The European Leaders in Procurement network recently posted a white-paper by Booz Allen Hamilton titled Buy Globally, Think Globally, Implications of Global Economics for Sourcing Professionals that is a fascinating read. (I’m surprised our resident economist hasn’t picked up on it yet. Guess he’s just too busy trying to do my job.)
According to the article, sourcing professionals in many industries pay scant attention to important global economic and geopolitical factors when developing their strategy. Considering the impact that even a change in tax policy can have on one’s overall cost savings (turning a winning contract into a losing one), yet alone a war (or state seizure, which is not becoming uncommon in Venezuala and not just Russia), this can be dangerous. Economic and Geo-Political risks are real, and any strategy developed without due consideration of these strategies is a poor strategy indeed.
However, for those professionals willing to apply some foresight and brainpower to the issue, these bind spots are good news. They can lead to overlooked opportunities and give the company an edge over their competition. In some commodities, a procurement manager can profit from knowledge of regular cyclical swings in price by locking in prices at the bottom of a cycle. At other times, understanding the market can help procurement see when a permanent shift in the market has occurred. Furthermore, currency fluctuations can also provide a source of savings.
In addition, failure to keep a watch on market conditions can lead to sharp unexpected increases in cost or unavailability of supply. And although perfect foresight is impossible, as there are conceivably an infinite number of events that can affect your supply chain positively as well as negatively, in reality, you do not need to monitor an infinite number of data streams to keep on top of the most critical issues or pick up on the issues that could affect you positively or negatively down the road.
As the article points out, asking four simple questions can go a long way towards preventing the shock the airlines suffered during the last oil price rise and help you take advantage of emerging opportunities:
- Which categories within our spend are strategic enough to warrant close attention?
- What are the economic drivers behind these key categories.
- How would those driver’s movements affect the overall performance of our current sourcing effort?
- How can my team best monitor changes in those drivers?
If you use the resources at your disposal, and ask the right questions of the experts within your four walls and of the specialist consultancies you use to keep you up to date on best practices and audit your processes from time to time, you’ll find that you can pinpoint many of the issues even without firing up elgooG. Your legal, taxation, regulatory, finance, and communications personnel, as well as those buyers that have good relationships with your oversees suppliers and partners will probably be able to nail the issues you need to understand, track, and plan for in a matter of minutes. And then, as the white-paper keenly observes, blogs (like Sourcing Innovation and Spend Matters)
are becoming increasingly valuable sources of industry information.