2020: Will procurement risk intensify?

2020 is shaping up to be a year of intensified procurement risk. 

The complicated economic, political and technological issues we dealt with in 2019 are unsolved and have become even more complex. Procurement managers need to look behind the headlines and connect the dots to keep ahead in a fluid supply chain landscape.

The economy

Tariff-inspired price increases will accelerate as companies not only pass on pent up tariff pressures but also hide behind them to catch up on prices that had been held in check due to low inflation. The change in the calendar may signal the excuse your suppliers need to adjust their pricing. Watch for a revised price list attached to your new 2020 supplier calendar. And remember, it is OK to resist those price increases and ask for data to support any changes. As my old boss would say “the passage of time is no excuse for a price increase.”

Record-breaking low U.S. unemployment levels will continue to stress the supply chain, especially those smaller suppliers who may not be able to compete for scarce labor. Increased wages to get that labor will also add to cost pressures. Lead times may be extended as companies cannot keep up with their orders. Late deliveries from normally high-performing suppliers is often a distress signal. Small suppliers are under an economic crossfire and many may not survive.

Geopolitics

As we get closer to the November election, the mystery of who will be in power in 2021 creates domestic and international uncertainty around trade policies, treaties and global alliances, all with an immediate impact on the supply chain.

No matter which side wins, expect changes that will impact your supply lines. And while discussing politics is one of those radioactive subjects in the workplace, you cannot hide from it. Pay attention to the macro issues that are being discussed and debated. You can bet the big dogs are creating scenarios that will carry them through the election cycle and into the years beyond. Keep an eye on how they are positioning their business for the post-election world.

Brexit will dominate the news in 2020 and changes in trade agreements with the U.K. and the European Union will redraw supply lines almost immediately. While the U.S. hopes to gain increased trade with Britain, still undetermined changes in trade relations with Ireland and Scotland put current U.K. supply agreements at risk.

Protests in Hong Kong, turmoil in the Middle East, a revamped NAFTA and political uncertainty in low-cost country suppliers should be fueling your supply chain risk nightmares.

Administrative technology

We often think of supply chain technology as robotics, autonomous vehicles, machine learning and artificial intelligence — all technologies being implemented by the Amazons of the world. But that is not the world most procurement departments work in. Procurement is a people business.

The local machine shop may operate with the latest in (computer numerical control) CNC machine tools, but administratively they are still dependent on Windows 7 and museum-worthy computers. And therein lies the rub. While they can produce products to exacting specification by using state of the art equipment, they have trouble communicating digitally with their customers, relying on more conventional approaches.

This technological wrestling match is real in many areas of the supply chain — and it doesn’t seem the match will end in 2020. 

These suppliers, mostly very good ones, run the risk of being forced off of the approved supplier list due to their inability, or reluctance, to embrace customer-required digital administration. Invest the time and energy in helping those critical suppliers over the digital divide so you can keep them in the new decade.

The biggest procurement risk of all is ignoring the range of risks before us.

Happy 2020! May your supply chains always perform the way you need them to.