How The Predictive Enterprise Unlocks Wins From Conflicting Priorities
This article originally appeared here.
The core challenge procurement and supply chain teams face today can best be understood as a balancing act—balancing conflicting priorities amid ever-changing constraints.
Consider the fact that a very low-cost supply chain is worthless if the suppliers can’t reliably deliver on time and in full. Similarly, a very reliable supply chain isn’t as beneficial if the costs are so high that they erode profitability. And a low-cost supplier who performs reliably and delivers on time doesn’t create value unless the product is of adequate quality to meet customers’ requirements.
Thus, optimizing for any one target objective without constraints can potentially prove disastrous—or at least suboptimal. That’s why procurement and supply chain strategy must be holistic, contextual and balanced.
The Theory Of Constraints In The Age Of AI
In his 1984 book The Goal, Dr. Eliyahu M. Goldratt observed this pattern in manufacturing and codified it into a management framework called the Theory of Constraints. Rather than fight constraints, Dr. Goldratt argues that constraints are inherent to the process of managing the flow of materials and products through a manufacturing supply chain.
In my book The Predictive Enterprise, I extend Dr. Goldratt’s framework into the world of AI, where it is now possible to predict the specific impact of constraints on the outcome of a process before the process even begins. From there, it’s then possible to reorder the steps of a process dynamically based on this prediction.
By predicting the effect of a constraint on the balancing act of supply chain and procurement decisions, we can also generate new tools capable of resolving apparent contradictions. In this article series, I’m going to take a look at three “damned if I do, damned if I don’t” double binds—and how the predictive enterprise approach allows procurement and supply chain teams to turn these double binds into double wins.
Supplier Rationalization Versus Supply Chain Resiliency
Large enterprises are moving to actively reduce their total number of suppliers. This is a best-practice initiative commonly referred to as “supplier rationalization.”
The goal of these projects is straightforward: to reduce third-party risk, to consolidate spend with preferred suppliers (thereby unlocking volume-based discounts) and to reward trusted partners with higher rates of contract utilization.
But, at the same time, procurement and supply chain teams are being told to mitigate risk and handle volatility, reducing single points of failure and single sources. That means having more suppliers, not less, right?
Every time there’s a war, an extreme weather event or a geopolitical conflict that reduces the speed, throughput or economics of cross-border trade, the message I commonly see is this: Don’t have all your eggs in one basket. Supply bases should be understood as diversified portfolios, and a single-stock portfolio is a very risky portfolio.
On the surface, these goals are in direct conflict. The goal of supplier rationalization—consolidating spend to fewer suppliers—appears opposed to the goal of supply chain resiliency, which suggests dividing spend across more suppliers.
The Case For Supplier Rationalization
Supplier rationalization simplifies procurement by reducing scale to a manageable level. Instead of “boiling the ocean,” I often see teams use the Pareto Approach (the 80-20 rule) to focus on the 20% of suppliers that account for 80% of total spend.
While this prioritizes the most impactful relationships, it leaves the “long tail”—the remaining 80% of suppliers—unaddressed. To manage this, teams must consolidate redundant or duplicative vendors into a few preferred partners, reducing complexity, risk and costs through volume leverage. This process also leverages volume-based discounts, which is the primary goal of rationalization.
The Case For Supply Chain Resiliency
The argument for supply chain resiliency is comparatively simple, especially for enterprises with global supply chains. Being dependent upon a small number of suppliers—and especially single sources—creates systemic risk—not just to cost or profitability, but to business continuity.
The pandemic showed everyone what happens to supply chains when borders close suddenly. Tariffs and wars have reinforced this painful and expensive lesson. Thus, procurement and supply chain teams are also being told to diversify their supply base, even as they are also being told to reduce the total number of suppliers through rationalization—hence the double bind.
The Great Unlock: Predictive Procurement’s Win-Win
Traditional procurement builds resilience by adding suppliers. Using the predictive enterprise flips this on its head: You can reduce total suppliers while simultaneously increasing alternative sources.
By grouping suppliers into cohorts based on substitutability and stress-testing against risk scenarios, existing suppliers can serve as backup sources across multiple materials. I’ve found that this reduces both supplier count and single-source risk.
A predictive procurement approach also simulates which suppliers are viable alternatives within a given window—such as geography or timeline—and recommends them in real time. Instead of adding new suppliers reactively, users are guided to a vetted pool, increasing the use of preferred contacts.
This resolves the perceived trade-off between rationalization and resiliency. In a future installment of this series, we’ll look at centralized versus decentralized procurement configurations and explore how the predictive enterprise offers an escape from this apparent double bind.