Best Practices to Drive Success in Structural and Regulatory Uncertainties
Introduction
Years of surging economic growth came to a halt in 2020, to be replaced by volatility and a range of regulatory and technological risks, leading to uncertain times for Asian procurement. Regulatory risks to supply chains continue to grow and evolve. A short list of the major regulatory hurdles challenging procurement leaders today includes investment restrictions, export controls and technology transfer prohibitions, changes in import tax policy, trade sanctions and protectionism, and data privacy regulation. As the hub of global manufacturing and supply chains, as well as the focus of US-China tensions, these challenges are felt especially strongly in Asia.
While the regulatory uncertainties may dominate headlines, it is the structural uncertainties in procurement whose effects will continue to be felt long into the future. Structural uncertainties are created by rapid technological change that is disrupting business globally. From ChatGPT to electric vehicles, the pace of technological change seems to be accelerating. While mishandling structural uncertainty represents a substantial threat to all businesses, for those able to make their supply chain part of their core value proposition, it represents a potentially game-changing opportunity.
Structural uncertainty
One of the primary ways in which businesses are seeing to overcome supply chain uncertainty is by use of cutting-edge technology. The rapid growth of artificial intelligence (AI), machine learning (ML) and ‘big data’ more generally over the past decade has recently begun to filter into procurement planning and supply chain management tools.1
AI and big data could transform the supply chain risk assessment and mitigation process. Walter D'Avolio, VP, Strategic Sourcing & Procurement, Cochlear said, “Digitalization will help increase visibility around digital methods to get early warning signs of supply chain risk and mitigation.” It is now possible for real-time monitoring of news, social media, weather reports and other information sources and identify potential supply chain disruptions as they are reported.
More prosaically, big data technologies offer the opportunity for firms to get on top of one of the most intractable problems in the supply chain – the systematic analysis of spending data on a near real-time basis. For the procurement division of a major corporate, managing potentially hundreds of thousands of items from suppliers around the world, simply aggregating and processing such data is a large and often very manual undertaking.
The use of robotic process automation (RPA) tools can eliminate manual process management of the kind that is still common in procurement. For example, this could include the automation of large parts of the tendering process, or the elimination of time-consuming, error-prone manual copying and data entry tasks. Additional opportunities in this area include the use of Internet of Things (IoT) enabled sensors for asset tracking and real-time routing of containers or high-value items. Soon it may be possible to use such sensors on individual items. This data could be very valuable in dispute resolution or insurance claims.
While advocating for the use of digital tools, Kearney emphasises the importance of focusing on the human side of the digital transformation equation – sometimes called change management.2 Technology will be unable to effectively control costs, increase revenues or reduce risks if staff buy-in is not forthcoming. The workforce must be closely integrated into the roll-out process and be provided with training to ensure they are made aware of how technical solutions can be used to improve their workflow. In many instances, the digitization process should be staff-led. If technologies are imposed from above by management diktat, they are unlikely to be successful.
Regulatory uncertainty
Category management is one of the core ideas that has driven the supply chain efficiency gains of the past two decades. By offering a strategic approach to the supply chain, category management can provide a useful framework for managing regulatory uncertainties. If executed well, the category management process will allow procurement teams to prioritise by identifying the highest-impact issues on which to focus their time. The category management process should also provide information on appropriate risk management across different categories in the face of regulatory change. However, given the mushrooming regulatory challenges faced in recent years, it is possible that the category management concept may need to be modified and updated for the times. In future, firms may need to ensure they more explicitly integrate regulatory compliance into the category management system.