Navigating complexity: overcoming modern procurement challenges
Procurement’s influence on business performance is growing; it can shape and direct the organisation’s approach to sustainability, to build resilience through flexible supply chains and to affect the value of the company’s products and services through the supplier ecosystem.
As global trade recalibrates in the wake of severe disruption, procurement has several key challenges. Getting these right will shape the company’s success in the short and medium term and further cement procurement’s position as a strategic driver within the organisation.
The sustainability imperative
On average, around 80% of an organisation’s carbon footprint is locked in its supply chain, meaning that transparency throughout the supply base is necessary if environmental targets are to be met.
For procurement it presents a new set of challenges that involves balancing the needs of a rapidly changing business environment with the climate imperative.
It’s a complex situation made even more pressing by the raft of incoming legislation and more difficult by the slew of disruptions faced over the last three years.
Meeting current and future demand simultaneously will be a case of identifying the risks as well as the opportunities posed by climate change.
Procurement must understand the organisation’s environmental hotspots, its opportunities for transformation within the sectors they’re sourcing from, and how they can work effectively to optimise those.
The supply chain obviously has a significant impact on downstream emissions, so identifying which suppliers to work with is essential; procurement must be prepared to collaborate with those suppliers to both reduce emissions and to ensure they are compliant with incoming legislation.
From a procurement perspective, those steps help you to understand where your hotspots are in terms of carbon impact, raw materials and sources of emissions and the influence you can have over the supply chain.
Mitigating risk
The disruptions of the last three years mercilessly exposed flaws in global supply chains, highlighting the need to both mitigate risk and build greater resilience. Against that backdrop, supply chains are at an inflection point.
They must meet ever-faster clock-speeds, be able to cope with uncertainty and volatility, and adapt to the demands of consumers and climate change. They are strategic drivers for the business, and as such their ability to be resilient, flexible, and agile is necessary for the organisation’s future success.
Procurement’s role in building the supply chain of the future is pivotal. As the organisation’s touchpoint with the supply base, it must initiate and develop mutually beneficial relationships with suppliers that guarantee long-term supply in a way that is both viable and commercially competitive.
To do that, procurement must develop simple and intelligent processes and augment and automate them with technology where necessary. Having a clear directive, and clear, visible data to support it will enable execs to engage with the supply base in a way that is meaningful for both parties.
With that in mind, an approach that successfully integrates people and technology will build resilience through greater transparency, and an approach that allows procurement to react proactively because of it.
Dealing with volatility
The disruptions over the last three years have created a perfect storm, the net results of which are extreme market volatility and inflation. In turn, the procurement process has been severely impacted in a variety of ways either through price fluctuations, supplier instability, patchy supply, or inconsistent lead times.
It’s a set of variables that is playing out against wider shifts in the supply chain. The sustainability imperative and recalibration of global networks bring added complexity and at the same time underscore the need for effective decision-making, data analysis, and collaboration across internal and external stakeholders.
To that end, dealing with volatility requires a multi-faceted approach that leverages data and market intelligence. Doing so allows organisation to monitor trends, anticipate disruption and evaluate supplier performance.
The latter is imperative to weathering the storm. Establishing clear lines of communication with suppliers, setting metrics, and collaborating on solutions to problems should all be part of your ongoing efforts to deal with volatility. In that context, building flexibility into contracts that accounts for price or volume fluctuations is a sound approach. Having alternatives vetted, audited and ready to roll should also be a priority.
Balancing the requirements of an evolving business landscape with the urgency of disruption and climate action is procurement’s biggest challenge in the modern era. Overcoming it will define the organisation’s success. To that end, how it leverages data, develops digital capabilities, and fosters collaborations will be crucial, and moreover lay the foundation on which the organisation will build its future.
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