Risk, Volatility and Uncertainty are the New Normal for Global Procurement

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Red alert: The end of tranquility is coming, and procurement needs to wake up to the existential risks threatening their organizations.

That was the blunt message that Nik Gowing, former BBC broadcaster and a visiting professor at King’s College, used to kick off Procurious’ Big Ideas 2017 Summit in Chicago this morning. Gowing’s first slide, left blank, flooded the room with bloody red light as he asked the attendees to consider whether they were truly ready to deal with “unthinkable events.”

“The world is facing an existential moment,” Gowing said. “How do you plan in this environment of unthinkables, when so much is changing so quickly?”

Increasing geopolitical instability and rapid technological disruptions are threatening businesses with unparalleled levels of risk and volatility. To survive, procurement will need to embrace new ways of thinking, from openness to social responsibility to broadening the time frames in which they operate.

All photos taken by Nick Heinzmann for Spend Matters.

A New Normal

The world today faces a multiplying range and tempo of domestic and global threats. From Brexit to the election of Donald Trump to rising tensions with North Korea, the world is more uncertain and volatile at any point since 1945.

What’s more, the post-World War II environment is characterized by increasing business complexity and globalization. Today’s world is a “system of systems,” Justin Crump, CEO of Sibylline Intelligence Solutions, told attendees in a presentation on global risk forecasts, and just as risk events are more interconnected, so are the supply chains of business large and small.

This has dramatic implications for what procurement organizations need to plan for over the next 10 years. Preparing for a port strike or even a hurricane isn’t thinking big enough.

Organizations need to think of how events could lead into more worrying trends. Gowing went as far as to propose that the rise of far right politics in the U.S. and Europe could, under the right circumstances, lead to the “death of the administrative state” itself. Procurement needs to monitor not just trade relations with the E.U. but also the political stability of the union itself.

To be sure, Gowing was out to make a point. The global economy has enjoyed seven years of expansion since the official end of the Great Recession, and since the business cycle must inevitably turn down, businesses need to adequately prepare.

But by and large, Gowing said, businesses and governments have not woken up to political and cultural forces he likened to “a great transformation of human society.”

“There’s a madness to this market that no one can explain,” he said. “People are making money, but they’re not sure why.”

Grand statements aside, there are also tangible risk areas procurement should consider in the near and medium terms. Crump suggested practitioners focus on the 10 below.

The Way Forward

The upshot of all of this is that procurement must broaden its risk perspective. Limiting planning to supply assurance is no longer enough; as the gate opener to the broader supply market, procurement must lead the business’ response to new crises proactively.

Luckily, procurement is uniquely situated within the enterprise to see the effects of various risks on the entire organization. Becoming this asset, however, requires a mindset change.

Today most businesses think in shorter, defined timelines — 10 months, maybe 10 years for more progressive firms. But consider how different the world was even 10 years ago. Without considering big-picture, unthinkable events, Gowing asked, can procurement say it is fully prepared?

“The coming disruptions will be comparable to wartime” in terms of disruptiveness, Gowing said. “We need to put that mentality into all of our planning going forward.”

Embracing that mentality is the major challenge for procurement in the near future.

The first tactical steps are actually straightforward: simply identifying the potential risks your organization could face. Where it gets difficult, Crump said, is steps two through 2,000, where you actually have to draw up the response plans for the myriad situations that could arise. But the potential rewards are well worth the effort, he said.

“Companies that use an effective, intelligence-led approach to enterprise risk management can survive and thrive in challenging global marketplaces, through better understanding and more precise valuation of the particular operating environment.”

To get started, here are Crump’s top 10 intelligence tips and procurement implications.

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