We are living in extraordinary times resulting in unprecedented challenges for our industry. Domestically, headwinds include historic levels of inflation, significant public policy developments, increasing regulatory requirements, and rising interest rates. Globally, the invasion of Ukraine by Russia has spawned unparalleled sanctions, roiled markets, and changed demand patterns. But among these challenges, driven by rapidly evolving world events, are opportunities. Procurement organizations need to be alert to risk identification, which leads to risk management, identifying critical categories, and accelerating purchases.
Measures to mitigate this business risk include expanding supplier lists to add:
- Additional sources of supply
- Reviewing order timings
- Shortening intervals to prepare for lengthening delivery cycles and monitoring the shifting
- Enhancing goods delivered inspection procedures
- Adding inventory security/readiness measures
THE CURRENT STATE OF SUPPLY CHAIN RISK MANAGEMENT
The supply chain is constantly evolving and adapting to changing market circumstances. In the current political climate, with new SEC regulations and increasing governmental scrutiny, procurement organizations need to be prepared for potential changes that could impact their supply chains.
Today’s unsettled environment renders monitoring of geopolitical events, both domestic and international, vital. The taut supply chain of ‘just in time’ inventories has snapped into a ‘just in case’ stock, where large amounts of inventory are kept on hand, causing many organizations to re-think their supply operations. One of the most significant potential impacts is re-shoring manufacturing operations to the US. This shift is driven by several factors, including concerns about rising costs and the availability of skilled labor in other countries. However, moving operations is not easy nor inexpensive, so this activity will stretch out in time and may likely represent diversified global operations that are better aligned with home-country political policies. These shifting activities present new opportunities for organizations to restructure and adapt their supply chains to accommodate these changes. In addition to shifting production capabilities, the continuing use of tariffs and other economic measures by governments to shape procurement activities requires careful monitoring for both compliance and strategic advantage.
As supply chains work to adapt to changing conditions globally, structuring the supplier value chain to add transparency creates a key opportunity. It is likely that additional Scope 3 disclosures will be required through pending SEC action and putting tracking measures in place now will ensure that systems and data are available to support the new reporting. In addition, this is an excellent time to build up supplier relationships and consider how all of these changes will impact your partners throughout the supply chain. The changes to rules around auditing and disclosure could significantly increase reporting requirements, and many companies are still scrambling to figure out how to respond.
HOW PROCUREMENT ORGANIZATIONS CAN PREPARE AND RESPOND
To respond to the ever-evolving new normal, several measures are needed.
|Assess exposure to risk and ensure a plan to mitigate potential impacts
|Focus on the emerging changes and trends and adjust strategies accordingly
|Implement greater tracking of public policy initiatives and developing regulations, and monitor the shifting political climate for potential impacts on trade
Finally, procurement organizations should review supplier contracts and relationships to ensure that they are prepared for any changes on the horizon. Adding alternative sources of supply and strengthening agreements to protect against disruptions can provide resiliency. By taking these steps, organizations can better prepare for the evolving risks in the supply chain. Organizations that can react quickly and respond proactively to fast-moving events will be at a significant advantage in today’s rapidly changing business environment.