2024 is proving to be a challenging time for the procurement and sourcing sector. Despite the fading effects of the COVID-19, a new era of seemingly “perpetual disruption” offers no respite for CPOs and their teams.
Proxima is a global procurement and supply chain consultancy based in London. One of their senior consultants, Gemma Thompson, writes regularly about the ways in which CPOs can prepare to meet the constantly unfolding challenges facing their industry. We sat down with her to ask some of our most pressing questions about risk, resilience, and the future of procurement.
In the wake of the pandemic and the end of the drought in Panama, what are the major threats to procurement and sourcing resilience affecting the world right now?
Although many organisations are still navigating the ongoing impacts of the pandemic and the Panama drought, headlines are waning. In their wake is a mass of geopolitical uncertainty and trade disruptions.
We’re in the midst of the biggest election year globally in history, and the ripple effects are far felt. Ongoing tensions between major powers like the US, China, and Taiwan threaten unpredictable sanctions regimes that could place supply chains at risk of disruption and inflated costs.
Trade wars of tariffs and taxes fuel uncertainty for business leaders trying to build resilience into their supply chains.
“Building true resilience in today’s supply landscape requires organisations to think broader and consider more than ever before. So, the greatest of all threats would be ignorance, or inertia” — Gemma Thompson
Further uncertainty can be attributed to ongoing conflict around the world. As supply networks pull parts of the globalised world closer together, regional conflicts present a risk far wider reaching than the originating countries.
Proven by Russia’s invasion of Ukraine and the impact on food and energy, exacerbated by the attacks on the Red Sea and the targeting of commercial ships in response to the ongoing conflict in the Gaza Strip.
Six months on, Maersk reported that the ripple effects on maritime shipping and global supply chains have intensified, highlighting that these threats will impact procurement strategies and sourcing resilience for a while to come.
Increased transit times through rerouting trade, increased associated costs and resources required, and capacity shortages all significantly impact decision-making.
In a cliché of a perfect storm, geopolitics and conflict are not the only threats to procurement and sourcing resilience, though. Organisations face a series of balances to strike—the transition to low-carbon to achieve a net zero future while protecting costs involved in navigating natural disasters, investing in technology innovation while protecting against increasingly sophisticated cyberattacks and vulnerabilities, and managing costs and margins while facing labour shortages from production through to delivery.
Building true resilience in today’s supply landscape requires organisations to think broader and consider more than ever before. So, the greatest of all threats would be ignorance, or inertia.
Some industry experts believe we’ve entered an age of “perpetual disruption.” Are they right?
They’re not wrong. The reality is that a whole network of supply chain vulnerabilities was bubbling away under the surface, and the pandemic was the boiling point.
What’s happened since is an inability to get the lid to stay back on, because now that we see those vulnerabilities, we must deal with them. Yet at the same time, we are faced with an era-defining reconfiguration of global trade driven by serious geopolitical events. With no crystal ball for knowing where the jigsaw pieces will land, “perpetual disruption” seems appropriate.
The other contributing factor is that even if organisations are not directly involved in an event themselves—be it trade wars, conflict, natural disasters, or other—they will likely be impacted by the ripple effects. Port congestion, logistical delays, material shortages, and economic volatility continue to evolve as events play out.
However, as with most market trends, the focus and impact will ebb and flow. While it’s a little early to imagine a stable global market, pockets of resilience at a regional level, as organisations look to onshore or nearshore operations, could start to pave the way forward.
There is a philosophical debate to be had around the concept of perpetual disruption or if this is just an evolution of normalised trading conditions. Whatever the outcome (of that debate), the reality is that in seeking sufficient levels of control, business leaders must take a proactive, strategic approach to sourcing resilience.
How are risk and resilience models being used to drive organisational growth?
Integrating resilience into their long-term strategies enables organisations to weather more storms with minimal impact on profitability and operations. Building response capabilities to unforeseen circumstances in advance and enabling faster, data-informed decision-making helps organisations adapt to change quickly and seize new opportunities.
By embedding these practices, effectively managing risk, and investing in resilience through robust sourcing strategies, appropriately skilled teams, and technology, the organisation feeds into its competitive advantage—positioning itself ahead of others that might not be as mature in the risk and resilience realm.
At a more practical level, building resilience allows you to deliver the best to your customers. Be the organisation that follows through on your SLAs and promises like the next-day delivery, not the one that sends an apologetic email due to delays. Sometimes, it’s unavoidable, but your best bet for organisational growth is to ensure you’re as prepared for those instances as possible.
Are there any technological solutions that promise to help ease these pain points?
Some technologies that have been around for some time are now having their moment in the spotlight, like Blockchain, automation and robotics, artificial intelligence, and machine learning, as practical use cases become more apparent throughout supply chain management. Namely through providing transparency and security, increasing productivity, optimising demand forecasting and route planning, and enhancing quality control and predictive maintenance.
At its broadest level, the next-generation supply chain will be architected using many proven, new, and emerging technologies to deliver the transparency and agility that we have been speaking about for some time now.
Revolution or evolution? It doesn’t really matter; this is simply how things will be done from this moment forward, and tech firms are starting to see the demand, which enables investment on their side.
For example, a game-changing innovation for visibility and predictability is Digital Twins. Creating virtual replicas of supply chains allows organisations to simulate and analyse different procurement and sourcing strategies to test resilience before implementing and committing significant costs and resources. We’ve seen pioneers do this, and soon will come the time for the mass market.
“Business leaders must consider the appropriate technology for their strategy and budget and leverage its functionality to ease their specific pain points” — Gemma Thompson
At a more detailed level, if we look at how to use technology to improve how risk is managed in your supply network, the options available will depend on your organisational risk appetite and the risks at play.
Some providers use blockchain technology to automate and streamline risk management during onboarding processes by scraping the market for compliance information. Other technologies specialise in certain supplies or categories that can scan for specific vulnerabilities, such as cybersecurity within IT or regulatory compliance within HR.
Across the end-to-end supply chain, emerging technology enables the tracking of products from origin through to customer, as mentioned above. This can be at a component or finished goods level as programs mature, but it is that technology that can predict risks and alert buyers to pivot supply arrangements.
Business leaders must consider the appropriate technology for their strategy and budget and leverage its functionality to ease their specific pain points.
Anything else you’d like to add?
Often, risk gets a bad rap. The context of conflict and crises frames risk in a negative light, yet knowing your risks can drive positive results.
Business leaders should see risk as a golden thread running through operations to protect and improve resilience and profitability. Significant financial and operational impacts can be avoided when managed effectively and by leveraging the right tools and technology.
