The management of risk by procurement is changing. While the function and the business faces many of the same challenges it always has, these risks are now manifesting themselves in different ways
This article is taken from The 2019 CPO Risk Agenda, published in association with Procurement Leaders.
Given global interdependencies and diverse business lines, it is no longer right to think about supply chains in a traditional and linear way. Your suppliers are also likely to be your customers or your competitors. This is especially true in the tobacco and automotive sectors where organisations are pivoting towards cigarettes and battery-operated cars. Competition for raw materials in these areas will come from unlikely places and procurement chiefs have to be ready for that.
What’s more, risks will not present themselves in silos, which means procurement cannot manage them in a silo. Procurement must offer its expertise on supply chain risk to inform an enterprise- wide approach.
Procurement’s unrivalled 360-degree view of the corporate ecosystem, from the supplier to the customer, means it has a unique opportunity to do this and so much more. It is perfectly positioned to ensure the holistic approach exists, but procurement chiefs have to step up as leaders to do so.
This is a more important job than ever. Technologies and tools such as Twitter mean news, especially bad news, travels fast. Businesses no longer have any time to respond to events; they either respond immediately or suffer the consequences, which can include long-term brand damage. Businesses spend years building trust in their brand, but that can be wiped out in seconds.
Procurement is uniquely positioned to understand the evolving risk profile of a changing supply chain
Traditionally, businesses and their procurement functions have responded to events after the fact. You only have to think back a few years to the 2011 earthquake and tsunami in Japan. It was only after the disaster struck that businesses actually began to find out what impact it was having on their supply chains. Many ended up finding out things about their supply chains that they simply never knew and this meant the event ended up having a bigger impact on them than perhaps it should have.
Now that the response has to be holistic, in almost real time and immediate, some are moving in this direction. Companies such as technology manufacturer Flex have established new ways to manage risk. Its innovative Flex Pulse Censer monitors all aspects of the company’s global supply chain in real time, connecting intelligence across the world to provide insights that help to reduce risk and improve efficiency.
And right now is the exact right time for procurement to lead. Geopolitical risk and uncertainty about the global economy mean events are conspiring to create the situation where risk could blow up in the face of businesses at any moment.
With the pendulum swinging back towards protectionism, many are examining whether localising supply chains will actually help them mitigate risk more effectively.
So what can procurement chiefs do to get to this position? They need to educate internally, to explain to the C‑suite why the function matters and what could go wrong if it is not given the necessary technological tools to do the job.
New technology such as blockchain can help provide transparency in the supply chain, creating an unalterable record of movement of goods. It is a solution already in use; for example, last summer Maersk and IBM collaborated to create TradeLens, a blockchain-enabled shipping solution that brings together port and terminal operators, global container carriers, customs authorities, and transport and logistics companies.
The digitisation of the supply chain ecosystem helps prevent documentation errors, increases visibility and is a more efficient means of communication. Procurement is uniquely positioned to understand the evolving risk profile of a changing supply chain.
The complex and interdependent nature of modern supply chains means procurement needs an integrated approach to deliver value. It needs visionary leaders willing and able to step up to leadership. Above all, it needs to recognise that only a holistic approach will meet tomorrow’s challenges.
Download the 2019 CPO Risk Agenda now, and discover how to drive change in your business:
- How risk is shaping the strategic CPO
- 5 cautionary tales from supply chain incidents
- How to create a scenario plan to navigate a crisis
- Why technology is key to cutting supply chain risk