The Macro-Level Issues Impacting the CPO Right Now: Global Conflict « CPO RISING – THE SITE FOR CHIEF PROCUREMENT OFFICERS & LEADERS IN SUPPLY MANAGEMENT

Today’s business landscape is rife with unprecedented global conflicts that Chief Procurement Officers must navigate against. As we explore those examples and their impact on supply chain dynamics, it is critical to weigh potential strategies. Global conflict is our fourth macro-level challenge that CPOs must address as they enter 2023.

During the last few years, CPOs have grown accustomed to supply chain disruption. However, it is the geopolitical nature of these disruptions that is unique. A perfect storm, where alongside the ongoing worldwide pandemic, the Russia-Ukraine War, confrontation over Taiwan, and threats by North Korea, among other conflicts, keep enterprises on a constant state of alert. Real-time monitoring of global conflicts is critical to maintaining viable business and supply chain continuity.

Global Conflict: Global Impact

While several global conflicts exist in the world today, the Russia-Ukraine War is the best example with wide-ranging implications. The war is placing significant pressure on the European Union in terms of manufacturing and shipping from Eastern Europe. The region serves as an outsourcing hub in the same way the U.S. relies on China. The Council of the European Union cites the following as major impacts:

Higher energy prices
Security of energy supply
Global food security and affordability
Border crossing challenges
Airspace restrictions

However, the war in Ukraine is one conflict in a world with several examples of political and social unrest. During the previous U.S. presidential administration, there was a movement against free trade in favor of nationalism. Restricted trade initiatives led to rising economic and political tensions between the U.S. and nations that were trade partners for decades. The harmony and free trade that existed was replaced with greater economic combativeness. When that occurs it only fans the flames of unrest.

Consider the global tensions caused by the existing conflict between China and Taiwan. When China and the U.S. are strong economic partners, it eases pressure on issues related to Taiwan. Currently, the strained relations between the U.S. and China opened the door to a more aggressive approach toward Taiwan from the Chinese leadership.

The social unrest in Iran is another area to monitor as Iranians protest numerous acts against their freedoms by the government, including human rights. North Korea also remains a volatile country that is always pushing the boundaries with its neighbors South Korea and Japan — and its threats against the U.S. Political and social unrest will continue to simmer as governments elect new leaders who have a more antagonistic approach to global relations and citizen freedoms.

Impact on CPOs

The first level of impact on CPOs from global conflict are rising prices for raw materials and commodities in the affected region. Consider the significant reliance on Taiwan for semiconductors and what an invasion by China would mean to numerous industries. Mitigating against such a risk or any other global conflict means procurement teams must be more aware of where their suppliers are based and the associated supply logistics.

CPOs must always be thinking about supply chain agility and resiliency. The ramifications of global conflict are far-reaching — much further than simply where a conflict occurs. Suppliers may be unable to continue operations or ship inventory to customers for days, weeks, or even months. Can your enterprise withstand this type of disruption?

Supply Base Knowledge and Real-time Monitoring

The answer comes down to how well you know your supply chain. Where are your second- and third-tier suppliers based? Are they located in a volatile region like Eastern Europe, the Middle East, or Africa? Supply chain knowledge is critical to monitor potential disruptions effectively. And enterprises must take a broad approach to global conflict. In the case of Russia and Ukraine, the disruptive toll on the European Union is immense. Supply routes through Ukraine into bordering EU countries have closed or are severely delayed.

The solution? In some cases, investing in real-time monitoring technology can provide the broad stroke needed to remain alert and respond proactively. Also, do not overlook free tools like the Global Conflict Tracker that highlights all the major global conflicts, their impact on the U.S., and recent news stories about the latest developments.

In more extreme cases, it is necessary to diversify the supply base through reshoring or nearshoring to ensure supply chain continuity. Even if it is a small percentage of overall production, it can be crucial to fulfilling customer orders during a disruption. Examine the supply base and determine where a backup supplier could be a strategic investment.

Prior to a few years ago, CPOs and their procurement teams were focused on the last quarter’s performance, purchase price variance, and shipping lead times. Today, there are dozens of global conflicts with overarching implications lying under the surface. Thus, there has never been a more appropriate time for supply chain mapping and real-time monitoring. Engage with your global suppliers and educate yourself about their region. Be proactive in these discussions because anything less is too late.