating session,” the discussion focused on what we as an industry have and will continue to face during these inflationary times.
In the last article, we heard from Senior Vice President & Global Chief Procurement Officer at Cigna Express Scripts, Tony Abate, regarding his steps for dealing with inflation.
In this article, we hear takeaways from a recent CPO Roundtable discussion from Michael Koontz, VP, Strategic Sourcing & Business Leader for American Tire Distributors (ATD) Sourcing Solutions. I think you will find his approach to battling inflation innovative and unique.
Before we get to Michael’s fight-inflation strategy, let’s first provide some background information on his company. ATD operates more than 130 distribution centers, including 24 in Canada, serving close to 80,000 customers across North America. Employing 4,000 associates in the U.S. and 600 north of the 49th, ATD offers an “unsurpassed breadth and depth of inventory, frequent delivery and value-added services to tire and automotive service customers.”
Their selection as one of Forbes’ 2021 America's Best Mid-Sized Employers and the reception of a Gold Stevie® Award in the Transportation Company of the Year category of the American Business Awards® provides testimony to their high level of service and success as a company.
An Innovative Model
According to Michael, inflation is “five times more difficult for small businesses.
One of the significant advantages of the Sourcing Industry Group (SIG) is that members have unparalleled access to industry insights and expertise through our vast and diverse community of practitioners and thought leaders.
Recently we conducted interviews with two senior procurement executives regarding their innovatively practical approach to dealing with inflation and its impact on supply chains.
In the first instance, we talked with Tony Abate - Senior Vice President & Global Chief Procurement Officer at Cigna Express Scripts.
When Cigna closed its $67 billion acquisition of Express Scripts in December 2018 to become what the media called a “$140 billion revenue healthcare colossus,” Tony’s responsibilities expanded considerably.
Responsible for “transforming and integrating two procurement departments into a global, world-class international team, he is accountable for the CIGNA taxonomy research, analysis, and development, including identifying 8000 suppliers with an annual spend of $4.5 billion.
Our second executive is Michael Koontz. Michael is the VP Strategic Sourcing & Business Leader for ATD Sourcing Solutions, whose unique approach to battling inflation we will discuss in a follow-up post.
Creeping Into Supply Chains
Shortly before his interview with SIG, Tony gave a speech to 1500 employees at Cigna on inflation and its impact on supply chains.
A timeless saying is that "life is 10 percent what happens to you, and 90 percent how you react to it."
I was reminded of these words when I recently read the PBS News Hour articleHow the supply chain caused current inflation, and why it might be here to stay.
According to reports, the 6.2 percent increase in prices over last year was unexpected and, therefore, a shocking turn of events to many experts. Even more troubling is that there is a growing belief that higher consumer prices will become the "new normal." In short, while the rate of inflation may nominally fluctuate over the coming months, its fastest rate of increase in "more than three decades" is a trend that will likely continue in the coming years.
I intend to understand the "why" of what is happening and highlight the consequences of the current crisis - including the means and tools at your disposal to deal with it.
Supply Chain Mess
While there is no single reason for the inflation we are experiencing today, it seems that the catch-all reason given by experts is that our supply chains are a mess.
Starting with the "severe shortages of goods and labor in supply chains," pundits point to a dramatic increase in people buying online due to the pandemic as an exacerbating factor.
For example, industry projections that orders would hit 4.7 million packages a day during this recent holiday go well "beyond what the system can possibly absorb or deliver." However, that is just one part of the story, which brings us back to my opening comments about our reaction.
When The Chips Are Down
The strained relationships between buyers and sellers due to inflation are making headlines around the globe.
 (1).png?v8Ji7IP8w3BC4oPRZmFA37oog7EodkuW= "The Five Key Factors to Minimize Uncertainty & Maximize the Value of Your Sourcing Spend")
 (1).png?vWEDpN6_l51Qid4r4nfYuoQQvL5YHLyY= "Dealing With Inflation And The Disrupted Supply Chain")
 (1).png?VxPJPxGINJqziAvOoYJga6nIYrr3WpR6= "Using A GPO Model To Fight Inflation")
 (1).png?TGtb94WHdt3D180gFqgho__JdArxiZs_= "Two Senior Procurement Executives Weigh In On The Best Way To Deal With Inflation")
 (1).png "The Inflated Supply Chain: How To Navigate The Complexity Of Doing Business During A Period Of Rising Inflation")
BREAKING NEWS: Grocery conduct code coming in 2023?
“The Grocery Code of Conduct is a significant step toward improving the resiliency and efficiency of the grocery supply chain. The primary objective is not to directly rebalance market power, regulate fair dealing, or set the level of retail fees, but rather to improve supply chain relationships through principles of predictability, transparency and fair dealing.” – DH Canada (January 17, 2023)
It wasn't that long ago that I wrote an article regarding the largest Canadian grocer – Loblaws, and their headline-grabbing stare-down price dispute with the global brand Frito-Lay. Here is the link to that post titled The Inflated Supply Chain: How To Navigate The Complexity Of Doing Business During A Period Of Rising Inflation.
The primary focus of the piece was – as the article’s title suggests, understanding the impact of inflation on supply chains. However, beyond the big picture story in which inflation takes center stage, there is an underlying theme. The theme I refer to is how buyer-supplier relationships affect inflation and other supply chain disruptions.
The buyer-supplier relationship's impact on inflation, not the other way around, is not a typo. As the age-old saying goes, it is not what happens to you but how you react to it that matters.
High-Level Overview
For the sake of expedience, the following high-level bullet points should provide a solid understanding of the Loblaws and Frito-Lay situation at the time and the government’s intervention to resolve the dispute. This overview will help you better understand why the government is introducing the grocery conduct code.