Procurement in 2020: Into the Risk Maelstrom

In the paper, Charting the course: Why procurement must transform itself by 2020, the Deloitte sourcing and procurement team explores the future of procurement and risk management in significant detail. But they spend some good time framing the argument up-front, noting that “uncertainty has become the only certainty common across procurement leaders, and we expect the level of uncertainty to only increase.” In framing the risk climate we’re headed towards – and how we’ll get there based on current risk factors in today’s emerging world – the authors suggest the following causes for rising challenges in the area:

Consider the overall changing business climate, including new industry dynamics (such as a return to re-shoring and supply chain localization) taking place at an incredibly rapid rate. What’s more, 
this change is occurring across a backdrop of continued volatility across the supply chain impacting nearly all industries — commodity prices swings and currency shifts are unprecedented in many markets. On top of this are the opportunities and dangers in a complicated global regulatory and tax environment.

Procurement in 2020 will also likely encounter expanding risks and extended supply chains. The locations of suppliers for both physical and virtual goods and services as well
as the geographic location of internal procurement staff and facilities may have growing and significant total cost and risk implications. Today, when it comes to managing supply chains on a localized basis (e.g., Southeast Asia), such activity is pressuring organizations, even those that are less resource constrained than most. Tomorrow may bring the need to do this in real-time to predict and forecast outcomes, factoring into account a range of cost, compliance, transfer price, credit (tax) and related inputs.

Procurement executives also agree that supply risk factors are increasing year over year – some quite dramatically (see chart below from Deloitte’s recent CPO Survey). These include not only supplier financial stability and price/ margin risk, but also overall supply assurance, customer perceptions and regulatory concerns.

procurement graphic

Given these converging risk elements as well as organizational expectations and requirements, conventional procurement is fighting a multi-front war, balancing near-term cost management with longer-term and more strategic opportunities.

In looking at Deloitte’s CPO Survey numbers, we find the significant increase in risk (compared to decreases) across all areas including supply assurances, financial, customer, regulatory and price volatility telling of a general trend: risk – and risk awareness and focus – is only headed in in one direction. And it’s not down.

This post is based in part on content from Charting the course: Why procurement must transform itself by 2020

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