The risk landscape is transforming rapidly, with nearly 80% of risk leaders citing an unprecedented emergence of complex new risks. Deloitte found 70% of CPOs report an increase in procurement-related risk or supply chain disruption in the past 12 months.
Amid mounting challenges, a comprehensive source-to-pay approach is crucial. By integrating risk management, automation and data-driven decision-making, spend and supplier management strategies can provide the resilience to navigate today’s turbulent risk environment.
Key Risks and Strategies
Geopolitical unrest.
Geopolitical instability poses a major threat today. Trade wars, nationalism and armed conflicts create uncertainty and potentially disrupt operations across regions. From the ongoing conflict in Ukraine to the unfolding volatility in Israel-Gaza and now turmoil in the Red Sea, supply chain concerns abound.
To mitigate geographic concentration risks, organizations should map supplier locations across all supply chain tiers. This strategy enables them to identify overexposure to any given country or region. With such visibility, organizations can diversify suppliers to balance onshore/nearshore and offshore sources. Rather than relying solely on low-cost countries like China for direct materials or India for IT services, a diversification strategy adds secondary sources in other regions and reduces reliance on any single country or route. If political tensions emerge in one region, supply from alternate areas provides a buffer.
Geopolitical unrest doesn’t just endanger supply chain stability — these changes can also leave organizations scrambling to find the data they need. When the EU first imposed sanctions on Russia (and now as those sanctions continue), businesses needed to rapidly identify their Russian vendor relationships and demonstrate compliance with the sanction stipulations. While organizations using a mix of supply chain point solutions likely spent a great deal of time simply finding the data they needed, those companies with unified source-to-pay technology could quickly identify and notify suppliers that they were barred from doing business. This distinction exemplifies how modern source-to-pay technology enables agility in responding to emerging geopolitical risks.
Sustainability imperatives.
Sustainability has become an imperative across supply chains. Investors, regulators and consumers are demanding ethical and eco-friendly practices. The recent SEC decision to leave Scope 3 emissions out of disclosure requirements shouldn’t deter companies from tracking this important data. Organizations expressing net-zero aspirations will need data to demonstrate progress or face greenwashing claims. Yet nearly two-thirds of procurement leaders say reporting on Scope 3 emissions feels like a “best-guess” estimate, according to a recent Ivalua survey. Organizations need visibility into supplier sustainability across all tiers to meet stakeholder expectations. Procurement leaders can identify and mitigate risks by analyzing human rights records, carbon emissions, and more.
Once an organization has uncovered gaps, buyers should collaborate with suppliers on improvements. This process may involve strategies to reduce carbon emissions through alternate materials, product redesign or renewable energy use. With a unified source-to-pay platform, leaders have greater transparency into suppliers and can automate collaboration on and monitoring of improvement plans. Rather than just evaluating cost, leaders can model the environmental footprint of various sourcing decisions and make strategic tradeoffs to optimize sustainability. By easing the path to engagement with sustainability initiatives, robust source-to-pay technology empowers organizations to meet rising ethical and ecological demands.
Continuing inflationary pressures.
Inflationary pressures are squeezing margins across industries. A survey of procurement executives found cost reduction — in tandem with inflationary price increases — to be a top priority in 2024 as leaders worry about supporting margin growth. As prices remain high across categories, companies need to optimize their spending. Leveraging analytics on a complete dataset allows these leaders to identify savings opportunities. This visibility empowers them to consolidate suppliers, aggregate demand, renegotiate contracts from a position of strength and ensure purchases align with contracts.
A unified procurement platform with a robust data model provides 360-degree visibility into spend, enabling such cost-reduction strategies. With spend analysis and contract management capabilities, procurement can reduce costs even amid challenging economic conditions.
Talent shortages.
Procurement teams also face talent shortages as the function becomes more strategic and technology-driven. Deloitte’s 2023 Global Chief Procurement Officer Survey identified talent acquisition and retention as CPOs’ most-cited internal risk, with more than 70% indicating difficulty attracting talent over the past 12 months. Organizations need professionals with data science and relationship skills to analyze the breadth of information available today and drive effective supplier collaboration. Companies must reskill current employees through upskilling programs and internal talent mobility initiatives to close these skill gaps. Technologies like AI can also help augment teams and address skill gaps. Advancing generative AI models that make procurement work simpler, smarter and more adaptable without needing data science skills, though some training on optimal use of these tools can greatly improve the impact.
Building Resilience: A Source-to-Pay Approach
Risk assessment.
To assess risks proactively, organizations need transparency into their multi-tier supply network. Comprehensive mapping provides visibility into geographic concentrations, sustainability hotspots, financial health and other vulnerabilities across all supplier tiers. With this complete view, procurement leaders can model the potential financial impacts of various disruption scenarios and build proactive contingency plans.
Organizations can balance risks across supplier categories and geographies using a portfolio approach. The goal is risk diversity, not necessarily minimizing individual supplier risks. For example, having 2 suppliers of low individual risk for a certain material from China presents a higher risk than having 2 suppliers of moderate individual risk where one is in Asia and the other domestic. With a flexible data model, organizations will gain visibility into risks across their networks. A unified source-to-pay platform seamlessly ingests and associates third-party risk data for analysis. The intentional incorporation of advanced AI brings greater accessibility to risk modeling without the need for extensive data science expertise, supporting an organization’s shift from reactive to proactive risk management.
Risk mitigation.
To mitigate risks, procurement should conduct extensive modeling. One effective approach is to assess exposure through stress tests such as those developed by MIT Professor David Simchi-Levi. These tests calculate Time to Recover (TTR) and Time to Survive (TTS) to model disruption impacts. Armed with this analysis, organizations can implement targeted safeguards. For products with long TTRs or short TTS, a safety stock of critical components provides a buffer against shortages. Sharing demand forecasts and projections with suppliers enables flexibility to shift volumes or accelerate orders when risks materialize.
With demand visibility across the enterprise, organizations can optimize inventory and orders based on stress test results. When suppliers can also access real-time order data through such a platform, they can improve their responsiveness to demand swings.
Risk monitoring.
After assessing and mitigating risks, procurement should continuously monitor for signals. Tracking leading indicators using real-time data and predictive analytics enables early detection of emerging incidents. Factors like transport delays, cost escalations or quality declines can offer insight into a potential disruption before it happens. With this resilience, procurement leaders can pivot swiftly when risks materialize.
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