“Resilience and sustainability of supply chains is a matter that is engaging urgent attention of political and business leaders in all major economies,” according to Singapore-based business leader Girija Pande (Chairman of Apex Avalon Consulting).
As far as the Indian government is concerned, improving logistics, sourcing and procurement are major focus areas currently, where Third-Party Logistics is expected to grow at 8% CAGR (compound annual growth rate) during 2021-25.
And globally, these are the major supply chain trends:
Impact of a pandemic: The shock of COVID-19 will continue to be felt worldwide as organizations continue to recover from the initial impact on global supply chains. The unprecedented nature of COVID-19 has forced companies, and industries, to rethink and transform their supply chain models.
Impact of geopolitical rivalry playing out between China and the US: The supply chain industry is transforming by diversifying supply sources, going beyond China, who until now has been a clear choice for most as a manufacturing hub of the world.
Increasing impact of climate change: For many, the reality of our climate emergency was brought into sharp focus in 2020. For example, the worldwide financial sector understands that the investment risk of global warming is real, and even before the pandemic, they had started to adjust their behavior accordingly.
Environmental, Social, and Governance: The global push for overall sustainability is clearly enshrined under three popular ESG goals, that is, Environmental, Social, and Governance goals. Investors increasingly apply these non-financial factors as part of their analysis process these days to identify material risks and growth opportunities. These trends will force businesses to take a harder look at how companies organize themselves to source and procure their supplies, precisely and effectively, select suppliers who will survive this upcoming disruption to future proof their supply chain to become resilient and sustainable. This means that ESG frameworks have now gone beyond a simple tick-box exercise.
Currently, many global and regional companies tend to favor large, centralized procurement functions, which can be better monitored and provide businesses with cost efficiencies involved in company-wide purchasing. Many have regional procurement hubs that source from varied regional suppliers. They have built long-term relationships as a major concern in the industry was lowering costs while maintaining standards and reliability.
However, procurement and logistics will become very difficult to manage in the new world impacted by the scourge of geopolitics, pandemic, and sustainability. According to Mr. Pande, “Instead of just in time, very often it may become just in case!”
Specialized Procurement Vendors
He envisages that specialized companies or vendors that are solely tasked with successfully navigating such changing environments will emerge. These specialized entities will then handle procurement functions for many organizations using specialized skills, scalable processes and state-of-the-art tech platforms to improve transparency in procurement. The norm will soon be “See better, buy better!”
The tasks that these specialized procurement vendors will focus on will be four-fold:
1. They use their preferred bulk buying position to drive price-effectiveness across multiple companies.
2. Leverage a diversified supplier base.
3. Providing a digitalization platform as a service.
4. Embedding ESG framework as part of procurement services, i.e. Organizations must put ESG principles into practice when managing supply chain impact, adopting a ‘Procurement with Purpose’ approach to boosting resilience from profit and planetary perspectives.
Such specialized vendors are becoming more prominent. Chain IQ in Zurich a spinoff of UBS Bank, decided to outsource its procurement and sourcing functions by creating a neutral entity. Large IT/business process outsourcing (BPO) vendors such as IBM and Accenture have taken on this task in addition to their existing services, or, as in the case of Indian procurement vendors like GEP and WNS Holdings, tech-focused companies setup by procurement specialists. Indian tech giant WNS is among heavyweights with solutions in the global market. Many of these entities provide some or all the above tasks and many have, often, in-sourced procurement staff from customers in a BPO deal that benefit both.
India can use its seasoned IT service providers to provide tech-led procurement services to take up new and exciting roles. Moreover, as China moves out as a clear choice for most as only a manufacturing hub, it’s an opportunity for India and other countries as the next potential supply source.
Pande suggested, “It’s time for businesses to comprehensively relook at their supply chain operations to consider resultant risks arising from triple disruptions that lie ahead. The winners will be those that take heed and restructure early.”