Current Events Impacting Procurement
By Hugo Britt | October 13, 2022
Procurement and supply chain management would be a lot easier if the function existed in a bubble, but it would also be a lot less exciting. Purchasing strategies are impacted by geopolitical events, buffeted by shipping delays, stretched by inflation, and made obsolete in an instant by black-swan events such as the Suez Canal obstruction or (of course), a global pandemic.
In other words, procurement is at significant risk of disruption, but this risk can be mitigated through a combination of strategies.
Current events impacting procurement around the globe
Una’s Senior Director, Kris Lance, is a frequent guest on The Sourcing Hero podcast. A self-described “optimist with a raincoat,” risk management is a topic close to Kris’s heart.
Below, we share three of the current events he believes are having a major impact on procurement, and advice on what can be done to mitigate their impact.
Food shortages
The last couple of years have truly been a very exciting time to be in supply chain. Macro events like the war in Ukraine to bird flu impacting chicken production and India halting several exports all impact supply chains exponentially.
“When you look at [food supply challenges] on top of the cost of diesel or sunflower oil being tougher to come by because of geopolitical issues, it really does make for the perfect storm,” says Kris. “With the supply chain already on its heels from the last two years, it’s not necessarily a good sign as far as food availability.”
Unless solutions are found for the issues impacting food supply, Kris believes there’s a good chance of consumers being impacted in the near future. Restaurants with little or no buffers will be forced to pay higher prices for ingredients and pass those on to customers, while grocery retail prices could rise dramatically for in-demand foods. “People are going to start to see this hitting them in their wallets, hitting the choices that they make, and changing their consumer behaviors.”
Kris speaks about the importance of considering every risk scenario to plan effectively. “We need to start being comfortable about being uncomfortable. Instead of white-boarding out what a strategy would be and everybody high-fiving and saying this is how it’s going to play out, I think we need to do a better job at playing devil’s advocate and saying, ‘What could go wrong here? What’s the likelihood that it does? If it does, what do we do about that?’”
Mitigate this risk by:
Splitting volume or diversifying across suppliers and distributors.
“Everybody typically has at least a couple of favorite [suppliers] they prefer to work with, but when it comes down to running the business, make sure that you have multiple areas or relationships that you can tap into to get the product that you need,” says Kris.
Source locally
“Protect your organization from global supply shocks by forming partnerships with local suppliers, small and medium businesses that still have their doors open.”
Inventory management
“If you’re able to order ahead, look into which fresh foods can be frozen and stored.”
Bring in support
Una has contracts and connections with the leading food distributors in the nation, along with a network of food experts who can help guide businesses through supply chain disruptions and product shortages.
Energy costs and availability
According to NAERC (North American Electric Reliability Corporation), two-thirds of the nation should expect some sort of a blackout over the summer.
Kris questions the impact of rolling blackouts on the large portion of workers who are remote. “Do teams know how to communicate remotely if someone’s at home and there’s some sort of an outage?”
“Whether it’s food, medical, manufacturing, and especially technology businesses or organizations, I don’t think there’s been a point in time that we haven’t been more reliant on energy,” says Kris. “That said, most industries already have redundancies in place to prevent meaningful impacts to production.”
“Energy across the board is just costing more. While the numbers are staggering, it’s not even close to what I believe Europe is experiencing on an incredible scale. [Compounding factors] are going to contribute to deepening some of these fuel shortages. For example, a lot of independent diesel truck drivers are parking their trucks because the amount of money that they’ll make versus what it’s just going to cost them to operate doesn’t make any financial sense.”
At the same time, increased freight costs due to higher diesel prices lead to knock-on price increases for all sorts of things bought and sold across our economy.
While there’s no clear answer in the short term for spiraling energy costs, procurement and supply managers can protect business continuity and keep costs down by diversifying spending amongst suppliers.
Una can help by providing our members access to hundreds of contracts where they can assess factors like shipping costs and technology solutions.
The Inflation Reduction Act
There’s plenty to talk about in the Inflation Reduction Act, but Kris zeroed in on the minimum 15% tax on corporations. “Big businesses – especially in food – often need to pass price increases through to consumers,” he told host Kelly Barner. “This can be very damaging when we’re already dealing with heavy inflation.”
The Act is expected to have dramatic impacts on small businesses, but Kelly warned against making assumptions about what a “small” business entails. “When we talk about small businesses, we have a rough notion about a local landscaper or a favorite pizzeria. But the definition of small businesses runs into millions of dollars in revenue per year.”
Like the CHIPS and Science Act, much of the Inflation Reduction Act is aimed at reshaping global supply chains. For example, the incentive designed to boost the uptake of electric vehicles contains made-in-America rules that disqualify many automakers including Hyundai and Toyota. But in the longer term, it aims to encourage the reshoring of critical manufacturing including lithium-ion capacity.
Una can help businesses mitigate the risk that flows from new regulations by helping you decipher the impacts and work together with your business’s best interests in mind. Additionally, we can connect your organization with those “small” (or not-so-small) businesses to help offset the impacts of inflation.
To learn more about how Una can help offset some of the current events impacting procurement, check out our full resource center dedicated to empowering sourcing professionals.
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