Supply chain critical in procurement

IN most organisations, the supply chain is a significant percentage of cost, so it is now prudent for boards to appreciate the need to have more members with supply chain skills. This is also because the traditional understanding of measuring company success has been broadened from simply generating value for shareholders to include contribution to the wider society.

The application of procurement best practices leads to organisational success and shareholder expectations in terms of growth, survival and a good dividend.

It now even helps business organisations to manage different stakeholders internally and outside.

Given the range of strategic supply chain challenges facing corporates such as disruptions due to Covid-19, geopolitics, cybersecurity risks, the war in Ukraine and compliance issues with international regulations on United Nations Guiding Principles on Business and Human Rights, procurement is now part of the boardroom, as there is need for more dialogue with informed board members on supply chain factors impacting the organisation.

So, the procurement function is now projecting a new image that focuses on its growth and how it can be more strategic and create value for the organisation.

The board is now more concerned about the strategic fit of the procurement function into the overall objectives of the organisation and other societal, as well as environmental factors, in the long term.

For example, the board is now concerned about sustainable supply chain resilience in terms of a constant supply of materials so as to maintain a continuous flow of production.

The procurement function is also now on a higher platform to provide a new depth of knowledge on supply chains.

For instance, the board needs to know whether suppliers of the organisation will be able to keep providing services during times of critical shortages, during times of energy crises or during times of natural disasters.

Procurement has to provide an insight into the supply chain on these macro issues so that the board is well-informed about how to deal with its stakeholders.

This kind of approach would cascade down to the procurement managers to take action by assessing which suppliers are critical to the performance of their organisation. This helps to develop a strong relationship with them in order to address supply chain challenges beyond their control such as price volatility.

Risk and prolonged market volatility has become a topical issue in boardrooms, and the procurement and supply chain professionals must continuously provide the data and market insight to allow the board to make good decisions.

In today’s modern business, suppliers are considered part of the production process of the buying organisation. They are, therefore, critical partners in business for the buying entity. The expectations from suppliers can be better understood by engaging and encouraging suppliers’ participation on issues such as feedback on their challenges with regard to their own suppliers, matters on quality and standards of behaviour, and environmental compliance issues, as well as payment obligations.

This can be a boardroom decision based on the recognition of supply chain matters at strategic level.

Consequently, these activities with supplier engagement must be reflected in the organisation’s annual report so that the board and senior management can learn from their past mistakes.

International compliance on issues on corporate sustainability reporting has also roped in the procurement function to be a boardroom issue, especially to discuss matters that facilitate growth in a way that promotes economic prosperity for future generations, create places that are adaptive, support inclusive communities and to withstand environmental stresses.

It also brings to the fore issues such as respecting the natural environment, as well as the health and well-being of the communities that interact with the organisation.

This is because the drive towards increasing global consumerism and the need for organisations to achieve success have led to an imbalance of corporate growth versus environmental concern.

To a certain extent, the supply chain has led and, in some cases, continues to have an impact on toxic waste, water pollution, less biodiversity, deforestation, long-term damage to the ecosystem and production of hazardous emissions. Modern business practices are now encouraging this to be a boardroom issue, whereby the board, in its quest to achieve organisational success, must also consider a more broadened approach to business in order to avoid damage to the environment.

This means it is the prerogative of the procurement function to be always proactive in determining the ability of suppliers to be compliant with international corporate issues on sustainability.

Consequently, for organisations to achieve these current sustainable challenges, boards must appreciate the importance of supply chain relationships with suppliers, which must be based on trust. For example, in trying to achieve carbon emission targets, the buying organisation will use information and data from suppliers, which is assumed to be correct. Therefore, it is critical that the board creates a supply chain environment that fosters a supportive relationship with suppliers.

Furthermore, organisations are also taking on board ethical procurement issues very seriously, as they have recognised the negative impact they can have on the organisation if not handled properly.

◆ Dr Michael Musanzikwa is the chief director (procurement and disposal of public assets) in the Office of the President and Cabinet.

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