How Procurement Leaders are Managing Geopolitical Risk
As conflict in the Middle East escalates and uncertainties loom over trade policies ahead of the US election, it should be no surprise that geopolitical factors are among the biggest concerns for procurement and supply chain leaders.
This reality is highlighted by two separate surveys featured in GEP's Supply Signals newsletter.
In a recent survey by the Chartered Institute of Procurement & Supply (CIPS), a global body of procurement and supply chain professionals, executives were asked about the likelihood of supply chain shortages, spend categories that might see disruptions and/or shortages and their impact on input prices.
Participants highlighted a number of spend categories susceptible to shortages and price increases: food products and beverages, paper and paper products, coke and petroleum products, chemicals and chemical products, computers and peripheral equipment, electrical machinery and apparatus, and shipping and logistics.
Around 52% of procurement and supply chain leaders chose geopolitical risk and political uncertainty when asked what could cause potential shortages in the next 12 months.
The polycrisis
Earlier this year, tech giant SAP published a feature looking at how companies are using AI to better analyse and manage their spending.
The feature discusses the current procurement market, which, marked by geopolitical conflicts, energy crises and climate challenges, has been dubbed a 'polycrisis' by experts.
This crisis has led to fragile supply chains and volatile markets, both of which struggle to adapt to demand changes. To thrive in such times, companies must reassess their business models, with a focus on expense management, strategically controlling and optimising all expenditures.
Expense management reveals daily spending across various areas like office management, production and logistics, enabling effective analysis, documentation and management. Digital spend management solutions offer transparency and visibility, identifying risks faster and enabling proactive resolution. They also make CO2 emissions transparent, empowering decarbonisation efforts.
Walter Sun, Global Head of AI at SAP, says: "AI technology is changing the way supply chain and procurement teams function, releasing them from mundane and repetitive tasks. Its impact on productivity has the potential to add trillions of dollars in value to the global economy.
"Generative and predictive AI can help procurement and supply chain teams forecast disruptions, identify alternate sources of raw materials, detect errors in invoices, extract relevant data from requests for information and predict shipment and delivery times."
Anticipating disruptions
Another survey, carried out by Economist Impact, found 63% of executives flagged macroeconomic uncertainty and geopolitics as major supply chain disruptors.
This represents a drastic rise from 2022, when only 29% expressed concern over these issues.
What's more, 55% of respondents anticipated significant supply chain disruptions.
To deal with this, procurement and supply chain leaders who spoke to CIPS listed the following three strategies:
- 69% are diversifying the supplier base
- 59% are extending contracts
- 42% are going for insourcing
For those who took part in the Economist Impact survey, the goal is to build resilience rather than merely manage crises when disruptions occur. This entails stress-testing supply chains, deeper supplier collaboration and faster technology adoption.
In fact, boosting resilience and security are the primary reasons 63% of executives are incorporating Gen AI into supply chains.
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