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The Impact of Geopolitical Events on Strategic Sourcing

The Impact of Geopolitical Events on Strategic Sourcing

from  July 26, 2023 | 4 min read

In todays globalized world, organizations rely heavily on strategic sourcing to secure the best suppliers, minimize their costs, and ensure the optimization of their supply chains.

The world of strategic sourcing is anything but stable. Geopolitical events, encompassing political, economic, and social factors on a global level, wield significant influence over sourcing strategies and possess the potential to severely disrupt supply chains.

Geopolitical Events, The Catalysts of Change

Geopolitical events are therefore the catalysts of change, having the power to reshape the world in which businesses operate. These events can range from economic sanctions and regulatory changes to political instability and armed conflicts affecting an entire region or country.

Being strategic sourcing an integral part of supply chain management, it can’t remain immune to the effect of such disrupting events.

And what are the potential effects of geological events on strategic sourcing, you might ask?

Supply Chain Disruptions

As you could already probably guess, one of the most significant impacts is supply chain disruptions. Trade conflicts between major economies can result in new tariffs and restrictions, making it extremely difficult for businesses to source for materials or products at reasonable costs.

These events have the ultimate potential to lead to supplier shortages, production delays, and increased operational costs.

Quickly Shifting Supplier Landscape

Geopolitical events can force businesses to reassess their supplier base and relationships. A political instability, change of regime or armed conflict in a supplier’s country may lead to increased risks in terms o reliability, quality, and continuity of supply. As a result, companies may have to explore new sourcing alternatives and diversify their supplier base to mitigate risks and maintain their competitive advantage.

Currency Fluctuations and Inflation

Currency fluctuations and inflation are economic events that can also impact strategic sourcing decisions. Exchange rate volatility and price inflation can affect the cost of goods and services, making it challenging for businesses to maintain stable pricing and exact budget forecasts. These economic events need to be carefully managed to avoid any potential financial losses.

Regulatory Changes

Geopolitical events often lead to shifts in trade policies, import/export regulations, and compliance requirements. Businesses need to stay informed and up to date with these changes to ensure their strategic sourcing practices remain compliant and efficient.

Disregarding these changes can result in legal consequences, supply chain disruptions, and reputational damage.

Strategies for Efficiently Navigating Geopolitical Events

We already went through the potential effects of geopolitical events on your strategic sourcing initiatives and decisions, but what are the strategies you can apply to better navigate these disrupting events?

1 - Diversify Your Supplier Base

Relying heavily on a single source for critical inputs can leave your organization vulnerable to geopolitical shocks. Diversifying your supplier base across different regions and countries can help mitigate risks and ensure a steady supply of goods, even in the face of these disrupting events.

2 – Develop Strong Relationships with Your Suppliers

Building strong collaborative relationships with your suppliers is crucial during geopolitical uncertainties. Open communication and transparency greatly foster trust and cooperation enabling organizations to work closely together through challenges and find new and innovative solutions.

3 – Implement Robust Risk Management

Having a comprehensive risk management strategy is essential for identifying any potential geopolitical risks and developing appropriate mitigation plans. Regularly assess your supply chain vulnerabilities, conduct scenario analyses, and create contingency plans to ensure a swift response to any disruptions.

4 – Stay Informed and Act Fast

Events of this nature are often dynamic and fast-moving. Staying informed about the latest developments, monitoring changes in regulations, and being fast to adapt your sourcing strategies are critical for successful strategic sourcing during challenging times.

5 – Leverage Technology and Data Analytics

Investing in a robust source to contract solution such as Scanmarket, can provide you with valuable insights into your supply chain operation and any associated risks. Predictive analytics can help you forecast potential geopolitical challenges, allowing your organization to proactively adjust your sourcing strategies.

In Conclusion

The impact of geopolitical events on strategic sourcing can’t be underestimated. The ability to adapt to these events and mitigate their impact is crucial for businesses sustainability and success.

By diversifying your supplier base, developing strong relationships with your current suppliers, implementing robust risk management strategies, staying informed and up to date with the latest events, and leveraging your technology, your company can build resilient sourcing strategies that can withstand the challenges posed by an ever-changing geopolitical landscape.

Embracing flexibility, transparency and innovation will be key to thriving in a world where geopolitics and sourcing are indisputably linked.

Henrik Leerberg

Vice President, Global Procurement Marketing - Marketing Scanmarket

As Scanmarket's Vice President, Global Procurement Marketing Henrik oversees all marketing activities globally by fueling growth and creating value for both existing and new customers. Henrik has worked in software and electronics businesses throughout his entire career, operating in B2B markets. With more than 25 years of leadership experience from a range of software companies, Henrik has built a solid foundation for a broad business understanding within all aspects from engineering over marketing and sales to administration. Henrik holds degrees in Marketing and Business Administration and in Electrical Engineering.

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