How procurement can lead amid a fractured global economy

supply chain AI

Spend Matters welcomes this guest post from Enno Lueckel, VP at Scoutbee.

Is the age of globalization coming to an end? This question has been top of mind for business leaders in recent years as Brexit and the US-China trade war has fueled the emergence of a more segmented global economy. Then COVID-19 hit, impeding the flow of critical parts and essential goods and exposing the vulnerabilities built into long-distance supply chains. With 64% (source: Thomasnet)  of US manufacturers now considering bringing production back to North America, it is clear a redrawing of global supply lines is under way.

Amid this uncertainty, resilience is the new supply chain imperative. Across industries, there is growing recognition that managing supply chains for maximum efficiency hampers companies’ ability to respond to risk events. And the frequency of such disruptions is rising, with a recent McKinsey Global Institute survey showing that companies now expect severe supply chain disruptions every 3.7 years. Yet when resilience can mean many things to different industries, how should leaders prioritize?

The building blocks of a resilient supply chain

To reap the benefits of resilience, such as improved flexibility, responsiveness and agility, companies must first make their supply chains transparent and diversified.

Transparency matters because organizations can only mitigate the risks they can see. Effective risk management requires greater visibility into all the interactions and movements taking place within their networks. Of course, every supply chain has blind spots; vendors may be reluctant to divulge information, and the traceability of inputs can vary. Yet most companies still only map their direct suppliers, leaving them blind to possible interdependencies or problematic practices taking place far downstream. Being caught off-guard can have costly repercussions.

With a 360 degree view of sourcing footprints, the next step is diversification. Companies with broad supply chains will be a step ahead of their competitors during a natural disaster or geopolitical shift. On the other hand, geographic concentration can compound risk, as exemplified by the immediate strain placed on automakers by the shutdown of China’s Hubei province early in the pandemic. Additionally, concerns about domestic supplies of essential goods and continuing US-China tensions are prompting some to consider reshoring certain activities. In an uncertain world, companies need options.

Procurement leading the way

Increasingly, organizations are looking to their procurement teams to assess risks and gauge the ideal supplier mix in a more turbulent era. However, meeting the challenge will require a wholesale change in how sourcing is done. For example, many still use simple tools like spreadsheets for supplier tracking, which will prove ineffective for mapping networks with complex connections. Moreover, the traditional reliance on personal networks or simple internet searches hinder efforts to increase the breadth of supplier bases. More than ever, procurement needs advanced digital solutions.

Fortunately, artificial intelligence can provide a much-needed boost to procurement’s data capabilities.

How AI sheds light on dark corners

By continuously analyzing millions of data points for indicators that affect your fulfillment and performance, AI delivers companies unbeatable end-to-end market visibility, and so the power to plan and respond as best possible to emerging risks.

AI offers tangible information advantage – not only for new supply needs, but also to qualify data in existing ERP systems, to identify alternative vendors for existing setup suppliers, provide additional data points for negotiations. Similarly, AI can extract data from publicly available sources to fill-in or verify existing supplier maps. Furthermore, monitoring real-time inventory movements can enable organizations to quickly scale orders up or down and avoid the kinds of replenishment issues that plagued manufacturers at the onset of COVID-19.

Technology-enabled, human-led diversification

AI gives teams access to the entire global market, identifying competitive options in untapped supply markets or those visible in different languages. AI search technology rapidly reviews thousands of options worldwide and only curates shortlists that meet optimal parameters for capabilities.

By fast-tracking the initial scouting and discovery phases from months to weeks or even days, teams are free to focus on the tasks that require human expertise and flare, like assessing the trade-offs between proximity, unit and shipping costs, innovation, environmental or political conditions.

Preparing for the next normal

The sun will never really set on globalization. As the pandemic recedes and governments change, the global economy will grow with new characteristics. But recent events have shown that global risk is far greater than we once thought. By using AI to make smart, data-driven decisions, procurement teams can better prepare for the worst, even as they hope for the best.

 

Disclaimer: The opinions expressed are those of the author and do not necessarily reflect the official position of Spend Matters.

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