Disruption Challenges Procurement Leaders to Steady Supply Chains

Editor’s note: Supply Chain Management Review is launching a series of new online features in 2024, including Procurement Pulse. Appearing online at scmr.com on the first Friday of each month, Procurement Pulse will tackle a procurement issue through a conversation with an industry leader or based on a case study. This month, we are looking at how procurement leaders can better manage disruptions that are all too common in today’s supply chain. If you are interested in future topics, you can see a full list of upcoming topics on our Editorial Calendar.

Supply chain procurement professionals have never had it more difficult. With budgets tightening and constant disruptions such as raw materials shortages and geopolitical concerns, not to mention weather and labor challenges, it seems that to run an efficient and cost-effective procurement organization, one must be a magician on par with Harry Potter.

But there are some steps that leaders can take to help manage through these disruptive times. And it starts with being smarter, says Omer Abdullah, co-founder of The Smart Cube.

“To plan and execute effective global procurement strategies amidst potential conflicts, companies should adopt an intelligence-driven approach,” he tells Supply Chain Management Review. “This involves actively monitoring geopolitical situations, diversifying supplier portfolios, and conducting thorough risk assessments at various levels, including suppliers, categories, and the macro environment.”

The Smart Cube provides custom research, analytics and supply chain intelligence for supply chain organizations.

Nearshoring, but …

One of the recent trends is nearshoring, and that can help, but Abdullah says companies need to take a long-term view when exploring supply chain localization.

“Nearshoring represents a long-term change in how organizations produce or source goods. This means companies are rarely able to make locational decisions that deliver immediate value,” he says. “Procurement leaders must consider how their supply chains will evolve moving forward and be prepared to invest money upfront. They will also need to grapple with unit cost implications as they move from low-cost destinations to (relatively) higher cost ones. How these higher costs will be managed (absorbed versus offset versus passed through) is an important consideration.”

A political wind blows

There are several current disruptions impacting procurement operations around the globe. These include the Russia-Ukraine and Israel-Hamas wars. But 2024 could also usher in changes to U.S. immigration and trade policies should control of the seats of government shift in the upcoming November presidential election. These types of regional issues are taking place in countries across the globe, and that is triggering questions about sourcing and the potential impact on that process should local political winds shift.

That has added up to more trade complexity, Abdullah says, and it is not just in the U.S.-China trade winds.

“We are definitely headed into a much more complex trading and sourcing environment,” he says. “To mitigate against the uncertainty of new tariffs, import/export bans, or regulatory changes, companies should prioritize the development of an informed, diversified manufacturing location strategy.”

This strategy must include ongoing awareness of potential policy and tariff changes, as well as developing robust contingency and long-term development plans.

“These measures help mitigate the impact of sudden external shifts that can affect manufacturing and sourcing,” Abdullah notes.

Ethical constraints

Another concern for procurement leaders is the recent push to develop ethical supply chains. More and more, customers are seeking out companies that are acting in ethical and sustainable ways. But, with supply chains spanning thousands of companies, it can be difficult to ensure each leg meets these requirements.

“Overcoming these challenges involves a deep understanding of the supply chain, strategic investments in technology, close collaboration with suppliers, staying updated on regulations, and implementing robust monitoring systems,” Abdullah says. “This must be accompanied by ongoing vigilance on the part of the supply chain leader. Finally, a commitment to transparency and continuous improvement is also crucial for successfully navigating the complexities of ethical sourcing within the supply chain.”

Some of this insight is made possible by increasing data streams, but are procurement leaders getting the right data? And do they know what to do with it when they get it? Abdullah says that starts with the data collection process, but also needs to recognize the role procurement plays beyond just cost management to include risk mitigation, sustainability, advocacy and value creation.

“This widening range of responsibilities underlines the necessity for robust data and intelligence to facilitate effective decision-making,” he says. “Establishing a strong data foundation involves integrating various data types, including external market intelligence and internal procurement data, into a coherent view. Emerging technologies, particularly artificial intelligence (AI), play a pivotal role in processing diverse data sources and providing actionable insights. However, the success of these technologies relies on a balanced approach that combines AI’s efficiency with human intelligence (HI) for contextualization and decision-making.”

Building an effective procurement strategy

These represent just a few of the challenges procurement leaders are navigating in 2024. Aiding in the process, though, is the growth of technology that offers higher levels of transparency and deeper insights into supply chains.

“In a practical sense, the first order should be (using) solutions that offer contextualized intelligence and actionable recommendations, dynamic risk assessment and continuous risk monitoring,” Abdullah says. “Customized insight dashboards aligned with business goals and specific strategic requirements are crucial components in this regard. Beyond this, there are a host of technology solutions that are incorporating Gen AI to drive deeper insights. They leverage the ever-growing availability of data to offer real-time insights with AI-driven predictions to provide actionable intelligence.”

Abdullah also advises C-suites to ensure their procurement teams are “insight-led” in a way that puts a “focus on strategic thinking where category leaders and their teams prioritize driving deeper insights over engaging in transactional activities.”

The right mindset would drive development of detailed strategies for each category, integrating both internal and external data “to provide an accurate view of the current state and future direction of the category,” Abdullah points out. “The resultant strategy should embed risk diversification and incorporate contingency plans, including alternative scenarios and actions to manage existing risks in the supply chain. Importantly, these contingency plans need continuous assessment and evaluation, recognizing the dynamic nature of markets and the frequent changes in the procurement macroenvironment. By being truly insight-led, companies can position themselves to effectively respond to these evolving challenges.”

Doing so doesn’t ensure procurement teams will successfully navigate the global disruptive waters, but it will give them a leg up.

Procurement Pulse appears on the first Friday of each month exclusively on scmr.com. If you are interested in learning more, contact Editor in Chief Brian Straight at [email protected].

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