Around the world, supply chains are under mounting pressure, both internally and externally. Geopolitical conflict, economic pressures, and the climate-crisis are creating an environment where the risk of disruption is almost constant.
At the same time, staffing shortages are exacerbating the fact that the demands placed on supply chain and procurement teams are significantly increasing. A report by McKinsey found that, in 2023 alone, the workload of a typical procurement function increased by 10%. As procurement leaders and supply chain managers fight to drive efficiency and strategic wins for the business amid turbulent times, here are the top 5 pain points we see creating headwinds for the sector.
1. Geopolitical disruption
Shipping in the Panama and Suez canals is at a historic low, as a climate change driven drought and Houthi military action, respectively harm the flow of shipping. Transits along major shipping lanes have increased by an average of 1-2 weeks, with more than 600 vessels chose instead to travel around the Cape of Good Hope to avoid the Red Sea in March alone, according to project44 research.
The war in Ukraine, US and Chinese posturing over Taiwan, and the ongoing genocide in Gaza can all be expected to ratchet up political tensions around the world this year, further raising prices of raw materials, oil, and other freight.
Friend-shoring is becoming increasingly common, as supply chains are relocated to parts of the world that are less diplomatically contentious. However, this process takes time. For example, the US is in the process of divesting its semiconductor supply chain from China by investing in building up the Filipino and Malaysian manufacturing sectors. Nevertheless, this is not an overnight process.
2. Extreme weather
The effects of the climate crisis are only going to get worse. Droughts (like the one in Panama), wildfires, flash flooding, hurricanes, and other extreme weather events are going to not only disrupt global trade routes but interfere with the procurement of raw materials and crops.
Predicting and avoiding extreme weather disruption is a major priority for sourcing teams in 2024. Widespread nearshoring efforts in Europe and North America are seeking to increase procurement resilience by shifting supplier ecosystems closer to home. However, much like the process of friend-shoring to avoid geopolitical tensions, this is not an overnight process. Experts believe it could take between two and three years before moving supply chains closer to home starts to positively shore up procurement resilience. By then, who knows what kind of climate we will be dealing with.
3. Poor quality data
Procurement is an increasingly data-driven field. Increasingly complex supply chains, growing risk of disruption, and greater expectations on procurement teams to be strategic value creators are all intensifying the demand for data.
“Capturing, protecting and then leveraging an organisation’s data through the use of AI and Machine Learning is an example of how organisations are increasingly turning towards intangible assets to extract new sources of value,” noted Ken Chadwick, VP Analyst at Gartner’s Supply Chain Practice, in a report from October.
However, many procurement teams struggle to organise and utilise the massive amounts of data they collect. The massive deluge of data gathered by thousands of IoT sensors, smart platforms, and analytics tools is giving rise to data silos within organisations and poor quality data as a result. Procurement teams must abandon the “more is more” approach to data analytics. Instead, they must prioritise quality over quantity, and successfully tackle their data complexity issues in order to successfully make smarter, more informed decisions.
4. Skill shortages
Labour and skill shortages are hitting every industry. While much of the conversation is focused on the crisis-level disruption caused by a deficit in warehouse and trucking workers for the logistics sector, procurement is feeling the pinch as well. According to a recent Gartner survey, fewer than a fifth of procurement directors and executives believe that their teams contain “adequate talent” to meet the future needs of their organisations’ procurement functions.
Shifting talent requirements driven by the increasingly digitalised and strategic nature of procurement are adding to the problem. Just 4% of procurement leaders told Gartner that no gap existed between their current capabilities and their need for technology and data skills.
5. Maverick spending
If unauthorised spending is unregulated throughout the procurement function, it can throw off budget forecasts. These disruptions are difficult to manage for procurement as they typically originate outside the function itself, typically originating from employees or departments operating beyond procurement’s jurisdiction. This maverick spending, or “dark procurement” is difficult to track and even more complex to reign in.
Creating standardised procurement processes across the organisation is a vital first step. Procurement leaders should enforce strict purchasing guidelines and approval systems. It’s also important to prioritise working with trusted people and companies, both within the organisation and in the supplier ecosystem to avoid corruption.
However, eliminating maverick spend is less an issue of regulation and more deeply rooted in an organisation’s broader culture. Using training, effective communication, and collaboration with other elements of the business, procurement can cultivate good purchasing behaviours within other departments that eliminate maverick spend without turning the whole procurement department into a watchdog.
- Risk & Resilience
- Sourcing & Procurement
