Data in the Time of Chaos: Procurement Strategies for Supply Chain Resilience

May 15, 2024

Rising geopolitical tensions, climate change and global commerce disruptions are making the jobs of chief procurement officers harder than ever.

According to Deloitte’s 2023 Global CPO Survey, more than 70% of CPOs reported an increase in procurement-related risks and supply chain disruptions over the past year. Inflation and supply shortages were identified as the most pressing challenges, with leaders marking these as “the top two issues that had high or moderate impact over the past 12 months.”

CPOs can’t predict the future. But they can invest in procurement technology that allows them to anticipate market changes, respond proactively and make decisions that result in strategic, high-value outcomes.

Deloitte’s findings reflect the state of play for business leaders who have to manage procurement and supply chain risk within strategically important regions.

Since November, 2023, Houthi rebel attacks on shipping in the Red Sea and Bab al-Mandab Strait have resulted in more than 90% of shipping being rerouted through the Mediterranean Sea or around the Cape of Good Hope, adding 10-14 days and hundreds of thousands of dollars in fuel and insurance costs.

The Russia-Ukraine war has increased food insecurity in Africa and the Middle East, which depend on “the breadbasket of Europe” for its grain. Prior to 2022, Ukraine exported more than 60 million tons of grain, or 10% of the world’s supply. After the invasion, exports dropped by more than 75% to just 13.5 million tons.

Climate change is also disrupting the global economy. Drought conditions in the Panama Canal Zone have reduced water levels in nearby lakes to the point where daily ship passage has been steadily reduced from around 38 ships to just 24.

Together these crises are putting procurement and supply chain operations at risk. Spend categories, operations, business continuity, revenues and profits are all on the line. If a company can’t reliably source or ship commodities, materials and products, then its markets are at risk of collapsing.

Tackling the Data Challenge

A strategic, data-driven approach is necessary for managing procurement and supply-chain risk and driving enterprise resilience.

Tasks for procurement leaders include identifying vulnerable spend categories and suppliers, then securing alternatives from safer regions. Many procurement teams, however, find themselves ill-equipped for this task.

According to a recent survey of 181 global procurement professionals, key barriers to gaining total spend visibility include:

  • Lacking real-time procurement-data refresh capabilities (75%);
  • Too many data sources, data silos, and incompatible systems (49%);
  • Inconsistent processes and reporting (44%);
  • Incomplete data or poor data quality (35%), and
  • Lacking internal resources (32%).

It’s clear that a big chunk of procurement teams is struggling to break down barriers to access, centralize, standardize and analyze the data needed to predict and proactively manage risk events. As a result, 75% of respondents doubt the accuracy of the data they present to stakeholders. Likewise, 79% of non-procurement executives are either only “somewhat” confident in the data (they don’t fully trust it to make strategic decisions), or not at all confident in it.

There are ways that procurement teams can overcome these barriers to gain end-to-end spend visibility, then use it not only to manage procurement risk, but also to drive procurement performance — in other words, to go beyond surviving to thriving.

A Data-Driven Approach

CPOs and their teams need tools that can alleviate the data chaos headache. Traditionally, this effort needed to be taken in phases, but through a combination of artificial intelligence and advanced analytics, they can realize the benefits of real-time and deeper insights into spending patterns, procurement initiative status and supplier performance.

By using AI-driven spend intelligence tools, procurement can abreak down silos between business units, centralizing spend, supplier and category data within a single repository. From there, they can categorize, cleanse, enrich, and analyze spend data at superhuman scale, answering key questions such as:

  • How much spend have we allocated to high-risk suppliers in high-risk regions? To suppliers operating in Texas? To those shipping through the Panama or Suez canals?
  • Which business units, spend categories and suppliers are most affected by disruptions? Are these mission-criticalHow will they be impacted? What are the lead times and timelines to impact?
  • What are our options? Do we have reserve or safety inventory on hand? Can we source from alternative suppliers? Can we substitute alternative materials or products? 

Procurement teams can pull in these insights to respond to potential regional developments, such as the war in the Middle East spreading to other waterways, or the Panama Canal reducing daily passage even further. By having this insight, automatically refreshed with little human input and touchpoints, CPOs can speed up decision-making and decrease the chances of manual intervention introducing human error.

AI-enabled spend intelligence lets businesses make decisions faster and more accurately. Companies can tap emergency stocks and implement contingency sourcing plans with alternative suppliers or carriers. They can also help the C-suite initiate long-term reevaluations of the company’s sourcing strategies, like investing in more domestic manufacturing capacity.

Boosting Procurement Performance

The ability to acquire accurate spend intelligence in real time aids businesses in hitting both financial and non-financial targets, such as decarbonization, fair-trade certification, and supplier diversity.

Procurement performance management (PPM) tools enable teams to centralize procurement projects within a single platform, so that they can manage the results with total transparency. For example, they can track initiatives that cut total supplier carbon emissions, reduce dependence on non-renewable energy sources, or ensure that 100% of their supply chains shun modern-slavery practices.

PPM is underutilized in the procurement solutions market today, with just 21% of procurement teams using dedicated tools to enhance performance reporting and project management. Alarmingly, 74% still use spreadsheets to track performance indicators and metrics. There’s significant potential for procurement teams to up their PPM game.

Business disruptions occurring halfway across the globe are often out of our control. It’s what we do with the knowledge we’ve gained, and the options we have, that determine how these disruptions will impact us. To optimize decision-making, procurement teams can embrace advanced analytics, including AI-driven spend intelligence and PPM technologies, to overcome disruptions and achieve true resilience.

Pierre Lapree is chief product officer with SpendHQ.

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