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Looking backward, looking forward: The troubles still waiting for procurement

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While the first quarter of 2018 may have closed, three quarters remain and it is important for global enterprises to carefully gauge the emerging geopolitical and economic realities, and adjust or revise their strategies accordingly.

 

Much of the guidance provided for procurement and supply chain leaders at the start of 2018 is still valid and should be regularly revisited.

 

Let’s reconsider the events that have shaped the function so far this year and what may happen next.

 

Escalation of volatility and protectionism

Geopolitical instability and protectionist agendas in the US and Europe are making the global business environment more unpredictable and contributing to operating costs. President Trump’s ’America First’ economic policy is likely to create new barriers to global trade, resulting in much slower strategic investments. The recent Chinese response to US trade tariffs has already had an effect on costs.

 

On the other hand, the realities of Brexit are slowly emerging for businesses in the UK and mainland Europe. The UK faces a financial commitment that runs into the billions of pounds, while the prospect of trade barriers between the UK and EU is a real prospect and would increase both time and costs for procurement.

 

Downswing in financial markets

The dollar will continue to tread water while the pound and yen are expected to fall, with only the euro growing stronger. These changes will make it more difficult for US and UK corporations to secure returns on investments in Europe, resulting in domestic market rebalancing and forcing businesses to identify emerging markets in which to invest and achieve a higher ROI.

 

Rising fuel and energy costs

Cost pressures will increase across direct and indirect categories in 2018. Fuel costs for energy in production and transport costs will continue to grow and expand exponentially towards 2025, and, as a consequence, technology and supply planning models will change significantly.

 

The lingering threat of climate change

Natural disasters will continue to disrupt supply chains. Organisations will need to account for increased climate change risk in their operating models and prepare new strategies to mitigate these risks.

 

Technology disruption and transformation

Current global and economic trends are putting ever more pressure on businesses to leverage every competitive advantage. This creates an environment in which businesses are embracing digital transformation and disruptive technologies.

 

In 2018, the development and adoption of artificial intelligence (AI) will accelerate into practical business operations. Robotic process automation (RPA) is no longer new and the expectation is for rapid rollout this year, with productivity increases of approximately 40% delivered to the profit and loss statement in 2018.

 

Blockchain will also be a big disruptor to procurement and supply chain operations – but not this year. The key for 2018 is adopting RPA and AI, embedding them in digital operating models while continuing to monitor developments in blockchain with an eye towards 2020.

 

Procurement is on its way to developing a new digital operating model. The barriers between buyer and supplier are disappearing and the ability to leverage real-time data from automated processes is very much here. Increased advisory support will be needed to help enterprises develop and launch their digital procurement organisations.

 

Implementing an effective global operations strategy under the current circumstances will require a greater understanding of both the economic trends and the impact of new technologies on the supply chain and business processes.

 

The GEP Outlook: Procurement 2018 Report looks at the events that are likely to have the greatest impact on business and industry this year. It covers global business and macroeconomic trends, the source-to-pay disruption and transformation outlook, and specific discussions of eight different business categories.

 

Darren Lynch is vice president, consulting – Europe and chair of the Thought Leadership Council at GEP.

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.

Darren Lynch
Posted by Darren Lynch

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