First, let it be said that the human impacts of current global events far outweigh the impacts on commercial trade, but it remains fair to acknowledge that the global supply chain is currently being impacted in ways that we haven’t seen in recent memory.
The COVID-19 pandemic played a considerable part in disruption of the supply chain and we’re still feeling the impact of that. The pandemic resulted in shortages of raw materials, and the conflict in Ukraine has since exacerbated this, given that Russia and Ukraine are significant exporters of a range of commodities. Add this to port disruption, labour shortages, reduced capacity and freight delays and the challenge stacks up
Much has already been discussed about the shortage of Russian oil and gas, but we’re also experiencing a shortage of other raw materials such as ammonia and fertiliser products, corn, wheat, and other crops, as well as a variety of metals and critical by-products such as neon – a key ingredient in microchip production. Shortages have led to price increases for these products, and prices are likely to remain high until the crisis is resolved.
What has been surprising – and what further compounds the effects – is the rate at which demand rebounded in the wake of the pandemic. No-one expected demand to bounce back so quickly, and this has resulted in huge spikes in spending to levels that such disrupted supply chains are struggling to meet.
Volatility is not a new concept to procurement and supply chain. Nor is change. It’s the connected series of recent events that is making today’s challenge feel peerless. It’s not. And procurement is well placed to step up to the challenge and prove it.
How can procurement managers prepare for this ‘new normal’?
Develop strategies that are of their time and that very precisely consider the inputs required to deliver on plan. Cost and margin targets remain greatly significant, improved diversification of the supply base to create greater resilience in the chain can help to achieve them.
Deploy predictive analytics in the business to aggregate supply chain data into a single, connected model that can autonomously predict operational improvements and – more critically – anticipate the next disruption before it happens so that you own your flaws and can do something about them as opposed to the other way round.
Review supply chain design to put the focus on critical parts in the chain – go deep into the sub-tiers to understand which elements present the greatest risk, which are less able to be actively controlled, which supply locations are less connected to the final product site, which logistics routes are most susceptible to volatility, where in the chain is the approach no longer sustainable commercially, socially, environmentally? Meticulously plan for an end state which (a) better serves the business and (b) is supported by a Disaster Recovery Plan that can be actioned the next time a leftfield problem occurs which even improved forecasting couldn’t predict.
Nurture a programme of supplier-led innovation and reward opportunity sharing. Supplier’s often have a range of insights and ideas which are experience-backed, but client’s fail to provide an incubator for these where mutual benefit is actively championed. If there’s a way to improve supply chain dynamics and the supplier brings this to the table – what we’re talking about here is above what may be agreed in standard productivity – then more can be done to bring the ingenuity to bear for the benefit of the business.
The procurement teams who will overcome the current challenges- and be better set for dealing with future challenges- will be those who adapt quickly. Disruption can’t simply be eliminated in full, but increasing the resistance a business has to supply chain shock is in our own hands.
Our advice to procurement managers is to review your existing supply chain now, and get the right support to determine where active and purposeful change is required and use the insight procurement has in the operation to lead on delivering real improvements.