“The first bowl of porridge was too hot. The second bowl of porridge was too cold. But the third bowl of porridge was just right…”
The tale Goldilocks and the Three Bears is well known to most of us from childhood. But what can it tell us about procurement in supply chain management?
According to Christopher Craighead, Rothkopf Professor and Associate Professor of Supply Chain Management at Penn State’s Smeal College of Business, procurement can yield a long-term competitive advantage when managed “just right.” Procurement is all about balance—not too much in one area and not too little in another. When procurement has trouble finding this “just right” amount for each situation, it has negative consequences for supply chain stability, trade compliance, company financials, and internal business engagement. Procurement organizations need to challenge stakeholders and the supply base sufficiently and not simply redistribute cost and risk.
In a recent article in Supply Chain Management Review—co-authored with David Fields, a principal at Ernst & Young, and David Ketchen, a management professor at Auburn University’s Harbert College of Business—Craighead proposes the “Goldilocks Procurement Strategy” (GPS). The strategy focuses on balancing five competitive levers of procurement:
- category management and strategic sourcing
- procure to pay
- demand management
- supplier relationships management
- contract management
Although executives may be tempted to exploit procurement’s competitive “levers” to the fullest, they need to know how much to push these levers as well as when to back off, says Craighead. By mastering this technique, companies can enhance their competitiveness and lower their supply-side risks.