There are many questions that can keep a risk professional up at night this year. Will there be more COVID-19 spikes and related closures and delays? Will there be a recession? Are we in a recession already? What will happen with the ongoing Russian invasion of Ukraine—will it keep disrupting supply chains around the region, and will it spread to neighboring countries? What new regulations are coming our way that we need to prepare for?
While we don’t have a crystal ball, we can make a pretty good guess at what the rest of the year is going to look like. In a word: unpredictable. Volatility is the name of the game when it comes to the economy, geopolitics and supply chains. Change will be the only constant, so businesses that are prepared to react and adapt will be the ones who will look back on 2023 fondly come December.
Rather than sticking to business as usual, procurement and risk management teams should prepare themselves for a new slew of challenges. Here are five trends expected in the procurement, supply chain and risk management spaces.
- Increased sanctions risks
But managing sanction risks isn’t as simple as checking your supplier list for the names of “blocked” companies. Sanctioned companies often use shell companies or otherwise obfuscate their ownership structure in order to try and fly under the radar and keep operating normally. The OFAC 50 rule states that “the property and interests in property of entities directly or indirectly owned 50% or more in the aggregate by one or more blocked persons are considered blocked.”
In other words, a supplier may not be sanctioned directly, but somewhere up their ownership structure there could be a sanctioned person or entity whose blocked status would then apply to the supplier—and mean fines for anyone doing business with them. Screening suppliers manually for these ownership structures is virtually impossible, and supply chain professionals should look to workflow technology and data providers to help monitor for possible violations in real-time.
- New and upcoming ESG regulations
2023 will be the year of ESG. Environmental, social and governance regulations have ramped up in recent years; expect this to continue. This is particularly true in the European Union where the Corporate Sustainability Reporting Directive (CSRD) will soon take effect, mandating that many companies doing business in the region disclose the scope of their company’s environmental impact and the initiatives they have underway to mitigate that impact. Similarly, the German Supply Chain Act has its own set of requirements and went into effect this January as well.
The writing is on the wall when it comes to similar regulations in the United States. In March of 2022, the SEC proposed its own set of regulations, and whether that exact proposal is what makes it into law or not, there’s no question that 2023 will be a highly impactful year when it comes to ESG regulations.
What makes this of particular note for supply chain professionals is that two-thirds of a company’s environmental impact can be traced back to “Scope 3” activities—that is to say, the activities of companies in the supply chain. As a result, much (if not all) of the data collection, analysis and reporting around ESG matters will fall to procurement and supply chain teams. These teams should look at 2023 as the window to build out the tools and processes to handle the oncoming ESG regulations. That means developing a methodology for analyzing and collecting data across suppliers and the company as a whole, building the capability to identify suppliers that aren’t meeting the ESG goals set, validating the data with third parties, and reporting it as required.
- Process simplification
As unpredictability abounds in 2023, the ability of a company to remain flexible, agile and able to react to changing conditions effectively will be more valuable than ever.
We have more tools available to businesses today than ever before. They’re specialized, powerful and…don’t always play well together. The modern tech stack in supply chain departments is a complex mishmash of technology and interfaces that require manual intervention across many stakeholders (both internally and externally) to make meaningful updates—or sometimes even just to get things done in the first place. Many procurement departments are very familiar with long cycle times and blind spots in their technology that make even simple projects a headache.
Technology and data availability has come a long way, and 2023 will be a year where the technology available will start prioritizing simplicity and integration in order for tools to become more configurable and support complex processes and business rules with ease. In fact, the next two trends are examples of how those innovations will take shape.
- No-code functionality will supercharge SaaS
“No-code” functionality allows users to create applications and digitize business processes no matter how complex—without the need for coding. In practice, this allows users greater flexibility with new modules, clear visibility into dependencies across processes and a more responsive interface that significantly reduces the time frame (and effort involved) with getting a new, customized solution operable.
Especially when it comes to small- and medium-sized enterprises or supply chain departments without massive resources at their disposal, the ability to skip code writing and use drag-and-drop functionality with no-code will speed up the window for businesses to make needed changes in response to changing environments and to avoid risk. No-code solutions are built to be flexible with complex designs and to be future-proof as well. Integrations can be “hot-swapped” out and the whole system can be auto-tested to ensure functionality before being deployed. 2023 will be a year when no-code solutions start gaining ground over more traditional tools.
- Transparency and silo elimination
Finally, the fifth thing risk professionals will be watching out for in 2023 is the trend toward tools that eliminate wasted time and effort that happen as a result of departments and tools having trouble working together.
In August, the Harvard Business Review reported that in order to make a single supply chain transaction, the average person involved needed to switch “about 350 times between 22 different applications and unique websites.” They calculated that the average person would move between apps and windows over 3,600 times per day. This is referred to as the “toggle tax,” and it’s an incredible drain on productivity—to the tune of five working weeks per year for each employee, according to HBR.
Part of the reason that so much toggling is needed is the fact that departments and their tools are siloed—this occurs within supply chain departments alone as well thanks to the many tools they need to perform the variety of tasks they’re responsible for. Procurement professionals are recognizing the potential of bringing together relevant groups, systems and data into one place.
In a volatile 2023 where risk could come from any direction, supply chain managers will be looking to keep everything visible in a single pane of glass—it’s a lot easier to make sure you aren’t losing track of something when it’s all in the same place. Departments that remove silos and let information flow between departments and tools will enable faster onboarding, higher efficiency of their team thanks to less lost time due to toggling, better risk management and more transparency at each step of the process.