What Are the Biggest Procurement Risks Going Into 2023?

In light of recent events, it seems as though procurement teams across the globe can’t catch a break. 

The aftershocks caused by the Covid-19 pandemic, geopolitical instability as the result of the Russia-Ukraine war, and the constant threat of cyber attacks are just a few of the unforeseen events that have led to major disruptions in the global supply chain. 

In an era of rapid change and uncertainty, businesses need to adapt to the unpredictable by finding tools and strategies that allow them to remain resilient. 

Learn what procurement risks are and read through the three procurement challenges you can expect in 2023 and a few tips for how to stay ahead of them with examples.

Stay resilient in times of uncertainty

Geopolitical conflicts 

Conflicts in the geopolitical landscape have put procurement teams on edge as wars, trade restrictions, and sanctions threaten the functionality of the global supply chain. 

China accounts for 28.7% of the total global output for manufacturing. As COVID policies change, responses to outbreaks in the form of lockdowns continue to affect key industrial centers and manufacturing capitals. 

The Covid-Zero policy has led to a global shortage of raw materials, chips, smartphones, PCs, EV components, and more. Businesses around the world that rely on labor arbitrage or distant global sourcing are now compelled to find alternative suppliers or move away from offshore production. While this will prove beneficial in coming years, the long runway needed to implement these changes mean delays will continue in the short term.

Worsening the situation is the Russia-Ukraine war which disrupts the movement of commodities like auto parts, oil, and grain. According to a report by Dun & Bradstreet,  more than 600,000 businesses worldwide rely on Russian and Ukrainian suppliers, 90% of which are based in the US. 

Trade restrictions due to the war have forced supply chain managers to find new avenues for these products. Needless to say, doing so is no easy task amidst growing global tension. 

Staying ahead of the sustainability curve 

With unequivocal evidence that Earth is warming up at an unprecedented rate and clear signs of climate change, tackling carbon emissions has become a priority for different government bodies. 

Environmental, Social, and Governance (ESG) policies have been established to help companies reduce their carbon footprint. 

How does this affect procurement?

Manufacturing and shipping will meet new regulations that require compliance. Failure to meet new expectations will result in fines and other penalties. This, of course, affects those receiving services and shipments from offshore partners, too.  

Data collection and storage are also on the docket for green initiatives. Companies are urged to utilize standardized data gathering methodologies to demonstrate annual improvement in their operational carbon intensity. They also have to use the Carbon Disclosure Project (CDP) platform to reveal their data, rather than using their own reporting.

Businesses using legacy systems and disparate data collection methods will severely lack visibility into their supply chain operations and may struggle with reporting and compliance while also failing to identify other areas of their business where improvement opportunities lie. 

Cyber threats 

Your business operates using precious data every day. Aside from important contracts, invoices, and financial accounts, employee information is kept in-house, too. 

This leaves everyone involved at risk of cybersecurity threats. But where do cybersecurity threats come from?

Planned cyberattacks can be executed by both individuals and organizations who have their own financial or political agenda. The primary goal of these attacks is for:

• Financial gain—direct theft or encrypting sensitive information and asking for a ransom.
• Reputational damage—tarnishing the brand image of a company to cripple customer loyalty and eventually sales.

Depending on the size of the damage, businesses can take years to recover. 

How to keep up with new risk factors 

Establish strong contracts with supplies 

The benefits of reliable suppliers manifest themselves in the form of reliable shipping, pricing agreements, and courses in action when services are disrupted. It’s vital to foster healthy and robust relationships with your vendors to navigate an uncertain, dynamic market and make your procurement process more resilient and responsive. 

Establishing a clear procurement contract is an excellent way to strengthen your supplier relationship. A well-documented contract covers the basics, but should also detail contingency plans when worse comes to worst. 

This not only avoids any ambiguity from the get-go but also holds suppliers accountable for the duration of your contract. 

Investing in a good cloud-based solution will also give you the added benefit of tracking your data for reporting purposes. Coupled with Key Performance Indicators (KPIs), you can easily evaluate supplier performance as well. Since vendors will have a contingency plan on standby in the event of a disruption, you can establish a relationship based on reliability and visibility

Bolster your MRO strategies while you’re ahead 

Using a purpose-built materials  management solution can safeguard you against procurement risks and help you stay ahead of the curve. 

A materials management software will harmonize data across all systems and aggregate it into a single cloud-based location. Not only will you have full visibility of your enterprise, but you will also have access to real-time, accurate, and reliable data.

This can help you identify pain points before a disaster occurs so that you have sufficient time to take corrective actions and mitigate risk. 

Coupled with artificial intelligence and machine learning algorithms, you will also be able to gain insight into what products need to be stocked religiously so that you can strategically bulk up on your most essential items while reducing unneeded amounts of others. This ensures that production stays up and running even when there are shipping delays and backorders.

Responding to an uncertain market is more productive than reacting to it

The disruptive events that we have seen so far have completely changed the supply chain landscape. With an unpredictable market on the horizon, procurement teams should be equipped with the right tools to build a resilient, responsive, and agile supply chain so that they can be better prepared for the biggest procurement risks ahead.

To learn more about optimizing your procurement strategy with a materials management intelligence platform, download the ebook on overcoming MRO challenges today.