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With Business Up But Politics Volatile, Uncertainty Is the New Certainty for Procurement

10/05/2018 By

Spend Matters welcomes this guest post from Naseem Malik, managing partner at TYGES International.

Life should be good for procurement professionals these days, if conventional wisdom is to be believed.

Companies are hiring, spending and facing growth-related opportunities/challenges not seen in almost two decades. There’s renewed confidence with the business-friendly policies that have led to corporate and personal tax reductions as well as regulations being rolled back, and there’s a sense that a 4% GDP growth can be the new normal for the U.S. economy.

As exciting as these conditions sound, reality is not quite as rosy anymore. While uncertainty has always rattled businesses, chances are that the current business environment is also unlike anything corporate leadership has faced in their careers. From vitriolic trade negotiations to overnight tariffs, sanctions and currency fluctuations, companies are facing levels of volatility not seen in decades. Amid these challenges, the question is how can procurement organizations help manage a fluid business cycle, all the while delivering additional value beyond simply mitigating these emerging risks?

The key to procurement’s response will come down to its ability to plan for these events and respond accordingly.

Manage People, Technology

This requires best managing two key resources: people and technology.

People on the front lines of procurement/supply chain/finance operations can see the signals of something going awry long before senior management does. They can keep companies abreast of the biggest potential issues and the best ways to prepare. Tapping your “A” players in your operational functions can help your business become more nimble, agile and insulated against external volatility.

Procurement professionals should be able to stress-test their supply chain’s financial strength. No longer are they merely worrying about labor conditions in the supply chain but also about their ability to supply product in a timely manner.

And now for the first time, these conditions apply to both offshore and domestic suppliers. For offshore suppliers, there is concern over their ability to stay competitive with the unpredictability of a full-blown trade war underway between the world’s two largest economies. Trade tensions between the U.S. and China is causing shrinking margins, increasing working capital and fixed costs — thereby eroding profits.

As procurement manages these new challenges, they are forced to confront the fact that suppliers will consolidate, more production may get automated and nationalist barriers will be erected to protect IP, profits, jobs and production.

On the domestic front, there lies a whole host of new challenges that procurement managers had not been exposed to either. As near-shoring strategies were being pursued in the past few years, Mexico was the destination of choice to mitigate risks. Now that the Trump administration has altered NAFTA, supply chains may get upended yet again. Case in point is the highly dependent automotive sector that is grappling with the changing geography of manufacturing and the required rejigging to cope with tariff imposition.

Technology — the second key resource to tackle uncertainty is in use by those people on the front lines that can put the data they need in their hands when they need it — before a major risk event has affected the company.

Your “A” players not only have knowledge but also skills (technical and analytical) that make them best suited to address and elevate major business risks. Figure out what tools they need to get the job done and reap the benefits of foresight by empowering your teams with the latest tech.

A key area where technology will need to help is in calculating what the true exposure is to U.S. firms as the supply chain risks continue to mount due to these global trade disruptions. According to Resilinc, a supply-chain analytics firm, they have now gathered data on the global purchasing and inventory transactions of almost 30,000 manufacturers and suppliers worldwide.

Its assessment is that most companies are unable to quantify the risk of a serious trade war because pertinent information is “siloed” in companies and not properly analyzed. This has also been echoed by other F100 firms. Even after spending months reviewing the likely impacts of these new policies, they still don’t know how it will affect their suppliers and sub-suppliers.

Politics and Uncertainty

Another common refrain is that it’s hard enough to understand the Trump administration’s intentions on trade, let alone trying to ascertain the long-term ramifications of these ambiguous actions. At a micro level, there are some companies that are now forced to contend with social media risk and exposure. Companies like D&B and Bloomberg offer risk assessment tools and dashboards for this very purpose. What was once considered unthinkable is very much a reality when it comes social media — like the implications for their products, brands or even profitability. Just ask Harley-Davidson or Amazon what happens to their stock price when they’re at the wrong end of a presidential tweet criticizing their business practices.

Another area that is beginning to influence the function is the much-heard, but less understood, world of blockchain technology. For procurement application purposes, blockchain can be used to track the supply chain of products from their origins to the customers.

An example is the pharmaceutical industry, as it is manufacturing what is considered the most counterfeited product in the world, according to black market tracking company Havocscope. Accenture is already experimenting with using blockchain technology to create an open and trusted record of where drugs originate from and to closely surveil what happens to them across the supply chain.

Another realm of heightened scrutiny is the food supply chain. There’s a tech company called Provenance that is tracking the supply chain of fish from fisherman to plate. As consumers demand more transparency, businesses are realizing there’s a significant gap between advertising and the reality of operations. And this is not just for startups, as Alibaba also has been working to weed out counterfeit goods by using blocks to track products sold on their platforms throughout the supply chain.

Even business giants like Walmart and IBM have partnered with colleges in China to digitally track the source, factory information and movement of meat products in China via blockchain.

As this new technology rolls across diverse industries, procurement can take the lead in helping their organizations reap the benefits and mitigate all the known and unknown risks. As these leading companies are demonstrating, blockchain technology is evolving rapidly and experts predict that while it’s what the internet used to be in the early 1990s, that will soon change. As the internet changed how we share information and connect, blockchain and other technologies will transform how we exchange value and work with suppliers.