How CPOs can Prepare for the Impact of Nationalism

Peter Cook, vice president for procurement and supply chain at The Smart Cube

As evidenced by Brexit and the U.S. withdrawal from the Trans-Pacific Partnership, economic nationalism is on the rise. Industries such as electronics have spent decades building and finetuning a vast network of global supply chains. If globalization is facing a backlash — and experts attest that it is — longstanding supply relationships are about to get more complicated.

Nationalism is not solely a political lever based on new trade agreements and tariffs, according to Peter Cook, vice president for procurement and supply chain at The Smart Cube. “There are also potential changes in consumer/customer behavior,” he said in an interview. For this reason, businesses should be prepared to protect their supply chain processes against globalization backlash while ensuring they fully leverage any national areas of strength for competitive gain. That process, Cook said, begins in the procurement department.

Although chief procurement officers (CPOs) are most often associated with supplier management, there are customer-facing catalysts, driven by the nationalist shift, that could expand the CPO's role to better prepare their company, Cook explained. “The CPO's organization, [along with] with the head of supply chain, is best equipped to do the evaluation of the multi-tiers of a competitor’s value chain,” he said. “I see [customer-facing assessment] as an additional strategic risk management activity: rather than replacing the responsibilities of the other department heads, the CPO needs to collaborate with marketing, etc. on providing the executive team with competitor intelligence.”

The rise of nationalism was identified in 2016 as a leading risk to supply chains, according to research from the Chartered Institute of Procurement & Supply (CIPS) conducted by Dun & Bradstreet economists. Global supply chain risk grew to a record high at the end of 2016 as the CIPS Risk Index rose to 82.64, from 79.14 at the end of 2015. The figures put global supply chain risk at the highest level in 24 years.

The CIPS index tracks the impact of economic and political developments on the stability of global supply chains. A combination of economic nationalism, rebounding commodity prices and the growth of a burgeoning Chinese middle class is making long international supply chains a riskier prospect, while there has been an average of 22 new trade restrictive measures a month in the World Trade Organization’s latest report, according to CIPS.

CPOs can take several measures to protect their supply chain, according to Cook. The first step is to identify any potential vulnerabilities in the supply chain stemming from globalization. “There are a lot of electronics and other items coming out of China,” Cook said. “You can’t ignore that the [electronics] sourcing model that depends on China has already been built.” Even "local" suppliers represent an element of risk: they could be sourcing their raw materials offshore. Businesses have to dig deep into their supply chains to plan for all contingencies, Cook said, and prioritize suppliers based on their strategic value. Tier-1 suppliers should be evaluated first.

As a second step, corporations should expand their risk-monitoring capabilities beyond the usual metrics. “If you look at the CPO’s role, they have become very good at evaluating their suppliers’ financial health,” Cook said. “They should also drill down across operational risk factors such as compliance to trade, the environment and other regulations. Go to all your key suppliers,” he recommends, “and ask the questions you want answered, such as where they see their vulnerabilities and what their risk mitigation strategies are.” Subscribing to a risk-monitoring service is also an option, he said.

Companies should then assess their own supply chain's performance relative to their competitors’. “I see the CPO needing to be involved in strategic discussions to understand the level of risk associated with the potential changes in consumer/customer behavior, and then provide mitigating supply strategies,” Cook said. “I do not see the CPO leading the assessment of consumer/customer sentiment, but I do see them involved in the discussions on how best to respond to the potential preference evolution.” For example, CPOs can identify areas in which a company is more vulnerable than a competitor, or areas in which it excels. “Ask questions such as ‘is there anything that we are less vulnerable to; or areas of strength that we can leverage? Find things that can be used as a competitive advantage or as a differentiator in the market," he recommends.

Finally, Cook said, companies should reach out to and assess potential local suppliers. "Identify and nurture local relationships and understand your company's position relative to other local customers," Cook advises. “When a government insists on sourcing from local suppliers, chances are these suppliers are small relative to global suppliers of the same material or components." Sizable customers can use their purchasing clout to negotiate advantage deals, and CPOs are experts on purchasing.

"We do see the need for tighter strategic collaboration between demand-side teams and supply-side organizations," Cook said. Traditionally, it has been marketing, R&D and the other customer-facing departments who have monitored competitor activities. "The CPO needs to collaborate with marketing, etc. on providing the executive team with competitor intelligence," Cook concluded. "The CPO's insights to the supply base will be a significant contributor to the overall risk understanding."