Prediction 1 – The move towards Procurement with Purpose will accelerate in 2021
For many the reality of our climate emergency has been brought into sharp focus in 2020, as a result of and even prior to the escalation of the COVID-19 pandemic. For example, the worldwide financial sector understands that the investment risk of global warming is real and even before the pandemic, they had started to adjust their behaviour accordingly. This means that Environmental, Social and Corporate Governance (ESG) frameworks have gone beyond a simple tick-box exercise. Investors will only increase their scrutiny of organisations’ maturity and approach towards sustainability, when analysing where the opportunities are. As a result, ESG ratings are now at the top of the sustainability agenda.
Likewise, the millennial and Gen-Z workforce is not naïve to the impact of climate change. They recognise that profits, process improvements, and product development are necessary objectives for every organisation. However, they are certain that large companies have the resources to do far more when it comes to serving a higher purpose and as a result, sustainability is high on their agenda.
The step-change that businesses must undertake to meet these sustainability demands in all aspects of their operations – including the supply chain – is now all about building purpose-led ecosystems in order to deliver on sustainability goals and Davos commitments. This means that organisations need to move beyond simply monitoring supplier compliance, to actively collaborating with suppliers on initiatives to improve environmental, social, and economic performance. They need to move towards a purpose-led procurement approach; we will see that accelerate in 2021.
Amidst a myriad of operational issues that organisations need to prioritise in 2021, as the COVID-19 pandemic continues, organisations must put ESG principles into practice when managing supply chain impact, adopting a ‘Procurement with Purpose’ approach to boost resilience, from both a profit and planetary perspective. With today’s public more socially conscious than ever, businesses must align themselves with this shift towards a sustainable supply chain or risk losing business as a result of inaction.
Prediction 2 – Continued disruption of global supply chains as a result of COVID-19
The shock of COVID-19 will continue to be felt worldwide in 2021; organisations are still recovering from the initial impact on global supply chains. The unprecedented nature of COVID-19 has forced companies, and industries, to rethink and transform their supply chain models – for good.
Historically, businesses have focused on supply chain consolidation, often resulting in suppliers being squeezed. However, the effect of these measures is that they have removed buffers and flexibility to absorb disruptions such as COVID-19. With no firm timeline on a vaccine – key to containing the virus and minimising supply chain disruption – organisations should continue to build long-term supply chain resilience into their operations.
This will be critical for long-term survival, especially as different territories will continue to adapt at different rates when moving out of the pandemic. Greater visibility into complex supply chain activity will equip organisations with the knowledge to reduce supplier exposure and risk, which will help them vary their supply chains. COVID-19 has exposed the fragility of long-distance, international supply chains. Building-in a level of resilience will see conglomerates working with a much wider range of suppliers, from global corporations to smaller, regional start-ups to ensure continuity.
To achieve this resilience, organisations must:
- Create cross-functional and/or cross border teams to deal with supply chain shortages
- Build additional buffers of inventory and raw materials
- Develop expected-case and worst-case scenarios
- Explore additional delivery routes and how they can source locally
- Explore technologies that can help them to diversify and innovate throughout their supply chain.
Prediction 3 – The role of the Chief Procurement Officer will evolve in 2021
Having a holistic view of the supplier lifecycle, and the risks to each supplier, will be increasingly important for CPOs in 2021. The proliferation of data breaches that we’ve seen in the last 18 months – and the subsequent regulatory penalties issued – alongside the unprecedented disruption caused by the COVID-19 pandemic, has been a wake-up call for Boards. They are now actively invested in supplier risk, given how susceptible organisations are, and this has given the CPO heightened visibility.
While the problems facing CPOs in 2021 will not necessarily be new, Boards and management are shining the spotlight on them, to ensure any further disruption is minimised. Not being prepared for the issues that COVID-19 continues to present is no longer an acceptable position. With supply chains firmly in focus, Boards are pushing for a more proactive approach and level of insight and visibility from the CPO.
Therefore, the CEO will be asking the Chief Financial Officer, Chief Operating Officer, and the CPO questions such as: is the supply chain prepared? During the pandemic in 2020, companies scurried to secure supply. During the recovery phase in 2021, the CPO needs to initiate measures that lead to preparedness. There will be no second chances for CPOs going forward; supply chain management will be top of their to-do-list.
Prediction 4 – Supplier diversity will be more important than ever
CPOs will be under social pressure to ensure supplier diversity: buying from firms with wider diversity and purpose that avoids conditions such as modern slavery and protects human rights. They will also be under increasing environmental pressure with global warming and demand for organisations to reduce their carbon footprint and ensure sustainable procurement. And without a doubt, there will be significant economic challenges facing the CPO including helping to deliver growth through local sourcing, supporting fair employment, avoiding any fraud and corruption, and being acutely aware of sanctions.
Prediction 5 – The importance of supplier collaboration in 2021
Going forward, organisations must be seen to be actively driving increased supplier collaboration and innovation (SC&I), utilising technology to build in resilience, whilst also unlocking greater value from new and existing partnerships. If this is not on the agenda, it’s entirely feasible that similar worldwide events to COVID-19 will cause major problems for conglomerates getting goods and products through traditional supply chain models, that do not have the desired level of flex.
Since the COVID-19 pandemic started shutting down international borders as early as March 2020, organisations must apply the lessons learnt in 2021, following the below checklist to achieve true SC&I and minimise disruption:
- Ensure alignment – Misalignment causes friction that blocks effective collaboration from happening. It is therefore important to agree to a partnership mission statement that sets the foundation for the relationship in the long-term.
- Implement a governance structure – This is key to fostering successful collaborative relationships. This involves developing a set of cohesive policies, processes and approval levels that act as the framework to your supplier partnership. Without this, collaboration efforts quickly stall.
- Take ownership – Good governance requires everyone involved to be accountable for their part in building a successful collaborative relationship. Failing to implement this framework could quickly plunge a partnership into confusion and stagnation.
- Transparency and visibility – Developing value trackers for every project to determine ROI for each relationship is key. This could include cost savings from new technology and innovation, or sales generated from a new product launch.
- Manage Innovation – It is important to build and manage an innovation pipeline of projects by priority, to forecast potential value creation from partnerships. Partners can then quickly identify blockers and any potential duplication.
- Deploy the right supporting technology – A great strategy can quickly unravel without the right infrastructure in place. Technology is fundamental to the success of any supplier collaboration and innovation strategy.