On March 11, 2020, the World Health Organization officially declared Covid-19 a pandemic. Almost three years later, the world’s supply chains—now globally infamous for disruption— continue to be walloped by ongoing Covid-related issues (see: China), geopolitical conflicts, extreme weather events, cost inflation, and the standard list of the “unforeseen”; all of which will have an ongoing impact on the movement and availability of goods throughout 2023.
Despite the upheaval, this year and beyond, procurement leaders and supply chain professionals have been commandeered with broader organizational initiatives to extract value, not only for shareholders and short-term profits but also for the good of the planet, employees, and the long-term prosperity of the business. Those quick to leverage technology to holistically manage risk and build agility will remain at the forefront, pioneers of proactive, digitally-enabled, insights-driven supply chains that have the power to change—if not save—the world.
As we begin 2023, the need for sustainability, along with the certainty of inflation and supply chain disruption, have become so widely accepted that they are consistently not only topping the predictions lists but acting as the driving force behind each of the trends.
Amid the constant pressures and unrelenting challenges, those in the hot seat will have the following critical supply chain trends to manage. However, it is their ability to exploit these opportunities that, in the end, will be their differentiators.
Let us look at where you may find some opportunity areas to secure advantage in 2023.
figure 1.
As consumers, in large part, continue on the path of buying from and working for ethically responsible companies, and lawmakers begin to get involved in regulating sustainability, enterprises the world over continue to commit to net-zero operations by 2030 and are looking to procurement and supply chain executives to lead the charge. As many now know, Scope 3 (emissions generated up and down the value chain) accounts for 80 percent of a company’s overall climate impact.
So, it makes sense that procurement would be at the helm. However, it is not just sustainability that leaders need to concern themselves with, but ESG as a whole.
In figure 1. above, Roland Berger highlights the various sub-dimensions purchasing managers need to be aware of to achieve sustainable procurement. While there are many sub-dimensions to get right, actively pursuing and factoring them all in is crucial to achieve ESG goals.
According to PwC’s Global Consumer Insights Pulse Survey, ESG concerns influence half of all consumers. “Interestingly, though, social and governance factors, such as a commitment to human rights and diversity and transparency in business practices, seem to be more of an influencer than environmental factors when it comes to purchasing decisions.”
The ability to measure and reduce Scope 3 emissions is now imperative, as is #2 on our list.
figure 2.
Driven in equal parts by the need for resilience, sustainability, and responsible, ethical end-to-end sourcing, supply chain visibility has skyrocketed up the list of corporate priorities. Companies have made many commitments. However, they have quickly come to the realization that keeping those commitments will pose a challenge, as are meeting the demands of consumers and investors asking for transparency.
Gaining supply chain visibility, with the help of digital technologies, is but the first step in closing the gap between commitment and action. Currently, few consumer product companies can barely see under their own hood, never mind their suppliers.
A SAP survey shows that in terms of the sustainable sourcing of raw materials, just 49% have “significant or complete visibility” into their own processes. This number dwindles down to 21% when it comes to supplier processes. As for the ethical sourcing of labor, the numbers are 49% and 14%, respectively.
figure 3.
The global pandemic and ensuing supply chain disruptions, now further exacerbated by political strife, labor shortages, inflation impacts, and extreme weather, to name only a few, have highlighted the need for supply chains to be modeled for agility and resilience.
Gaining the ability to sense and respond to disruption and limit its impact stands as one of today’s largest competitive advantages, safeguarding your service levels, profits, and continuity of business.
Resilience and agility are built by mitigating risk and shortening time-to-action. Fostering a risk-aware, action-oriented culture of proactivity must be driven by the top down, requiring organizational alignment, communication of priorities, and an engaged and empowered workforce.
figure 4.
Procurement has made significant strides in the boardroom and around the globe. Finally, as CEOs and CFOs look to procurement leaders to help drive bottom-line growth, nurture vibrant ecosystems that foster innovation, and gain traction on larger, broader organizational objectives such as ESG and resilience, procurement has gained a much-earned seat at the proverbial table. Now, it just has to stay there.
Safeguarding the continuity of business and managing risk during volatile times and upturned markets is, to say the least, a challenge. Further still, moving beyond a tactical, cost-focused approach to strategically build resilient, agile supply chains requires a shift in mindsets, more democratic processes, and digitally enabled collaborative environments that empower progress across the long list of value partners, actors, and stakeholders.
Throughout 2023 and beyond, leaders must work to extract maximum value for all areas of the business and help create a prosperous enterprise that values its people, partners, and planet. This brings us to #5.
figure 5.
Now that risk management, resilience, and the need for innovation and more sustainable practices are firmly implanted as long-term, non-negotiable priorities, a more collaborative, value-centric outlook on Supplier Relationship Management (SRM) has made its way into the mindsets of stakeholders and shareholders alike. That is not to say, of course, that cost does not remain a top concern.
However, a more nuanced and transparent approach contingent on innovation and continuous improvements is taking hold, allowing procurement and supply chain leaders to drive engagement and proactivity throughout the chain. Through building progressive, purpose-driven partnerships, leaders can foster productivity and deliver transformative value and responsible profits that can withstand competitive and customer pressures.
As material access continues to be a challenge and leaders are tasked to deliver on digitalization and ESG (while fighting the war on talent), they are encouraged to recognize the potential that lies within their supplier base. By abolishing the dated siloed mentality and resetting supplier expectations, CPOs are securing supply, aligning objectives, and finally nurturing the kind of win/win partnerships that have long since been spoken of yet, in reality, rarely transpired.
figure 6.
Moving through 2023, leaders would be prudent to hark back to this classic framework. Developed in 1960 by Harold Leavitt, the PPT framework works on the premise that organizational change requires the careful balancing of three inputs: people, process, and technology. Like a three-legged stool, if any one element is disproportionate to the others, it will cause imbalance, and the stool will topple over. By managing the relationships between people, processes, and technology, the framework helps to identify and find solutions to areas of imbalance.
For example, if an organization’s processes are too convoluted and cumbersome, leading to errors, this will have a negative impact on its people (by consuming too much of their time and effort) and technology (which will only serve to perpetuate any underlying problems). The solution, therefore, is to simplify and streamline processes and bring them back in line to enable and not overpower the people and technology. The inverse can also be true. A company could have well-designed processes and highly skilled people. But if their technology is outdated and does not keep up with today’s demands, then the people and processes will suffer and find themselves at a competitive disadvantage.
Good employees want to work for progressive companies that enable and empower them to drive change. As demand for procurement talent outpaces supply, PPT is a valuable tool that can assist leaders in creating the kind of forward-moving environment that attracts and retains high-caliber talent. Therefore, ensuring the right skills are present within your organisation, the right systems, and the right tools are critical to succeed in today’s market.
figure 7.
Simply put, digitalization is the only way to enable the level of sophistication organizations must aspire to. Agility, resilience, and supply chain transparency cannot be achieved without it. Various focus areas exist where digitalization can drive value, such as above in figure 7., supplier risk management and sourcing are key areas where senior procurement leaders believe digitalization will contribute the most.
Current supply chains are intricate global networks dispersed through a myriad of continents, countries, languages, and time zones. Projects that span the supply chain, regardless of the actors or the objectives, require cross-functional and cross-company connectivity and collaboration, automation, and supportive insights-driven data.
But before we step outside, garnering improved visibility, either internally on spend, or into the Nth layer of the supply chain, for many, will require new technology as well. Enterprises are often built through small acquisitions over time. This has led to disparate systems and opaque spending practices, reported through spreadsheets and monthly reports. These information siloes have long since stifled organizations’ ability to optimize their purchasing power, identify synergistic opportunities and realize efficiency gains.
The roadmap to a digital supply chain may be a long and complicated one, but this, ultimately, will be the largest differentiator of all.
figure 8.
Given the abovementioned trends and opportunity areas, the fundamental decision of where and what to buy comes to the forefront. Shifts in nationalism, conflicts across the globe, and rising political tensions have made many purchasing managers critical of the benefits of global sourcing, however opportunities still exist. When looking at the top global exporters, various winners, losers, and challengers are amongst the top 30, with China remaining at the top spot, followed by developed markets such as the US and Japan. Developing markets however are increasingly growing their competitiveness for the top global spots, with countries such as Mexico, Vietnam, and Poland growing their positions in recent years.
Global markets present opportunities but also challenges for sourcing choices. Where, what, and how to source globally is a complex process that requires the right partners, the right market intelligence, and the right category decisions. Across industries, from mining to FMCG, the right choices in where to buy, as well as what to buy from those markets will be critical for the coming year and beyond.
When it comes to access to supply in 2023, the only thing for certain is continued uncertainty. Organizations should be prepared for waves of unplanned disruption, supply constraints, and pricing volatility. It comes as no surprise that those in manufacturing may see limited access to everything from spare parts to critical MRO inputs.
Meanwhile, FMCG companies may deal with simultaneous challenges, as the recession leads to a pullback on demand, causing inventory bloat on some items, as supply chain disruptions and logistical constraints lead to shortages on others. As has been for the last few years, remodeling supply chains for resilience and learning to pivot will be critical to minimizing impacts and maintaining efficiencies.
Managing growth expectations hand-in-hand with the laundry list of corporate objectives tasked to procurement and supply chain executives in this economically and socially volatile environment is no easy feat. There is no doubt, however, that teams who are able to astutely observe and discern relevant market trends, have structures and systems that lend themselves well to agile change management, and have a winning company culture of resilience and innovation would be able to better navigate this challenging environment.
Axis Group Global Procurement & Supply has supported various projects and operations worldwide for over 20 years. Our solutions are truly integrated and span the entire international value chain from source to final supply – including analytics, sourcing, procurement, supplier performance management, quality management, inspection, expediting and logistics.
If your project or operations are challenged by unacceptably high costs, extended lead times or risk, we can provide additional capability. Reach out to Axis Group International in Australia, Asia, or Africa at solve@axisgroup-international.com or call +61 483 386 118.
