Procurement concerns in 2024 look different than those in 2023, explains HSBC in a new report, At the top of the list is geopolitical uncertainties and tensions which the report notes have “never had a greater potential to wreak havoc on trade flows.”
Carlos Mena, Nike professor of supply chain management at Portland State University’s School of Business explains, in the report: “There’s nothing new about either geopolitical uncertainty or long, globe spanning supply chains – think back to the long histories of trading in tea, coffee, rubber, spices or cotton.What’s different is that those long supply chains now embrace many, many more products – often with a lot of interdependencies, as with the components in complex pieces of machinery.”
Due to this complexity, procurement teams need to rethink their approach to sourcing. The report offers advice which includes taking the following steps:
- Focus on building supply chains that are more resilient to geopolitical tensions and potential disruption
- Try to avoid sourcing from economies where trade disruption and trade frictions are likely
- Pay closer attention to the domicile of key suppliers
- Source from markets closer to home which results in shorter and simpler supply chains
- Move away from sole sourcing
Marissa Adams, HSBC’s regional head of global trade and receivable finance for the Americas offers a four-stage risk assessment and remediation process.
Take a risk-based approach to sourcing analysis
Rather than reviewing threats by tier, stock-keeping unit or category, focus on those areas in which the organization is most at risk, or where the biggest dangers lie. Often, these areas will be associated with specific regions or countries.
Analyze the consequences of supply disruption
Estimating the likelihood of disruption is difficult – but exploring the likely consequences of any disruption is not. Which products or product groups would be impacted? How quickly? For how long? Are any substitutes available? What might the financial consequences be?
Review the options available to help avoid disruption
What other suppliers exist? Where are they located? Do they offer the same product, i.e. like-for-like? How viable are they in terms of scale, technology maturity, time-to-market and quality? Do you need to locate one, two, or even more alternative suppliers?
Repeat this process as necessary to avoid new and emerging risks
If recent history has taught us anything, it is that the world doesn’t stand still: new geopolitical threats and uncertainties arise over time. Your product offerings and supply base evolve. Repeat the exercise as new threats and vulnerabilities emerge.
