Deloitte research captures impact of trade and economy on supply chain procurement

It goes without saying that day-to-day cost pressures come with the territory in the procurement world. But that sentiment takes on a more heightened feel, when seeing those pressures from the perspectives of chief procurement officers (CPO), in light of myriad economic- and trade-related challenges, among other factors.

That was a key takeaway from the Deloitte Global Chief Procurement Officer Survey 2019, which was recently issued by the New York-based business consultancy. Data for this survey was based on feedback from 481 procurement leaders across 35 countries that represented annual turnover of $5 trillion (USD). Deloitte officials noted that this survey was conducted in associations with Odgers Berndston and input from Spend Matters, a procurement tech analyst firm. And they added that this survey, which made its debut in 2011, provides exclusive insights into the key challenges and opportunities impacting procurement.

The survey noted that the role of the CPO is now facing emerging economic and political risks, with increasing pressure to cut costs, coupled with external risks gaining CPO’s attention ahead of pressing internal risks like digital transformation, in the form of analytics, as opposed to AI and blockchain.

And it added that there is a “growing global trend towards safeguarding against external risks as the current economic environment presents a number of emerging issues from every corner of the globe. From goods and services, to equipment and more, external supply markets were already complex. However, when coupled with digital transformation and expanding geopolitical risks, procurement has become more complex than ever before, and ever more important to organizations at large.”

Managing procurement risks is a tall task, to be sure, and it is supported by how 39% of the survey’s respondents were prepared to a large extent to manage and navigate them, with only 5% feeling completely prepared to do so.

As for what presents the highest degree of risks are for CPOs, the survey pointed to the following at the top five: economic downturn and deflation (10%); internal complexity within my own organization with M&A, organizational silos, non-standard processes etc. (39%); managing complexity/risk within mega-suppliers (37%); trade war (33%); and managing digital fragmentation within my organization and with my supply base (29%). Rounding out the top ten were things like Brexit uncertainty and the spillover effects of the China slowdown, among others.

In an interview, Ryan Flynn, principal for Deloitte Consulting LLP, explained that the general challenges for CPOs, as it relates to the survey’s findings, continue to center around cost-related aspects that continue to be high on CPO’s priority lists when addressing risks.

“The external risk piece is something which has really come through in this survey, as being one of the biggest drivers of complexity that we see,” he said. “The [procurement] challenges for companies with global supply chains have increased exponentially over the last couple of years. And underneath the numbers that we see in the survey, there is also this sort of lingering sense of uncertainty around things like the trade wars and tariffs, in and with China and Europe. This complexity shows no clear signs of abating because of that uncertainty and while some companies are probably a little better in terms of being aggressive about taking other sources of supply because of tariffs, over all, it is that external supply chain complexity that is really making things more difficult and challenging for CPOs.”  

And while external complexities continue to increase, that has yet to result in any material shifts for supply sources, with the survey pointing to 14% of respondents indicating that they are “completely” or “to a large extent” planning to move supply sources, whereas 62% are only using this strategy “to some extent” or “to a small extent,” 24% are doing to “to a large extent,” and 64% doing it “to some extent” or “to a small extent.”

The higher percentage using this strategy to a lesser extent, for sourcing, shows how many companies are looking into what they can do, but due to the level of uncertainty, in regards to what happens next, leads to a lack of companies jumping in head-first, noted Flynn, adding also that it is not something that can be done very quickly, as it can be challenging for companies to secure good, solid, high-quality supply source that will be reliable.

“That [62%] number is not too surprising, given what is going on with CPOs,” said Flynn.

Going back to the 2011 inception of this survey, Flynn commented that there have been some notable changes within procurement over that period, in terms of being a continuation or acceleration of certain trends.

“One of the interesting changes that has occurred is more of a focus on internal and external collaboration,” he said. “Part of that is due to that on the internal side CPOs are being asked to find more value and reduce more costs, and the traditional ways of doing that, while they are still out there, in terms of competition in the supply base and getting more spend under management…those become less effective,” he observed. “So, you tackle in internally to use things like demand management and build those internal partnerships to be successful in doing that.”

The success of the procurement function, as the survey points out, coupled with typical economic factors driving industry consolidation, have led to what Flynn viewed as a shift in some supply markets to a balance of power toward mega-suppliers.

“This is shifting the calculus, in terms of needing to approach those relationships a bit differently, as those mega-suppliers have that leverage that requires more supplier collaboration types of strategy,” he said.