A recent Poll highlighted how global events influence procurement strategy. Geopolitical risks are crucial for strategic procurement yet often overlooked by buying professionals.
Key geopolitical factors include:
- Embargoes and sanctions (e.g., West vs Cuba, Russia, Iran, North Korea, Venezuela, Syria; PRC vs Taiwan)
- Trade wars (notably USA-PRC)
- Hot wars (e.g., Russia-Ukraine)
- Cold wars (NATO-Russia, USA-PRC, regional conflicts in Middle East and Africa)
- Trade agreements (such as UK-China)
- Political regime alignments (e.g., South Africa with PRC, Russia, Iran, affecting trade with Israel and Taiwan)
Key Geopolitical Impacts on Procurement
- Supply Chain Disruptions (Geopolitical conflicts and instability i.e. the Hormuz Straits necessitate swift adjustments to supplier networks to ensure operational continuity.
- Data Sovereignty (Heightened concerns regarding data security are influencing decisions on the sourcing of software and digital solutions.)
- Regulatory Compliance (Sanctions and export controls require diligent adherence to regulatory guidelines to mitigate legal risks.)
- Tariffs and Trade Restrictions (The escalation of trade disputes and protectionist policies i.e. those involving the United States, China, and Europe are driving companies to relocate manufacturing operations or change sourcing strategies).
Developing a value derived Strategic Sourcing Policy
- Friendshoring (Moving manufacturing and sourcing to politically stable partner countries, such as India, Southeast Asia, or Mexico.)
- Enhanced Risk Management (Employing AI-driven analytics and conducting regular human input risk assessments to proactively address political developments.)
- Vertical Integration (Securing critical supply by acquiring key suppliers, particularly for essential materials.)
- Diversification and Regionalization (Shifting procurement strategies away from single-source dependency towards multi source suppliers to reduce exposure to global uncertainties).
- Flexible Contracting (Incorporating adaptable contract clauses that accommodate rapid changes in geopolitical circumstances, including tariffs.)
Karl Furrutter (& Associates) are Strategic and Tactical Procurement experts with geopolitical experience predating 9/11. Contact us with your concerns about including geopolitical based Strategic Procurement Strategical Planning.