Ahead of Procurement Leaders’ East Coast Forum, Pedro Desdier, former director of procurement for the Americas and global direct procurement at Mead Johnson Nutrition, shares his thoughts on what the future holds for the function.
Procurement Leaders (PL): What is procurement’s role in monitoring and identifying risk?
Pedro Desdier (PD): There are two different components to risk. First, there is the matter of supplier risk, which procurement is of course 100% accountable for. Second, is price risk, which falls under the shared remit of both procurement and finance.
Supplier risk is made up of many different components, such as adverse weather conditions causing disruption; suppliers facing financial difficulties and falling into bankruptcy; and geopolitical uncertainties damaging trade.
At Mead Johnson Nutrition, we created supplier heat maps that included formal matrixes, which help determine the complexity of spend in terms of these various issues and identify high-risk areas in the supply chain. From this, we could identify the high-risk areas within the supply chain. When we identified a high-risk supplier, we could either find an alternative provider or work with that organisation to try to reduce the risk.
Price risk is managed a little differently. Financial instruments and market analytics helped and, at Mead Johnson, we adhered to a well-aligned commodity programme.
PL: What new risks does procurement face today and how can the function prepare for them?
PD: It goes without saying that the world’s political affairs are significantly affecting the work of the function. In the US, the prospect that sourcing a product from Mexico may soon come with higher taxes will affect the entire pricing model of the supply chain. This is something we have to seriously consider and prepare for.
The other major risk is unpredictable weather and the impact this has on crops and commodities. For example, when a product you make heavily relies on a certain commodity, you need and expect a constant supply. When there is a period of heavy rain or drought it creates a shortage, which can severely disrupt the supply chain.
This happened to the supply chain at Mead Johnson. We were sourcing milk powders from Argentina because, at the time, they offered the best prices. Adverse weather conditions and political instability drove these prices up so we had to change tact and source from Uruguay and Brazil instead.
The best way to prepare for these situations is to continuously review supplier heat maps in order to determine the suppliers and regions with the greatest risk. I’d also suggest gathering market intelligence regarding production, consumption and weather patterns, as well as having backup suppliers ready and audited so you can switch when required.
PL: What kind of infrastructure should procurement have in place to manage risk?
PD: Without infrastructure in place, risk can slip through the net. When it comes to price risk, Mead Johnson has an associate director for risk management and commodities, whose primary job centres on risk. Risk is also embedded into the role of the global category leaders, while there are analysts who study trends and prices so that the organisation has all the information required to assess levels of risk. By making risk a part of the day job, it cannot be overlooked. Supporting this, Mead Johnson has a combination of tools and methodologies, from heat maps to financial databases on suppliers.
PL: What is your vision of procurement over the coming years? How do you expect the function to change?
PD: Procurement is increasingly becoming a key partner to the business. It is an enabler, not only of innovation but also marketing, working capital optimisation and also has the ability to help reduce volatility. But, the question remains, how can procurement become an even closer partner?
The answer lies in nailing down strategy and mapping the supply base carefully. We must also embark on some critical ethical and corporate social responsibility programmes and initiatives along the way.
I think one of the most important partnerships the function should make is with finance because together the two can help further reduce volatility. Another important area that we need to get closer to is quality, to better measure supplier performance. A closer bond with R&D will also create opportunities for new innovations to come through.
PL: What lessons do you hope to take away from the Forum?
PD: For me, the main thing is the chance to continue to grow my procurement network around the globe. There is the real opportunity to leverage best practice in the community and share lessons with one another.
I hope to learn from other attendees about process optimisation and the procure-to-pay cycle, specifically what businesses have mapped out for the next five years. It’s all about procurement professionals working together to understand trends and issues going forwards.
To find out more about the East Coast Forum click here.
This article is a piece of independent writing by a member of Procurement Leaders’ content team.