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Three Significant Supply Chain Challenges Executives are Facing

March 4, 2016
There are three distinct challenges executives will need to address in order to demonstrate supply chain success within their departments and organizations as whole.

Traveling throughout the country to visit with supply chain industry executives gives me the opportunity to observe first-hand the positive business trends and significant issues emerging in our industry. Over the next several months and into 2017, I see three distinct challenges CPOs will need to address in order to demonstrate supply chain success within their departments and organizations as whole.

The first is the ongoing security threat to companies’ networks, computers, programs and data. According to the U.S. Department of Homeland Security, cyberspace is difficult to secure for three reasons:

1) the ability of people to operate with malicious intent from anywhere in the world;

2) the linkages between cyberspace and physical systems;

3) the difficulty of reducing vulnerabilities and consequences in complex cyber-networks.

IBM Security Services estimates businesses around the world are attacked nearly 17,000 times each year. While the vast majority of these attacks fail, an average of nearly two attacks per week will penetrate the first line of defense.

The risk is particularly onerous in supply chain management because companies routinely exchange sensitive corporate information with multiple suppliers around the world. It’s one thing for an organization to protect data within “its own four walls.” It’s another to identify and manage risk across all those suppliers. That is nearly impossible.

The second big issue procurement professionals are struggling with is how to build the ideal team to work in a profession that has changed radically and continues to become increasingly more global and complex.

Procurement has evolved from a tactical buying function to strategic supply management, complete with responsibilities that directly impact corporate performance. Corporations now operate on the ground and/or online in many nations throughout the world, creating global supply chains.

That leads to a range of needs for CPOs. What intellectual skills are necessary for team members to work in this environment? Is the supply management workforce currently diverse enough to be effective in a world of shifting geographies and emerging new markets? The “supply chain team” needs to have a blend of operational, financial and even marketing skills in addition to the core knowledge of supply chain and procurement to ensure success

The benefit of having a team with these skills is a collective and important voice at the executive level.

The third issue—broadening the financial acumen of procurement professionals —is inextricably linked to building the ideal team.

Currently an average of 83% of a company’s sourceable spend is managed by the supply management group, according to CAPS Research, placing the function squarely in the spotlight as a key driver of a company’s profitability. Suppliers are an asset, not just a cost, closely aligned with a company’s goals and objectives. Suppliers can actually define the success of a business.

No longer are procurement professionals merely policing costs. Their role today is more than simply getting the best price from suppliers for a good or service. Today they are much more strategic, focused on understanding the total business and identifying the best suppliers to help that business achieve its goals.

This is best illustrated by the fact that the percentage of chief procurement officers who report directly to the CEO or one level down from the CEO has increased from 60% in 1999 to 82% in 2014, according to CAPS Research. Again, supply chain professionals have a more important voice in their organizations than ever before.

While these challenges are top-of-mind, no doubt more will arise as we move through this year and into 2017. By addressing them as they surface we validate our leadership in helping companies achieve a sustainable competitive advantage.

Tom Derry is CEO of the Institute for Supply Management (ISM), a global organization dedicated to advancing the practice of procurement and supply management.

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