In the past, supply chain professionals had some clear tasks, all revolving around the sourcing of products. Professionals were in charge of managing the flow of the resources and products all the way to delivery.
Today, their jobs have gotten…well, riskier than ever.
Nearly every industry is faced with a supply chain challenge these days, but the risks vary. For those who are at the mercy of heightened supply chain risks, there are three main categories their challenges fall into. Let’s address each one.
3 Sources of Risk: Shortage, Supplier, and Inflation.
Shortage Risk: What is it?
Quite literally, a shortage is just that: a lack of a product or material. In this case, it wouldn’t matter if you had all the money in the world, you can’t magically have a product that isn’t available. This was the case for semiconductors, and still is, as well as a plethora of other products and raw materials all holding up the electronics supply chain in one way or another.
Supplier Risk: What is it?
In this case, we’re referring to the risk associated with a supplier (separate from the market). For example, factors such as a supplier’s financial stability. Other cases to consider include a tier-two or -three supplier that endures waves within its organization as a result of trade issues, large medical issues, or political conflicts. Even more applicable today, some organizations were not flexible enough to bounce back after the effects of the COVID 19 pandemic. These unforeseen bumps are just one more reason not to rely on one supplier for product.
Inflation Risk: What is it?
Just this week, CNBC reported that the consumer price index rose 8.6% in May from a year ago (the highest increase since December 1981). Core inflation excluding food and energy rose 6% and both were higher than expected.
Inflation is happening. We are enduring significant price volatility and increases. This means that even in the cases where we’re not experiencing a product shortage, we are still up against a heavy increase in cost. For example, copper prices have risen 125% since 2020. Contributing factors include:
- energy costs (energy is critical to the mining process)
- the energy transition which may be generating an increase demand for copper and metals like lithium and cobalt which are critical to such as lithium and cobalt.
Of course, these aren’t the only three risks the procurement pro is up against, but certainly it’s the most timely and top of mind list out there.
McKinsey did a fantastic job at diving even deeper into these three risks and offering strategies for maneuvering through them. Be sure to check that out here: https://www.mckinsey.com/industries/chemicals/our-insights/procurement-early-warning-systems-and-the-next-disruption