“Sourcing and procurement leaders can also play a key role in working with research and development (R&D), engineering and technology colleagues to ensure that product specifications are not overly customised in a way that narrows down the choice of suppliers and designs. This is crucial to avoid greater uncertainty in the assurance of supply, due to fewer suppliers able to supply and less resilience at the outset,” said Gartner.
However, cost is often a significant barrier when it comes to implementing any strategy within a business, 53% of sourcing and procurement executives report the cost to develop greater resilience is a barrier for their organisations, with almost half sayings the same for balancing trade-offs between cost-efficiency, risk mitigation, and resilience.
“Nevertheless, investments in resilience should not automatically be thought of as anti-cost-efficient. In a business world subjected to frequent disruptions, the cost of not being resilient can easily outweigh the investments required. This is especially the case if production lines have to be shut down for lack of supplies, transportation routes become affected, or legislative changes impact business streams. A “risk-balanced” approach also factors in the many benefits of supply chain resilience, which include protecting revenue, growing market share and keeping customers happy,” explained Gartner.
Therefore procurement functions should be thinking beyond unit cost, instead, focus on total cost of ownership. “Include the cost of disruption and balance that by focusing on resilience and risk management in broader terms with specific investments,” said Gartner.
With this approach, organisations need to change their approach to supplier risk management. In a poll conducted by Gartner, 75% of sourcing and procurement leaders said they needed to significantly change their supplier risk management process following COVID-19.
So what do sourcing and procurement functions need to do?
“Defining the function’s risk appetite and posture to support business targets and determine the risk management capabilities needed is a fundamental requirement,” said Gartner. Once this is done, Gartner lists five key actions that procurement organisations should take:
