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With the global COVID-19 pandemic now in its junior year, procurement professionals continue to grapple with the longer-term business and economic effects that the worldwide outbreak has had on supply chains. From chip shortages to labor constraints to continued supply disruptions for certain production categories, the challenges don’t seem to be subsiding much in 2022. Oftentimes when one problem resolves itself, another quickly takes its place.
Rising costs, inflation and ongoing geopolitical issues like the war in Ukraine are also keeping procurement leaders up at night as they work through the current complexities and begin planning for the future. According to a new Ivalua survey, supply chain disruption as a whole has been “more severe and protracted than expected,” with geopolitical events only serving to further extend the volatility.
One More Year to Go?
For the survey, more than 200 senior procurement executives in the U.S. and UK manufacturing sectors were asked how they were managing their business processes and setting priorities. Supply chain disruption poses more substantive risk than competitive threats by a 2:1 margin, the survey found, only 18% of respondents expect the supply chain crisis to ease by the end of 2022.
Nearly half (44%) of the executives expect the supply chain crisis to ease by the end of 2023. Other key points that Ivalua uncovered include:
- 97% of respondents said they have experienced a significant disruption in their direct materials supply chain in the past year.
- 92% of respondents identified supply chain disruption as a “Top 3” business priority during the past 12 months.
- 84% of respondents look at supply chain disruption as being their biggest career challenge to-date.
- The same number (84%) of businesses see modernizing the manufacturing procurement and supply chain function as an organizational priority today, with a direct impact on reducing risk and ensuring supply chain continuity of direct materials.
- Respondents say the most significant gaps in their current procurement and supply chain infrastructure include a lack of visibility into supplier risk, a disjointed source-to-pay process due to multiple systems and lack of spend reporting.
- Two thirds (67%) of respondents aren’t confident that their existing technology can adequately handle current challenges or those expected in the next three years.
“2020’s global supply chain crisis has extended into 2022, compounded by the current geopolitical events,” said Ivalua’s Alex Saric. “As manufacturing organizations battle today’s crisis and work to avoid the next one, modernizing procurement technology has emerged as a top priority.”
Adopting a Proactive Stance
As they work to restore the much-needed resilience that they’re seeking right now, McKinsey & Co., says companies should look beyond daily “firefighting” and start putting more long-term strategies into action. “One potential response to supply chain problems is to focus on short-term, day-to-day actions, such as expedited delivery services to meet demand or speeding up production by purchasing components on an emergency basis,” the research firm points out in Supply chains: To build resilience, manage proactively.
In the spirit of managing their supply chains more proactively, McKinsey says companies may want to reevaluate any just-in-time (JIT) inventory strategies that could leave them high-and-dry in the event of yet another supply chain shortage. Procurement can play an important role in this mindset shift, and it can also help companies broaden out their supplier bases, detect anomalies before they turn into major problems and shift strategies accordingly.
Some potential measures to mitigate risk include finding new suppliers, redesigning networks, resetting inventory targets, keeping safety stocks and sourcing locally or regionally, McKinsey says. And, gaining visibility into the complete supplier base—not just the Tier 1 vendors—is another good strategy to use right now.
“Many of today’s most pressing supply shortages (semiconductors, for example) occur in supplier sub-tiers, where manufacturers have little visibility,” McKinsey points out. “To achieve transparency beyond the first tier, companies could work to identify suppliers from spending data, N-tier mapping (i.e., knowing what all tiers of suppliers are doing), or both. Prioritize them by their importance to the business and assess their vulnerability.”
