Question

Read the case study below and answer the questions that follow. FULL POTENTIAL PROCUREMENT: LESSONS AMID INFLATION AND VOLATILITY Procurement leaders are facing one of the toughest market environments of their careers. A combination of macroeconomic factors-including COVID-19 shocks, trade policy shifts, workforce scarcity, energy transition, and even extreme weather events-have upended long-running trends that have benefited the global economy for several decades. The Russian invasion of Ukraine has caused the greatest humanitarian crisis in Europe since the Second World War and further disrupted long-standing economic relationships. In the years before the pandemic, rising productivity and declining costs for many inputs-achieved through lean and just-intime strategies and the globalization of supply chains, among other factors-had allowed many procurement organizations to operate successfully. But now the inflationary surge and frequent scarcity of critical supplies have made shortcomings of the traditional operating model increasingly visible and costly. These shortcomings include a lack of reliable long-term planning, growing concentration of supply, limited insight into supplier economics, lack of collaboration across functional teams, and a failure to adopt and scale proven technologies that could reduce transactional loads. And the war in Ukraine has brought to the fore a host of noneconomic factors that must now also be considered in sourcing decisions. To operate in this new context, procurement organizations are facing fundamental changes to management practices, capabilities, and supplier ecosystems based on now-outdated assumptions. We are no longer in a world where assuming an annual RFP will yield 3 percent price savings is a viable operating model. After a year of continual and intensive action to adapt, many procurement organizations have deepened their understanding of their supply chains and deployed new levers. But more can be done. Procurement organizations have a unique opportunity to set more ambitious goals, define a broader role for their teams, attract new talent, build new capabilities, and deploy new systems. Current market challenges may continue. Most indicators suggest that commodity pricing pressure, labor shortages, supply chain congestion, and general volatility will persist over the coming 12 months, if not beyond. Procurement and business leaders must continue focusing on creating value, managing risk, and increasing resiliency in an uncertain context. To win in this new normal, it will be up to procurement not only to swiftly mitigate immediate concerns but also to focus on building sustained, advanced capabilities that can be embedded in the operating model going forward. Some companies have started setting up small agile teams focusing on advanced analytics and systems improvements to continue enabling a sophisticated, cross-functional approach to cost and margin management. One integrated chemical producer began a procurement transformation in late 2020 before inflation took off. As part of the journey, it set up a crossfunctional transformation office that is now managing the producer's inflation response across all levers without missing a beat. Indeed, institutionalizing a new operating model is the next frontier for procurement and business leaders. As procurement demonstrates its value to the enterprise, the stage will be set for procurement leaders to become full-fledged strategic partners to CEOs, CFOs, and COOs. They can expand from being the guardians of a portion of enterprise costs and use their deep expertise in supplier markets to help lead cross-functional teams focused on long-term, full-potential value creation and ultimate enterprise success. Core authors: Joe Basar, Casper Bek, Roman Belotserkovskiy, Ezra Greenberq, Marta Mussacaleca, Juan Sarmiento Jan Vandaele.

Answer 1

The recent global economic struggles stem from the challenges posed by the COVID-19 pandemic and the conflict in Ukraine, impacting supply chains and long-term planning. To combat these issues, advancements in technology and sustainable labor policies are essential. Businesses must also focus on innovation and investment in human capital to ensure long-term stability in this uncertain economic climate.

Step-by-step explanation:

Impact of COVID-19 and Ukrainian War on Global Economy

The global economy has persevered through massive disruptions resulting from the COVID-19 pandemic and the war in Ukraine. These events have emphasized existing issues within various sectors, from production, distribution, and raw materials acquisition to research and development (R&D).The year 2023 brought about acknowledgment at Davos of the resilience of global trade, marking a $32 trillion record despite these challenges. However, the stability of the global economy is precarious, with dangers lurking that might upset this balance in the foreseeable future.

One key area affected by recent events is the supply chain, particularly in its dependency on innovative technology and labor rights. Advancements in technology and improvement in transportation methods are necessary to ensure supply chains function effectively, even during emergencies. Furthermore, businesses must strengthen their labor policies to align with international agreements and national laws. This alignment can aid recovery by preserving essential jobs and facilitating the manufacturing and distribution of goods globally.

Inflation and economic instability have led to a re-closure of a portion of jobs that had initially recovered from pandemic-related shutdowns. These closures exacerbated supply chain issues, affecting the availability of crucial products and raw materials. Thus, sustainable initiatives in sectors such as business management and market adjustment strategies are required to counteract these challenges.

Ultimately, long-term planning in macroeconomics must be reconsidered in light of these developments. The task now is to promote policies that foster innovation and support human capital investment. Such measures will not only serve the immediate needs of the economy but will also lay the groundwork for longer-term prosperity amid uncertainty.