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Tariffs, Political Crises, and Cost-Cutting, Oh My!

A new Deloitte survey finds that CPOs are facing a challenging global business landscape and reacting accordingly, yet most are unprepared to tackle these challenges head-on.

The global trade wars, tariffs, political uncertainty, and the ongoing need to cut costs drove a host of new challenges for chief procurement officers (CPOs) in 2019. The pressures aren’t likely to let up in 2020, and in fact may be compounded by an onslaught of new hurdles coming around the next corner.

According to the “Deloitte Global Chief Procurement Officer Survey 2019: Faced With Economic and Trade Threats, CPOs Pressured to Cut Costs”, the complex role of the CPO is facing emerging economic and political risks in every direction, and all while feeling pressured to cut costs along the way. This year’s survey saw a spike in responses not previously top of mind: a potential economic downturn and the “trade war”. External risks are gaining the attention of CPOs, even more so than continually pressing internal risks, like digital transformation.

More Digital, Please

Thinking digitally, CPOs are focused on analytics, while AI and blockchain—technologies driving the Fourth Industrial Revolution (Industry 4.0)—are of little focus and are not being utilized at scale, Deloitte reports. “From goods to services, to equipment and more, external supply markets were already complex,” it points out. “However, when coupled with digital transformation and expanding geopolitical risks, procurement has become more complex than ever before, and ever more important to organizations at large.”

What’s more, only 39% of respondents feel prepared “to a large extent” to combat and navigate these risks, while only 5% feel “completely” prepared. “Faced with an unprecedented amount of uncertainty, today’s CPOs are pressured to form contingency plans and enlist the help of the larger C-suite in becoming masters of complexity who can weather these risks,” Deloitte reports. “In fact, the CPO may be seen internally as a leading expert on uncertainty, raising the stakes for the role as it becomes increasingly strategic and higher profile to executive leadership.”

Planning Ahead in a Dynamic Market

Deloitte also says CPOs are planning for a potential economic downturn in the next year or two (both at home and abroad), with 46% of survey respondents identifying this as a top risk impacting procurement. Also top of mind are several geopolitical issues, including Brexit; weakness and/or volatility in emerging markets and the Middle East; and spillover effects from the slowdown in China.

“These are considerations that are only growing in attention from CPOs—no matter where they’re based,” Deloitte adds, “and they continue to underscore the increasingly global nature of the modern CPO role.” To help CPOs offset these and other challenges, Deloitte tells them to take these three steps:

  1. Develop playbooks and contingency plans to address the most pressing risks. The best thing CPOs can do is to be proactive. Make an honest assessment of their organization’s exposure to various risks and develop playbooks for addressing them. Deloitte says the starting questions should include:
  • What are the key failure points in our supply chain, and how can these be mitigated in the event of a disruption?
  • What are the measurable risk thresholds (e.g., price increases) that need to be defined?
  • What indicators do we need to track to assess the likelihood of each risk coming to fruition, and what action will we take in the event it does? 
  1. Evaluate structural changes in your supply base that could reduce risk exposure. CPOs need to evaluate the global value chain their organization relies upon to determine whether they can increase the security of their business and their trading relationships. If their organization has previously moved operations offshore, they can consider whether there is an opportunity to leverage changes in the marketplace to re-shore and not only potentially save money, but also reduce risk exposure.  
  2. Explore the potential of dedicated supply chain risk management solutions. While risk management is a growing priority within procurement, adoption of tools to address it lags behind core procurement technologies such as procure-to-pay, Deloitte points out: “Emerging risk management tools capable of mapping a complete supply network (beyond just Tier 1 relationships) and developing customized risk profiles for various risk factors can be used to make an honest assessment of an organization’s supply base and encourage cross-functional planning needed to mitigate external risks in a dynamic environment.”

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