Making Way for Market Volatility: Effective Responses for Procurement Leaders to Lead
2022 was a year of volatility, driven by inflation and the war in Ukraine, and came at the end of a deeply disruptive period for global supply chains. Corporate risk registers filled up as prevailing assumptions about the global economy were challenged. As the world’s manufacturing centre, home to over half the world’s population, and the world’s largest importer of raw materials from fertilisers to energy and minerals, nowhere were these disruptions felt with more force than Asia. As a major commodity exporter, highly exposed to Asian demand, and dependent on manufactured goods imports, Australia was also highly exposed to this pressure, experiencing supply chain volatility as Asian demand see-sawed and supply became intermittent.
The Ukraine war, together with tensions in Asia, especially in the South China Sea, has changed established ways of doing business and put procurement on the back foot. A sellers’ market is not where procurement wants to be and it's not something many industry professionals have endured before in their careers. However, Jennifer Thien, independent Non-executive Director at Jadestone Energy and former CPO at Mars observes that the key questions for procurement leaders are, “How to go from being support, to a function that is adding more value, especially now there are many crises? How to use the crisis to drive your own agenda? How are you leveraging the current crisis to be the platform to shine?”
In this evolving geopolitical and economic context, ProcureCon Asia 2023 will explore how procurement can reorient to overcome current challenges and evolve to form part of the core value proposition for the enterprise.
Turning Tragedy into Opportunity
The changed environment means that procurement organisations are facing fundamental challenges to existing management practices, capabilities and supplier ecosystems. Decades-old business models built upon cost suppression and unit efficiency are under unprecedented strain. For procurement to pivot to a new operating model in this environment may seem both essential and extremely challenging. However, there are several questions that procurement leaders can ask to help reorient themselves and enable their organisations to thrive. These include:
Can we develop our analytical capability to allow us to quantify the size and scope of price changes and supply chain disruptions at a granular level, in near real-time?
Doing so will allow senior leaders to understand the high-impact areas on which to focus their attention. It will provide a granular analytical framework within which to operate and a set of metrics to understand the extent of supply disruptions and the scale of relative and absolute price changes, both realised and anticipated. Developing more advanced quantitative techniques for price forecasting could allow procurement functions to directly add value to the business, as well as prevent the organisation from being taken by surprise by future market volatility.
Do we understand our supply chain end-to-end, including indirect risks, and have we diffused this knowledge across our business to ensure it is factored into all relevant decisions?
Insight into upstream supply chain risk has never been a more valuable part of the procurement process. This relies on a combination of close working relationships, judicious diversification, and the acquisition and use of market intelligence to balance risk and costs in the supply chain. It is essential to ensure that procurement and supply chain information is seen as a strategic asset and shared widely across the firm, and integrated into decision-making processes where relevant. Former Mars CPO Jennifer Thien comments, “As a leader, you need to ensure procurement is included in [your company’s] critical initiatives, to provide perspective on how the supply chain can help them.” For many companies, management of supply chain risk is fast becoming a competitive advantage and core differentiator.
Do we understand the company-wide impact of procurement decisions and are we using all available levers to ensure continuous, cross-cutting cooperation between procurement and the business?
In volatile and uncertain times, it is essential for senior leaders to understand how procurement fits wholistically into the corporate value chain. There are many strategies that can be used to reduce supply chain risk and control costs, from input substitution to supplier diversification, to improved inventory control. Many companies in Asia and Australia are moving to a localisation or nearshoring strategy, sourcing inputs from within the region. However, for any of these to work, it is essential that procurement works closely with departments across the business, from design to finance to manufacturing to project management, to ensure the downstream effects are fully understood.
Can we use technology to automate and streamline the procurement process to reduce waste?
Procurement as an industry has sometimes been slow to adapt to technological shifts. However, the current focus on supply chain volatility acts as a rare opportunity for leaders to make the business case for major investments in supply chain technology, from the advanced analytics we discussed earlier to more prosaic tech. Jag Rewal, Technology Procurement Consultant for BHP, observes, “Procurement tools [allow businesses to] save time, reduce cost and will help transparency. For example, in manual tenders, [these tools can provide] a greater ability to detect risks to probity, where one supplier is given preferential treatment. [They also reduce] risk of capturing information incorrectly… [and allow] fast-tracking of a lot of transactions. But there is no single tool that can successfully solve all these problems.”
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Sessions at ProcureCon Asia 2023:
Hear from the Economists: One year later, what is the state of our economy? Post Ukraine-Russia war, inflation, supply chain disruptions, recession, how is it affecting our industries in Asia? Are we stronger and more resilient now?