The “blogosphere” this year will be inundated with top ten lists. Of course this all makes sense for it to be a time as a year of reflection. So as we draw near the end of 2012 and look towards 2013, what are we experiencing?
- US & Europe – The global economic crisis showing little sign of ending and stock and bond markets remain volatile over uncertainty of the US fiscal cliff, as well as the lingering Euro-crisis.
- China – Critical to the global strategy for global business, added pressures come from the world second largest economy, China. There slower growth is expected due to a looming real estate bubble, and ongoing concerns of regulatory challenges in doing business there.
- Regulation – 2012 Election results in US and France have favored “big government”, with a fading confidence in promoting, or even sustaining, open markets – resulting in increasing concern of more regulation.
- Political Unrest – Protests in highly volatile areas, such as the ongoing conflict in Syria, the political unrest in Egypt, continued tensions in Israel over Palestine, and an Iranian threat of nuclear power, continue to test geo-political frameworks.
- Climate Change – Finally the ongoing debate over global warming continues as a higher frequency of storms, such as the likes of Hurricane Sandy, creates higher risks for global supply chains.
These ongoing and continued uncertainties put pressure on organizations to better understand how to operate their businesses, understand their supply chains, and manage against supplier risks. In this regard, based on these overall conditions, we at HICX Solutions feel that there are five supplier management trends that will continue to define supplier management strategies in 2013 –
1. Managing the Shifts in Corporate Activity
One of the areas that will impact supplier management is the ability for organizations to manage suppliers based on anticipated corporate changes. Strong corporate divestiture activity in 2011 was driven by a sharp increase in spin-offs and carve-outs, which continued into 2012 – and may predict divestiture activity to continue through 2013. Similarly, based on recent research from the likes of PwC and the Economist, companies are sitting on cash (i.e., corporate cash levels remaining at $1.1 trillion for the S&P 500), which also demonstrates an opportunity for companies to put their capital to work through strategic mergers and acquisitions. But whether buying or selling, the constant “ebb and flow” of corporate mindsets to look for generating positive cash flow puts tremendous pressure on those responsible for mapping and understanding the supplier relationships related to even the lowest level of the organization’s users.
2. The Need for Supply Chain Mapping
The need for mapping supply chains is now not just an internal concern but has become part of regulatory compliance. Ever since the SEC passed the final rules implementing the conflict minerals disclosure required by Section 1502 (Conflict Minerals) and 1504 (Natural Resource Payment Disclosure) of the Dodd-Frank Wall Street Reform and Consumer Protection Act this summer, there has been an increased need to fully understand supply chain maps. Section 1502 requires companies to examine their supply chains to determine and disclose if their products contain minerals from the DRC, or adjoining country. Section 1504 requires companies to disclose to the SEC, all payments made to the US or a foreign government, for the extraction of oil and minerals. These bodies of legislation represent a new ground for enforcement of managing supply chains and mapping supply chains based on ethical standards and increased transparency. This trend in legislation will also likely turn to the European Union next. As a result, the foundation of supply chain mapping, in both technology and process, will accelerate the need for supplier compliance management in 2013.
3. Sustainability beyond Reputational Risk
In 2013, the focus on sustainability will continue to evolve. In fact, some predict that it will become the buzzword for 2013. Yet, there continues to be a debate between the right and the left over how sustainability should impact a business in terms of ethics versus profits. With low interest rates and continued expected anemic growth in world markets, leaders of globally influential firms will be looking for how companies use and manage their assets in new and effective ways. As a result, organizations will continue to improve their supply chains beyond financial performance, but also in terms of a “triple bottom line” based on profits and the impact on society and environment. Thus investment in sustainable practices within supply chains transcend beyond reputational risk towards a means to promote efficiencies, cost avoidance, risks avoidance – and as a way to establish profit through better productivity (e.g. re-usage of recycled materials). The new definition of sustainability will also require organizations to go beyond checking boxes on a sheet for establishing CSR compliance, but be focused on building stronger strategic relationships with key suppliers, through increased collaboration and insight.
4. Actionable Intelligence through 3rd Party Data Collection
As data continues to explode in the realm of business, organizations will continue to look for options to gain a more complete the picture of their suppliers, from on-boarding through all aspects of managing the ongoing relationship. Organizations will want to manage suppliers by augmenting their internally-generated information with information provided by hundreds, if not thousands, of potential external sources. This additional information is beneficial in offering various new insights, such as potential red flags on credit risk, fraud, legal challenges and regulatory compliance – and basic supplier profiles and internally generated information alone fall short. Further, given the number of initiatives within supplier management (from compliance and diversity, through to performance and risk), the trend towards leveraging third-party information will become an increasingly critical aspect for driving decisions and monitoring supplier behavior into 2013. This trend will likely increase in its importance, as organizational supply bases continue to change through merger and acquisition, divestiture activity, or global expansion with the coming year.
5. Continued Transformation of Procurement through Centers of Excellence
Pressures to work in global environments are promoting center-led approaches. As a result, Centers of Excellence (COE) will gain traction in 2013. Procurement will continue to expand for managing more complex categories, accounting for all functional stakeholders, and for integrating corporate-wide decisions that benefit the company based on sharing of best practices. Thus, spotlighting of excellence and benchmarking of opportunities for an entire supply base. While this trend has been emerging for the past several years from a functional basis, going forward COEs in procurement will begin to focus its influence on promoting innovation and supplier collaboration as part of the wider strategic efforts like CSR, sustainability and risk management. Through the expanded role of COEs in procurement, executive management will thus further recognize and allocate the importance of procurement, and supplier management in particular, as a corporate wide strategic function.
In our next several blog postings, we will look at each of these supplier management trends in finer detail and describe how supplier management needs to address the challenges that lay ahead in each area. Until then wishing everyone a bright and prosperous New Year in 2013!