How procurement professionals minimise supply chain risk to maximise new market opportunities
Managing change is what procurement and supply professionals do every day. And do so ably and with integrity. But seldom have any of us been faced with quite so much rapid change – and all coming at us simultaneously and from a variety of angles. Risk, uncertainty and a lack of clarity seem to be the bane of business right now, with Brexit merely adding to the sense of bafflement.
The latest Chartered Institute of Procurement & Supply (CIPS) Risk Index reports that, yet again, an absence of commercial trust and transparency are undermining the international supply chains that link our hyperconnected world. Trade wars, such as that between China and the United States, are effectively creating supply chain ‘no go areas’, cauterising local businesses and consumers from global markets while rendering the reverse flow of goods scarce or non-existent.
Here is the fundamental challenge for you as the chair of a market-leading FTSE 250 firm: although the world has faced conflict and uncertainty before, you are living through extraordinary times. As a profession, procurement and supply management is also on the precipice of dynamic and disruptive change resulting from a torrid combination of factors ranging from volatile trading environments, increasing complexity and the unceasing, gyroscopic influence of applying the latest information technology.
From a professional perspective, technology is completely reshaping the workforce. That’s your workforce, whatever vertical market you serve and whichever goods or services you supply. Automation is eliminating jobs at lower levels and causing career disruption for many, even senior executives. This has a deleterious effect on both corporate morale and productivity. For any professional today, the need for technical skills is common, but it can be a severe test of capability and leaves people feeling vulnerable.
It is therefore no surprise that CIPS considers the impact of technological change one of the most dramatic to affect procurement professionals’ future. And change that affects their future – by dint of their critical role to your organisation’s bottom line – also affects yours. Your procurement functions are changing and as a profession we will have to continue to evolve if it is to maintain its critical standing in driving your organisation’s success.
The latest procurement technology – and the skilled managers who master it – can help your company develop more coherent sourcing plans, identify competent and flexible suppliers, derive category plans and, in more volatile industries, build sophisticated automated processes.
And there is plenty of scope for such initiatives. Fewer than 10 per cent of companies have deployed procurement solutions based on key technologies such as big data, the internet of things, serverless architecture or blockchain technology.
Just think how much of the value of a company’s products or services is derived from its suppliers. According to CAPS Research for the Institute for Supply Management it’s an impressive 65 per cent. Also consider that world-class procurement organisations have 21 per cent lower labour costs, according to the Hackett Group.
Machine learning, artificial intelligence and the ubiquity of algorithms are all very, but you can’t replace a procurement professional’s instinct and ‘gut feeling’ for when something doesn’t feel quite right. This can only be achieved by building relationships, having more personal contact with suppliers and placing relationship building at the centre of all your business’s supply chain functions.
These tensile, resilient supplier relationships could reap unexpected rewards, too. Imagine if your company’s R&D department could benefit not only from your own in-house expertise, but also from that of your supplier network. The pivotal role of your procurement professionals in harvesting suppliers’ knowledge not only could help you get to market faster, but spread the risks and costs of developing new products or services among a broader base of stakeholders.
Additionally, as all clued-in chief executives know, once procurement is better aligned with company strategy, suppliers can be encouraged to lift their client’s product portfolio thereby raising its profile and galvanising its position in the marketplace.
Then there’s the ever-present threat of being a victim of cyber-attacks and the shame and reputational jeopardy inherent in modern-day supply chain slavery. As procurement professionals, we not only scrutinise our companies’ marketplaces, but actively venture out to create them, boosting stakeholder and reputational value in the process.
For instance, Fortune 500 global tech giant HP launched Original Ink cartridges made with plastic from bottles recycled in Haiti. While HP has worked for years with established vendors on closed-loop recycling, this represents a new market opportunity, with social and environmental impact, generating a steady revenue stream and helping create jobs. It improves lives of workers who harvest recyclable materials.
Few FTSE 250 companies have all these strings finely tuned to their supply chain bow. But chairpeople with vision who – aided by their procurement maestros – conduct the right notes from a supply base harmonised with their overall corporate strategy, can expect to hear the dulcet sounds of a well-orchestrated operation.