Analyst

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">The CHIPS Act of 2022 is finally taking root in several US states and will bolster domestic semiconductor production while creating thousands of jobs.</blockquote>
 
<blockquote class="quote">The act has led to significant investments in semiconductor manufacturers like Intel and TSMC, enabling them to expand their production capabilities within the United States.</blockquote>
 
<blockquote class="quote">The expansion of domestic semiconductor production is expected to have several positive effects on procurement, from supply growth and price stabilization to improved supplier relationships, risk mitigation, and supply chain diversification.</blockquote>
 
The ongoing trend in procurement over the last three years has been supply chain issues. The coronavirus pandemic, geopolitical events, and adverse weather events have negatively affected many industries. As procurement professionals, this has made it difficult to accurately source goods and services while creating value.
 
Thankfully, the CHIPS Act enacted in 2022 is finally gaining traction and will chip away at the semiconductor shortage that has negatively affected prices for many industries.
 
<h2 class="contentH2">What is the CHIPS Act of 2022?</h2>
As many of you know, the world experienced a widespread semiconductor shortage between 2020 and 2023. The pandemic significantly increased demand for consumer electronics due to remote work and education, which, paired with other factors like the US-China Trade War and the Russia-Ukraine War, caused a huge spike in chip prices. <a rel="noopener" href="https://finance.yahoo.com/news/these-industries-are-hit-hardest-by-the-global-chip-shortage-122854251.html?guccounter=1&amp;guce_referrer=aHR0cHM6Ly9lbi53aWtpcGVkaWEub3JnLw&amp;guce_referrer_sig=AQAAAKkWG21Fwo4OQeu8iB8oEek6MmjZzj1ethRQxbTibioBI2soxp56OxxgR5xdgda0VxBEFgBc2vbZgacnV0XqhnD10nu-w5Nk45mLiuXM4UpWEaek4D7iRuWiEMVC_ZFfwpTrFFt6pcAgFFyWFH2IEl1EOknXZQE-C-K0Wx2HKxsL" target="_blank" data-anchor="?guccounter=1&amp;guce_referrer=aHR0cHM6Ly9lbi53aWtpcGVkaWEub3JnLw&amp;guce_referrer_sig=AQAAAKkWG21Fwo4OQeu8iB8oEek6MmjZzj1ethRQxbTibioBI2soxp56OxxgR5xdgda0VxBEFgBc2vbZgacnV0XqhnD10nu-w5Nk45mLiuXM4UpWEaek4D7iRuWiEMVC_ZFfwpTrFFt6pcAgFFyWFH2IEl1EOknXZQE-C-K0Wx2HKxsL">According to Goldman Sachs</a>, approximately 169 downstream industries were negatively affected by the shortage, none more so than the automotive and consumer electronics industries.
 
Automotive manufacturers lessened production at the beginning of the pandemic, as they justifiably expected car sales to decline amidst the global event. However, consumer demand for cars remained high, with a significant chip supply reduction. This trend, combined with high interest rates, caused vehicle prices and wait times to increase sharply in the next two years. Both consumers and businesses relying on vehicle fleets were negatively affected by this shortage. Additionally, the <a rel="noopener" href="https://www.autocar.co.uk/car-news/industry-news-tech%2C-development-and-manufacturing/stock-take-experts-drill-motor-industrys" target="_blank">consumer electronics industry uses about 50% of chips globally</a>. Declining chip production and the booming cryptocurrency industry resulted in computer prices skyrocketing.
 
In response to these events, the Biden Administration and Congress enacted the <a rel="noopener" href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/" target="_blank">CHIPS and Science Act</a> in August 2022. Under this act, the United States pledged to invest over $50 billion in federal funding toward research, development, and production of semiconductors. Historically, the US has yet to produce any cutting-edge semiconductors domestically, which has made the country heavily reliant on imports from countries like China, Taiwan, and Israel. The billions in federal investment should improve US economic and national security while creating thousands of new jobs in local communities.
 
<img src="https://content.ibisworld.com/media/o1xnxk5i/shutterstock_2190569351.jpg?width=720&amp;height=480.7667731629393" alt="" width="720" height="480.7667731629393">
 
<h2 class="contentH2">What's the latest news on the CHIPS Act of 2022?</h2>
One of the primary goals of the CHIPS and Science Act is to turn the United States into a major global player for leading-edge logic chips. To put it simply, these chips have advanced processing capabilities and typically feature new, groundbreaking technology. As of 2024, the <a rel="noopener" href="https://www.manufacturingdive.com/news/microsoft-intel-newest-chip-foundry-customer-18a-technology/708953/" target="_blank">United States currently manufactures 0%</a> of these chips, with companies like Taiwan and China dominating the space. However, the Biden Administration hopes the US will produce at least 20% of leading-edge chips by 2030, a lofty goal requiring heavy investment and innovation within the domestic sector.
 
Intel, one of the largest global semiconductor manufacturers, has recently been granted an <a rel="noopener" href="https://www.supplychaindive.com/news/intel-chips-funding-impact-us-semiconductor-supply-chain/711268/" target="_blank">additional $8.5 billion by the US government</a> to continue its fab expansion. The firm plans to expand its production capabilities in Arizona, Oregon, and New Mexico. Additionally, the firm will invest more into its $20 billion Ohio project, where Intel plans to have two new production facilities operating by 2026. Intel's forecasted production growth is positive news for the global economy and procurement operations, as the firm has partnerships with over 9,000 suppliers in 89 countries.
 
The CHIPS and Science Act has also opened the door for foreign semiconductor manufacturers to expand their operations on US soil. For example, Taiwan Semiconductor Manufacturing Co. (TSMC), a leading player in the global chip market, has also been <a rel="noopener" href="https://www.azcentral.com/story/money/business/tech/2024/04/08/tsmc-to-get-6-6-billion-from-chips-act-3rd-arizona-fab-announced/73232207007/" target="_blank">awarded $6.6 billion</a> in federal grants from the US government. This grant is on top of the already $65 billion the firm has invested in US production in recent years. With federal funding, TSMC has recently announced plans to expand its manufacturing capabilities in Arizona, where it already employs thousands of workers in its two fabs. As over 70% of TSMC customers are US-based firms (Apple, Qualcomm, NVIDIA), the production growth will ultimately strengthen supply chain resilience within the United States.
 
<img src="https://content.ibisworld.com/media/tdrlf5yk/shutterstock_2435105667.jpg?width=720&amp;height=480" alt="" width="720" height="480">
 
<h2 class="contentH2">How will the CHIPS Act affect procurement? </h2>
Growing investment into domestic semiconductor production will have widespread, positive effects on procurement. Benefits will include:
<ol>
<li>Supply Growth and Price Stabilization</li>
</ol>
Downstream markets that rely on semiconductors should have easing price growth and increased resilience from supply shocks. Take the automotive industry, for example. According to industry experts, a modern car uses <a rel="noopener" href="https://electronics-sourcing.com/2022/05/04/how-many-chips-are-in-our-cars/" target="_blank">between 1,300 and 1,500 semiconductors</a>, while a new electric vehicle (EV) uses about double. <a rel="noopener" href="https://www.coxautoinc.com/market-insights/q4-2023-ev-sales/" target="_blank">With EV sales showing record growth</a> quarter after quarter, growing chip production should ease the sector's current supply issues. This trend will benefit both consumers and businesses relying on vehicle fleets, which will grow in importance as EV legislature grows in states like California.
 
<ol start="2">
<li>Improved Supplier Relationships</li>
</ol>
As US semiconductor development grows and production increases, downstream chip buyers will have more opportunities to improve supplier relationships. Chip giants like Intel and TSMC will have a much stronger domestic presence, signaling a higher degree of trust and reliability to US customers. Additionally, these firms will rely on local suppliers, bolstering domestic supply chains and ultimately fostering goodwill between US partners.
 
<ol start="3">
<li>Risk Mitigation and Supply Chain Diversification</li>
</ol>
As previously mentioned, one of the goals of federal grants toward domestic chip production is to bolster the United States' economic and national security. The United States was hit hard by chip shortages, exacerbated by its nearly complete reliance on foreign production of leading-edge chips. Growing the presence of suppliers like Intel and TSMC will certainly insulate upstream buyers relying on chips in daily operations if supply chain events similar to the pandemic occur again. The trade war between the United States and China <a rel="noopener" href="https://www.cnbc.com/2024/03/11/global-supply-chain-starts-planning-for-a-trump-win-new-china-tariffs.html" target="_blank">is heating up</a>, making US chip production increasingly important.
 
<h2 class="contentH2">Concluding Thoughts</h2>
The CHIPS Act is gaining traction in 2024 and is forecast to improve procurement operations – which will improve supply stability, better supplier relationships, and strengthen risk mitigation. By investing heavily in domestic chip production, procurement professionals can expect enhanced resilience against global supply shocks and price volatility, improving procurement outcomes across industries.
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

The CHIPS Act of 2022 is finally taking root in several US states, bolstering domestic semiconductor production. Read on to discover how the act will positively affect procurement.

What Does Procurement Need to Know About the US CHIPS Act?

Procurement's Market Intelligence Partner

We're excited to return to Coupa Inspire, this time as a sponsor, to celebrate our first year on the Coupa App Marketplace. We're sending our best and brightest to the conference to discuss market intelligence for procurement, AI, digital transformation best practices, and future integrations for ProcurementIQ. 
 
We just wrapped up a webinar with Amanda Prochaska at Wonder Services, where she and ProcurementIQ's own Lou Alexander discussed how to ensure what you learn at conferences becomes actionable change, as well as digital transformation best practices and what you should have on your checklist before implementing new technologies or change. 
 
We highly recommend checking out Amanda and Lou's webinar for your conference prep, <a href="https://www.procurementiq.com/blog/procurement-change-management">which you can view here.</a> One of the things Amanda recommended prior to Inspire is to review the speaker list through the conference app and select who you might be interested in learning more from. By making your "must meet" list, you can ensure you attend their sessions and follow-up during or after the conference with those you were inspired by the most.
 
Amanda also made sure to highlight the cross-networking opportunities at Coupa. Of course, everyone wants to listen to the CPO keynote speakers and make connections with the titans in our field, but it's rare to have so many other talented procurement practitioners in one place. Make sure you connect with and learn from your peers. You might find their practices and insights just as useful as the keynote speakers', and you never know who might become the next great procurement pioneer! 
 
Amanda and Lou didn't just talk about the conference, however, so even if you're not going make sure to <a href="https://www.procurementiq.com/blog/procurement-change-management">check out their talk</a> on best practices for change and how to implement new technologies. One of the unique solutions for change management Amanda presented was how Wonder Services defines key internal stakeholders responsible for successful change or tool adoption. Wonder Services groups key stakeholders according to a set of personas and how leadership can effectively engage those stakeholders based on their persona. 
 
For the full list of stakeholder personas by Wonder Services, check out the webinar.
<h2 class="contentH2">Which keynote speakers at Coupa Inspire should you see?</h2>
One of the biggest opportunities to learn at Coupa Inspire comes from the lineup of procurement innovators, executives, and thought leaders serving as keynote speakers. While every session will have great speakers and lessons to impart, these are the ones we're looking forward to the most: 
<h3 class="contentH3">Tuesday, April 23</h3>
<h4 class="contentH4">Conquering Today's Confidence Crisis</h4>
<h4 class="contentH4">8:45 - 10:15 AM </h4>
All of us are looking for insights, reliability, and stability. We’re desperate for answers and seeking solace in our decision making. But we’re plagued by an uncontrollable virus that’s attacking our confidence – in the markets, AI, data, and the geopolitical world at large. We’re facing a confidence crisis.
 
Join Coupa CEO Leagh Turner and CPO Fang Chang and Coupa customer leaders from RingCentral, Hilton and Danone to hear how we’re partnering to unlock AI’s potential and overcome the confidence crisis. Get a first look at new AI-driven platform innovations to help you seize control, stifle risk, and deliver durable, profitable growth.
 
<h4 class="contentH4">Supply Chain Keynote: How to Accelerate Agility, Promote Profitability, and Sharpen Sustainability</h4>
<h4 class="contentH4">11:00 AM - 12:00 PM PT</h4>
You lead your supply chain organization to reach higher profit margins. You push to achieve excellence in the face of irregularities, inconsistencies, and ever-changing realities on the ground. You’re grappling with what AI means for supply chains. And you see a responsibility to protect the future of your business with a lens toward sustainability. It’s no cakewalk. But it is possible. And you can catalyze the change required. 
 
Hear from Microsoft about how they’re leveraging Coupa to predict, plan, pivot, and optimize for profitability and sustainability. Get an exclusive look at Coupa’s vision for AI-driven digital planning and orchestration and new innovations to equip you to fulfill your potential.
 
<h4 class="contentH4">Sourcing, Procurement, and Finance: Partnering for Bottom-Line Impact</h4>
<h4 class="contentH4">1:30 - 2:15 PM</h4>
Facing high inflation and economic uncertainty, Procurement and Finance leaders must work together to identify every opportunity to improve margins. In this session you'll understand how to seize these opportunities using your BSM platform.
 
<h4 class="contentH4">Utilizing Sourcing Technology and Game Theory to Improve Negotiation Outcomes</h4>
<h4 class="contentH4">4:00 - 4:45 PM </h4>
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Many organizations tend to overpay within their procurement spend because suppliers do not have the right incentives to lower their prices. Traditional negotiation techniques accompanied by recent inflationary trends have prevented buyers from taking advantage of the leverage in their supply base and prices have remained high, leaving value on the table. The good news is game theory can help. In this session, you will learn the fundamentals of game theory, best practices for applying it throughout your sourcing process, and how it can help buyers gain the upper hand in their negotiations and drive value.
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<h2 class="contentH2">Wednesday, April 24</h2>
<h4 class="contentH4">Keynote | Break the Mold: Fueling Innovative Thinking to Drive Transformation</h4>
<h4 class="contentH4">8:45 - 10:30 AM</h4>
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Transformation. We all seek it. We’re all tasked to achieve it. We’re also all curious about technology's role to accelerate it. But we cannot rely on technology alone. It takes purpose. It takes taking risks. It takes tenacity. It takes challenging traditional ways of thinking. It takes courage to pursue something that might sound crazy. This is what the Coupa community is all about.
 
<h4 class="carina-rte-public-DraftStyleDefault-block contentH4">Leadership Panel: Profit-Building Strategies for Navigating Market Fluctuations and the AI Frenzy</h4>
<h4 class="carina-rte-public-DraftStyleDefault-block contentH4">11:15 AM - 12:00 PM</h4>
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How do you build a profitable and high-growth business that can not only withstand, but thrive in today's constantly fluctuating macroeconomic environment? Even though interest rates appear to be stabilizing, and immediate concerns about a recession have subsided -- business leaders are reluctant to trust any sign of steady operations. Labor markets are still tight, and constantly emerging AI advancements bring about new challenges to ensure you’re embracing the technology strategically and responsibly.
 
Join this engaging panel discussion where industry experts share how they're shaping and shifting business strategies, balancing trade offs, and making smarter decisions for their business.
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<h4 class="carina-rte-public-DraftStyleDefault-block contentH4">Invest in Women &amp; Accelerate Progress - An Authentic Conversation</h4>
<h4 class="carina-rte-public-DraftStyleDefault-block contentH4">1:30 - 2:15 PM</h4>
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Join this session and you’ll learn how three female leaders from Topgolf, Synchrony Financial, and Owens &amp; Minor carved their own paths to success. They’ll share their personal stories on taking initiative, gaining recognition, and ultimately becoming trusted advisors in male-dominated industries. You’ll walk away with a renewed point of view on what it means to lead, how to take control of your own journey, and how to serve as an ally for the professional development of women.
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<h2 class="contentH2">What else should you attend at Coupa Inspire? </h2>
Beyond the keynote speakers and networking opportunities, there's plenty of other items to get excited for at Coupa Inspire. Here's a couple of our favorites: 
 
<h4 class="contentH4">Coupa Morning Run | Tuesday, April 23| 6:30 - 7:30 AM </h4>
Need to get your cardio in before heading over to the keynote sessions? Want to see if you can keep up with former NFL athlete and ProcurementIQ's own head of revenue, Lou Alexander? Register for this early morning run to kick off your day on the right foot! 
<h2 class="contentH2">Community Village</h2>
Tuesday, April 23 | 10:15 AM - 5:00 PM and Wednesday, April 24 | 10:30 AM - 4:00 PM
Interested in talking to ProcurementIQ's best and brightest, as well as our own procurement practitioner in residence? We'll be at the Community Village taking digital transformation, AI in procurement, market intelligence best practices, and more. We'll have cool merch--like custom procurement hats, tote bags, golf divots, and more--for anyone who stops by.
 
<h2 class="contentH2">Actionable Insights</h2>
Coupa Inspire is an ideal platform to connect with the brightest in the procurement world, as well as tool providers. Networking is a crucial aspect of any industry event, and here's how you can make the most of it:
<ul>
<li>Strategic Preparation: Before the event, research like-minded attendees and speakers, creating a targeted list of contacts to approach.</li>
<li>Active Engagement: Participate in discussions! Ask questions, initiate conversations, exchange contact information, and don’t miss out on this opportunity to connect and share insights with your peers.</li>
<li>Post-Event Follow-Up: Don’t forget to maintain your new connections by following up with your new friends and seek collaborations beyond the conference. If you see a tool or strategy you like, bring it back to your internal stakeholders, discuss the solution or strategy, and explore what it would take to implement. Don’t let all the ideas generated at the conference slip away two weeks after the event is over.</li>
</ul>
ProcurementIQ is proud to sponsor and partner with events like these, furthering our mission to provide invaluable solutions to the best and brightest procurement leaders around.
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

Coupa Inspire is just around the corner. Read more for the top 5 highlights you simply cannot miss at this year’s event.


Coupa Inspire Guide: Navigating the Conference with ProcurementIQ

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">The need for AI-driven procurement solutions is growing amid an unstable global supply chain</blockquote>
 
<blockquote class="quote">AI solutions streamline procurement operations and are forecast to grow more advanced and widespread in use</blockquote>
 
<blockquote class="quote">Procurement professionals should leverage ethical AI solutions when they can to focus on the human aspect of purchasing</blockquote>
 
Since we published <a href="https://www.procurementiq.com/blog/technologies-shaping-the-future-of-procurement">our first iteration</a> of this article in 2020, both procurement technology and supply chain woes have evolved. First, the COVID-19 pandemic has largely been contained from a public health standpoint. However, supply chains remain shaky due to factors like labor shortages, <a href="https://www.procurementiq.com/blog/panama-global-shipping-challenges">geopolitical conflicts, and adverse weather events.</a> These factors continue to emphasize the importance of utilizing advanced technology in procurement to achieve cost savings and ultimately create value. Below you will find technological opportunities you can leverage in 2024 and how procurement departments should evolve alongside AI.
<h2 class="contentH2">How AI is changing spend classification operations</h2>
AI capabilities are incredibly powerful within procurement spend classification operations. Spend classification is the practice of categorizing a company’s historical spend data based on metrics like suppliers, types of items purchased, and departments involved in purchasing. With AI technology, procurement departments can separate purchasing data into a more digestible format to help you make actionable and deliberate purchasing decisions. You can spend less time swathing through vast volumes of data and figures and instead focus on negotiating weak contracts, eliminating waste, and ultimately achieving value creation.
<h2 class="contentH2">Why smart containers can increase your supply chain visibility</h2>
Smart containers have exploded in popularity in recent years as real-time insight into shipping progress has become paramount amid widespread disruptions. These containers utilize advanced sensor technology to measure data like temperature, humidity, and the physical integrity of products within the smart container. These sensors are extremely valuable for shipping sensitive goods, like organic products or fragile items. Additionally, smart containers are integrated with GPS capabilities, providing real-time tracking of shipping containers. A key benefit of GPS tracking includes a minimized likelihood of lost containers, which <a href="https://www.aeler.com/resources/how-can-a-smart-container-help-in-mitigating-climate-change">have grown significantly in number</a> since the onset of the COVID-19 pandemic in 2020. Smart containers also benefit freight operations as a whole, as port operators can view the progress of inbound shipments to reduce the chance of bottlenecks occurring when shipments reach land. Such bottlenecks can add additional buyer shipping costs due to fuel expenditure and shipping delays.
<img src="https://content.ibisworld.com/media/1nwajh0u/container-ships.png?width=720&amp;height=480" alt="" width="720" height="480">
<h2 class="contentH2">How Natural Language Processing (NLP) helps contract management</h2>
Natural Language Processing (NLP) using AI will become a valuable tool for procurement departments with the advancement of artificial intelligence capabilities. We can see this clearly when using NLP for contract management. NLP programs use <a href="https://www.ibm.com/topics/natural-language-processing">advanced algorithms</a> to scan legal documents, which are often lengthy and challenging to obtain key information from. NLP programs discern critical information like termination dates, contract terms, and re-negotiation clauses and extract them into an external database. With NLP programs, you can have all your essential contract information in one place, reducing the need for manual parsing of new and existing contracts.
<h2 class="contentH2">Why e-procurement is becoming more important</h2>
Although professionals in the procurement field are widely using e-procurement, its importance has only grown amid global supply chain challenges. With e-procurement, departments can view, negotiate, and ultimately purchase goods from their network of suppliers. As suppliers are all located in a central software suite, e-procurement software adds a brevity of efficiency and cost-savings benefits compared to antiquated ways of purchasing, like calling or scheduling in-person meetings for buying activity. E-procurement suites can be enhanced through capabilities like AI-driven risk management and automatic compliance checks.
<h2 class="contentH2">How generative AI is streamlining procurement processes</h2>
As many of you have already experienced, generative AI (GAI) like ChatGPT has exploded in popularity in the last two years. <a href="https://www2.deloitte.com/us/en/blog/business-operations-room-blog/2023/generative-ai-in-procurement.html">According to Deloitte</a>, leaders in the procurement space have already begun utilizing GAI to streamline operations, specifically for the RFP response use case.
 
As we can see in the diagram above, GAI can significantly improve the RFP response evaluation process for procurement professionals. Essentially all manual steps, from pre-processing to final evaluations, can be automated using Generative AI. Responses are parsed for relevant information, summarized, and finally accompanied by automated scoring reports and visualizations. Like other AI solutions, GAI reduces human error, streamlines processes, and ultimately creates value for procurement users.
<img src="https://content.ibisworld.com/media/5wnos1g2/shutterstock_739241959.jpg?width=720&amp;height=480" alt="" width="720" height="480">
As AI capabilities become more advanced and widespread, they will continue to grow into a valuable tool for procurement departments. As AI evolves, procurement departments should evolve too, especially within the composition of procurement teams.
Under the assumption that AI will largely handle manual processes, procurement professionals should be able to focus on other tasks. Instead of responsibilities like manual data entry, you can focus on more relevant priorities like strategic decision-making, supplier relationship management, and negotiations. With AI, procurement professionals will gradually shift from creating data to managing and interpreting the outcomes of AI-generated data, ultimately driving value creation for their firms.
 
With this, procurement teams can evolve their existing and available job titles. For example, an AI procurement specialist would select suitable AI solutions to leverage in all procurement operations. The role would also train other procurement team members to use AI technology correctly to ensure compliance and value creation. Data analysts should also grow in importance for procurement departments as AI tools extract a large volume of valuable data that could require additional cleaning and sorting. Individuals who can analyze, interpret, and use the data produced by AI systems will be integral to procurement departments looking to make educated strategic decisions.
 
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

The need for new technologies for procurement to tackle supply chain challenges has only grown. Read more to learn about the latest emerging technologies in the industry. 

Emerging Technologies Shaping the Future of Procurement

Research Analyst II

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">The new ruling on employee-contractor classification by the Department of Labor, set to take effect on March 11, 2024, aims to ensure workers are fairly compensated and protected.</blockquote>
 
<blockquote class="contentH4 quote">The decision may particularly impact industries like trucking, construction, and janitorial services, leading to wage theft claims, a shortfall in skilled labor, and increased service costs.</blockquote>
 
<blockquote class="quote">Procurement professionals should prepare for these changes and assess their impact on their business.</blockquote>
 
<blockquote class="quote">Utilizing ProcurementIQ resources will empower procurement departments to navigate the new regulatory landscape, mitigate risks, and capitalize on opportunities for a more robust strategy.</blockquote>
 
The Department of Labor's final ruling on employee-contractor classification status was announced on January 10, 2024. <a href="https://www.hrdive.com/news/dol-independent-contractor-final-rule-march-11/704017/">According to Jesse Looman</a>, an administrator at the Department of Labor, the new ruling “provides fact-based analysis that does need to be applied in each circumstance to determine whether a worker is an employee or independent contractor in business for themselves”, a distinction critical in determining wages, benefits, and worker protection.
 
With the ruling set to take effect on March 11, 2024, procurement professionals should take the next several weeks to prepare for these changes and their impact on their contracts, supply chains, and overall business operations.
 
<img src="https://content.ibisworld.com/media/nkolohhx/shutterstock_1638562999.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
 
<h2 class="contentH2">What are the key changes to the existing independent contractor rules?</h2>
The existing independent contractor rules established in 2021 are widely viewed as <a href="https://news.bloomberglaw.com/daily-labor-report/businesses-seek-speedy-legal-fight-over-new-dol-gig-worker-rule">employer-friendly</a>. These rules take into account five factors when determining an individual’s status as an employee or contractor; however, two “core” factors are explicitly weighted more heavily that aid employers in classifying workers as independent contractors:
<ul>
<li>Nature and degree of control over performance of the work: When employers grant workers greater control over how and when the work is performed, it supports the classification of these workers as independent contractors.</li>
<li>Worker’s opportunity for profit or loss: If a worker has the potential to earn more or less based on the quality, efficiency, or volume of their work, it suggests they are operating as an independent contractor rather than a traditional employee.</li>
</ul>
The new rule adopts a "<a href="https://www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act#:~:text=Instead%20of%20using%20the%20%E2%80%9Ccore,reality%20of%20the%20whole%20activity.">totality-of-the-circumstances</a>" approach. Unlike the existing rules, where the three “guidepost” factors were only considered when the two core factors conflicted, the new policy ensures that all factors are considered equally. In addition, the Department of Labor is introducing a sixth factor into the assessment for a more comprehensive economic reality evaluation:
<ol>
<li>Nature and degree of control over performance of the work</li>
<li>Worker’s opportunity for profit or loss</li>
<li>Degree of permanence of the work relationship</li>
<li>Extent to which the work performed is an integral part of the employer’s business</li>
<li>Investments made by the worker and the employer</li>
<li>(NEW) Use of the worker’s skill and initiative</li>
</ol>
By expanding the scope of factors when determining employment status and removing the additional weighting given to control and profit potential, workers will have greater leverage to assert their rights as employees.
<h2 class="contentH2">Why are the independent contract rules changing?</h2>
With the new rule, the Department of Labor aims to fairly compensate and protect employees under the Fair Labor Standards Act. When workers are designated as independent contractors, they are not entitled to federal minimum wage or overtime pay for working over 40 hours per week. Additionally, unlike regular employees, they do not receive specific benefits under the law, such as health insurance, retirement plans, paid leave (including vacation, sick, and parental leave), unemployment insurance, and workers' compensation in case of work-related injuries or illness.
<h2 class="contentH2">How does the new independent contractor rules impact employers?</h2>
When workers are reclassified from independent contractors to employees, extra costs stemming from higher wages, benefits, and increased administrative duties could drive up prices for market services. The rule change also complicates employer compliance efforts, potentially requiring additional legal or HR resources. In the short term, the transition could disrupt operational efficiency and productivity as businesses adjust to changes in personnel structure and management.
 
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<h2 class="contentH2">Which industries will be most affected by the final rule?</h2>
<h4 class="contentH4">Trucking </h4>
<a href="https://bookertrans.com/what-percentage-of-truckers-are-owner-operators#:~:text=Statistics%20say%20approximately%2010%2D15,choose%20to%20become%20owner%2Doperators.">Approximately 10-15%</a> of all truckers on the road are owner-operators, meaning they own and operate their own trucks, often working as independent contractors rather than traditional employees. High maintenance and fuel costs reduce profitability for these workers, which will push many of them to pursue full-time employee status for greater economic security. While some truckers may prefer the flexibility and potential increased earnings as independent contractors, others are likely to file claims for wage theft and reclassification due to the economic challenges they face. President and CEO of the Intermodal Association of North America (IANA) <a href="https://www.supplychainbrain.com/articles/38842-trucking-industry-bodies-oppose-new-dol-classification-rule#:~:text=Organizations%20and%20members%20of%20the,a%20Trump%2Dera%20standard%20for">Joni Casey suggests</a> that the final ruling may prompt the “reclassification of over 80% of intermodal drayage drivers.”
<h4 class="contentH4">Construction</h4>
The construction industry relies heavily on independent contractors. Associated Builders and Contractors’ Vice President of Regulatory, Labor and State Affairs <a href="https://www.abc.org/News-Media/News-Releases/abc-final-independent-contractor-rule-will-create-more-confusion-and-litigation-chaos">Ben Brubeck laments</a> that the new ruling’s multifactor approach “will result in more confusion and expensive, time-consuming, unnecessary and often frivolous litigation, as both employers and workers will not understand who qualifies as an independent contractor.” Should these construction firms become wary of hiring independent contractors for fear of potential lawsuits, they could face a shortfall in skilled labor, leading to project delays, longer timelines, and increased costs.
<h4 class="contentH4">Janitorial Services</h4>
A <a href="https://www.epi.org/publication/cost-of-misclassification/">recent report</a> by the Economic Policy Institute indicates that misclassification costs janitors between 17.4% to 24.7% of their income. Transitioning independent contractors to employees under the new DOL rule could lead to higher costs for suppliers in the janitorial industry as they cover higher wages, benefits, equipment, and supplies for their employees. While this change may provide better wages and benefits, it could diminish the flexibility for these janitors who make the transition. Navigating the potential trade-offs of the new classification ruling will present a key challenge to both employers and employees in the janitorial industry. 
 
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<h2 class="contentH2">How can I use ProcurementIQ to prepare for the rule change?</h2>
In response to these changes brought about by the new economic policy, procurement professionals should harness resources like ProcurementIQ to fully understand the implications and develop an effective strategy.
<ul>
<li>CustomIQ
<ul>
<li>With <a href="https://www.procurementiq.com/custom-research">custom market research</a>, you'll gain access to a comprehensive market intelligence report on a subject of your interest. This could encompass evaluating the final rule's impact on an industry, analyzing select suppliers, or identifying particular challenges posed by reclassification within a specific market. If none of our <a href="https://content.procurementiq.comhttps://content.ibisworld.com/media/t1lfmqhp/customiq_menu_2022.pdf">predefined project options</a> align with your needs, a quick consultation with a CRM can result in a personalized project scope designed to address your unique business circumstances and objectives. Equipped with more granular knowledge, you can enter negotiations on new contracts and renewals with confidence.</li>
</ul>
</li>
<li>SupplierIQ
<ul>
<li>SupplierIQ provides users with an in-depth look at <a href="https://www.procurementiq.com/supplier-profiles">over 5,000 suppliers</a> featured in our reports. The SWOT section reveals each supplier's strengths, weaknesses, opportunities, and threats – including what specific financial risks they may be exposed to. The Competitive Position section ranks each supplier on a matrix according to several metrics, including but not limited to market share, market share trend, profitability, financial health, and regulatory risk. As the new rule impacts suppliers' profitability, knowing where suppliers stand financially and competitively can help your business anticipate risks.</li>
</ul>
</li>
</ul>
 
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<ul>
<li>Core Collection
<ul>
<li>The Business Requirements chapter of ProcurementIQ’s collection of reports, which covers <a href="https://www.procurementiq.com/supplier-profiles">over 1,000 categories</a> across the globe, provides buyers with relevant negotiation questions and SLAs to ensure suppliers meet their obligations and control costs. Recent developments, such as the final rule, are incorporated throughout relevant reports. This includes sections discussing input cost drivers, supply chain risk, and the regulatory landscape, which contribute to a comprehensive understanding of how evolving labor laws influence your procurement process and reshape your supplier relationships.</li>
</ul>
</li>
</ul>
 
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The Department of Labor's new ruling will impact the trucking and construction industry. Read more to find out how procurement professionals should prepare for these changes.

Unpacking the New Independent Contractor Rules

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">While cost savings has always been king for procurement departments, businesses are increasingly expecting their procurement divisions to provide company-wide value beyond just lowered costs.</blockquote>
 
<blockquote class="quote">From risk management to leading the charge on sustainable business practices, the scope and breadth procurement is responsible for has widened considerably in the past few years. </blockquote>
 
<blockquote class="quote">Procurement must evolve with the times and improve their risk management practices to help steer their businesses in the right direction, among other initiatives for the future. </blockquote>
 
The primary goal of procurement operations since its inception has been cost savings. Negotiating lower prices, sourcing from reliable suppliers, and obtaining bulk item discounts are among the strategies that successful departments have traditionally utilized. However, according to Deloitte's 2023 CPO survey, the scope of procurement work is changing. Firms expect procurement departments not just to reduce expenses on the balance sheet, but to provide additional value to buying operations as a whole. This can look like implementing quality enhancement initiatives, strengthening supplier relationships, and creating new risk management practices. In a field where shaving costs has been the traditional end goal, it's easy to forget that the future of procurement lies not in mere cost-cutting, but in transforming a conventional cost center into a strategic powerhouse that drives innovation, mitigates risk, and propels long-term growth.
<h2 class="contentH2">Recent Trends</h2>
As industry experts are aware, the COVID-19 pandemic precipitated a transformative shift in procurement operations. The supply chain disruptions that ensued have led to overall inflation and sourcing challenges while also disrupting many businesses' budgets. Procurement departments were suddenly spotlighted as the navigators of these rapid global supply chain disruptions. Surprisingly, however, many firms decided to reduce spending on procurement departments to increase operational efficiency and lower expenses, according to Deloitte. As a result, procurement professionals are now tasked with achieving more using fewer resources, a significant challenge as they prepare for potential future disruptions similar to those experienced during the pandemic.
 
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<h2 class="contentH2">Where is procurement heading?</h2>
Let's dive into what the new, modern art of procurement should look like moving forward as procurement departments aim to add value to firms, not just cut costs.
<h3 class="contentH4 contentH3">Risk Management </h3>
The pandemic has served as a wake-up call for procurement departments worldwide, highlighting the vulnerabilities of global supply chains. Companies that relied heavily on production sites in regions like China found themselves at a standstill when local lockdowns disrupted operations—a stark contrast to manufacturing economies elsewhere that had already begun to rebound. Similar local disruptions had cascading, negative effects on US businesses that had become accustomed to shifting their production and sourcing operations overseas with the goal of cost-savings. Moving forward, a key focus for procurement professionals is mitigating such risks by diversifying supply chains and developing more robust contingency plans to ensure business continuity.
<h3 class="contentH4 contentH3">Trends in Risk Management</h3>
A notable development in supply chain management by procurement departments has been the rise of reshoring activity. With reshoring, companies shift production and sourcing operations from foreign locations to domestic ones. Operations are then insulated from foreign supply shocks like local lockdowns that halt operations and reduce profitability. A 2022 survey by BCI Global revealed that over 60% of American and European companies are shifting operations from the Asia region to domestic soil. This trend illustrates the current paradigm shift in procurement— from a traditional emphasis on immediate cost-savings to a broader focus on managing supply chain risk and enhancing overall business resilience. Risk management initiatives like reshoring not only reduce dependency on distant supply chains but also align with a longer-term vision of value creation by prioritizing stability, quality control, and the ability to quickly respond to market changes.
<h3 class="contentH4 contentH3">Sustainability</h3>
Sustainable procurement operations are becoming a priority for many modern procurement departments. The focus on sustainability is a way to act ethically and promote strategic business operations. Corporate social responsibility (CSR) ensures companies work to benefit society and the surrounding environment rather than degrade them. When sourcing sustainability, procurement departments impart a positive brand image to potential customers while promoting regulatory compliance with rapidly evolving environmental legislation worldwide.
 
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<h3 class="contentH4 contentH3">Sustainable Procurement</h3>
According to <a href="https://procurementmag.com/articles/unstoppable-procurement-trends-in-2023">Procurement Magazine</a>, sustainable procurement was the #1 trend for procurement departments in 2023. It is becoming more of a requirement, rather than a suggestion, that firms source goods and services while focusing on sustainability. This includes monitoring supplier energy use, waste management, and supplier ethics. In doing so, procurement departments are being asked to do more, shifting from merely a cost-savings machine to one centered around value creation. Supplier relationships must be regularly assessed through the lens of sustainability, while all new supplier negotiations will also factor ESG targets.
<h3 class="contentH4 contentH3">Talent Acquisition</h3>
The 2023 CPO survey published by Deloitte illustrated a current pitfall affecting the procurement industry – it is now more difficult to hire and retain top talent which helps sourcing departments do more with less. Over 70% (yes, 70%) reported higher difficulty in attracting talent in 2023 compared to earlier years, while only 4% reported that it is now easier to find suitable employees. Additionally, procurement departments that drove the most value creation identified that lack of motivation and burnout were key contributors to employee productivity loss.
<h3 class="contentH4 contentH3">Talent Acquisition and Management Trends</h3>
Leaders in the modern procurement movement distinguish themselves through a set of shared characteristics reflective of an agile and employee-centric approach. Firstly, these firms have demonstrated an ability to rapidly adapt to changing circumstances, particularly in response to their employees' needs. With the onset of the pandemic prompting a widespread shift to remote work, procurement departments had to embrace flexibility. As operations slowly transition to a new normal, leaders in the field are carefully balancing the benefits of remote work with the reintroduction of in-person collaboration and mandatory travel while always listening to employee feedback to prevent burnout, maintain high productivity and retain existing talent.
Secondly, the approach to recruitment within top-performing procurement departments has evolved significantly. While traits such as passion and curiosity remain valued, there is an increasing demand for candidates who arrive with a robust skill set tailored to the responsibilities of modern procurement. This includes experience working with Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR), strong negotiation skills, and proficiency in digital analytics, especially in capabilities like developing advanced forecasting tools within software suites like Microsoft Excel. Many modern procurement departments are all-in on procurement digitization, as automated tools like cost modeling, predictive analytics, and compliance monitoring all provide significant opportunities for both cost-savings and value creation for their firms.
<h2 class="contentH2">Next Steps</h2>
Knowing these trends above, let’s briefly discuss how procurement departments can evolve into leaders in the field rather than followers.
 
<h3 class="contentH4 contentH3">1. Procurement departments must improve their risk management practices. </h3>
Reshoring is just one way businesses are insulating themselves from external supply chain shocks. Another key trend that leaders in the field are following is reassessing supplier relationships. Opting for short-term contracts allows firms to switch to another supplier if rendered services are unsatisfactory without paying early termination or cancellation fees. Additionally, increasing supplier performance/relationship management can give valuable insight into cost-savings and value-creation opportunities. Combining strong negotiation skills and digital analytics will be vital to achieving industry-leading risk management capabilities. Fiona Adams, ProcurementIQ’s Director of Client Value Creation, points to Total Cost of Ownership (TCO) as an increasingly important metric to manage risk. In doing so, “(Procurement’s) focus will shift to tiers within supply, including services, and an examination of what makes the best sense for cost structure and demand.”
<h3 class="contentH4 contentH3">2. Sustainability is an integral part of the pathway to becoming a successful, modern procurement department.</h3>
Additionally, according to our Fiona Adams, our director of client value realization with over two decades in procurement leadership, sustainability goals have already arrived at the most successful procurement departments. Though many firms have only begun utilizing green engineering practices for new products entering the market, Fiona advocates for identifying sources of sustainable improvement within both business and supplier relationships. Companies that adopt sustainability will reap benefits such as lower overhead costs, enhanced reputations, and high-risk mitigation from non-compliance and reputational damage.
<h3 class="contentH4 contentH3">3. Procurement must continue to recruit and retain highly qualified talent.</h3>
Deloitte’s 2023 CPO Survey revealed that the most successful procurement departments have adapted their hiring and talent retention practices since the onset of COVID-19. <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-recruit-next-generation" target="_blank">Managers now prioritize their workforce's well-being, encouraging high productivity and retention rates.</a> Additionally, potential employees are now being screened for essential skills used in the procurement space, like negotiation skills and technical ability. In tandem, these new talent retention and hiring practices form a powerful procurement team that can adapt and excel in any environment.
 
 
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Deloitte's CPO Survey is always packed full of valuable perspectives, but the real question is: where do we go from here? Read more to find out where procurement is heading.

Putting Deloitte's CPO Survey Into Actionable Next Steps

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">The Panama Canal and the Red Sea/Suez Canal are critical to global shipping, accounting for significant portions of worldwide trade. The severe drought in Panama and raging geopolitical conflicts in the Red Sea have disrupted these vital shipping lanes, leading to substantial delays and financial consequences on global trade.</blockquote>
 
<blockquote class="quote">Escalating shipping costs and considerable delays are affecting various sectors like retail and automotive, with current production slowdowns and looming shortages of key components affecting consumers and manufacturers alike.</blockquote>
 
<blockquote class="quote">In response to these issues, procurement professionals can take actional steps like diversifying supply chains, prioritizing inventory management, and considering marine cargo insurance to mitigate risk and navigate the volatile shipping environment.</blockquote>
 
The Panama Canal and the Red Sea are vital checkpoints in global shipping operations and significantly influence worldwide trade and the global economy. In the west, the Panama Canal acts as a shortcut between the Pacific and Atlantic Oceans, eliminating the need for ships to sail around South America via Cape Horn. In the east, the Red Sea offers a more direct shipping route between Europe and Asia through the Suez Canal, also removing the need for boats to travel around the Cape of Good Hope in South Africa. Currently, both are facing separate but major issues severely hindering the flow of goods across the two shipping lanes.
 
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<h2 class="contentH2">How important is the Panama Canal to World Trade? </h2>
<a href="https://www.csis.org/analysis/key-decision-point-coming-panama-canal">According to data published by the Center for Strategic and International Studies</a>, the Panama Canal accounts for 6% of global trade. This seemingly small figure grows significantly when discussing US trade volume, as over 66% of cargo traffic traversing the canal originated or ended at a US port. Furthermore, cargo from or destined for China accounts for about 13% of traffic through the canal. Any disruption to cargo through the Panama Canal has widespread implications for global trade, specifically US-destined and Chinese manufactured goods.
 
Due to droughts in 2023 caused by El Niño, the Panama Canal has been facing a lengthy period of minimal to no rain. As a result, water levels in the canal have fallen drastically, which has severely limited the volume of ships capable of traveling through the waterway. Historically, the canal has allowed passage for 38 large, freight-carrying ships daily. This number has fallen to 24 vessels per day, amounting to a 36% decrease in daily shipping traffic. <a href="https://www.pbs.org/newshour/show/panama-canal-drought-causes-global-disruptions">According to the canal’s deputy administrator</a>, the drought and subsequent limitation of cargo traffic are expected to persist until at least May 2024. We have just entered Panama’s dry season where experts expect no rainfall for the next four months.
 
Experts in the shipping industry predict that the Panama Canal drought will affect goods used in all sectors. <a href="https://www.cnbc.com/2023/11/03/panama-canal-drought-hits-new-crisis-level-amid-severe-el-nino.html">Specifically, the US East Coast trade will be severely affected</a>. The only realistic alternative shipping route from Shenzhen, China to the US east coast is through the Suez Canal, which is currently experiencing severe problems of its own. Without these shipping lanes, product delays will increase as ships sit idle waiting for their turn in the queue. The events in Panama and Egypt are exacerbating the already weak freight sector, which has experienced tens of thousands of layoffs in the last year.
 
<img src="https://content.ibisworld.com/media/axrh5akr/shutterstock_265162532.jpg?width=720&amp;height=369.93630573248413" alt="" width="720" height="369.93630573248413">
 
<h2 class="contentH2">What about the Red Sea and Suez Canal?</h2>
Like the Panama Canal, the Red Sea/Suez Canal shipping lane is extremely important to global shipping. <a href="https://www.mfat.govt.nz/en/trade/mfat-market-reports/the-importance-of-the-suez-canal-to-global-trade-18-april-2021/#:~:text=The%20193km%20Suez%20canal%20was,worth%20of%20goods%20per%20annum.">It is estimated to account for 12% of worldwide trade</a> and comprises 30% of all international container traffic. If traveling from the Indian Ocean through the Red Sea and Suez Canal, ships can reach Italy from India in just nine days. <a href="https://www.cnn.com/2021/03/26/africa/suez-canal-importance-explainer-scli-intl/index.html">Conversely, traveling around Africa via the Cape of Good Hope</a> takes about three weeks for the same trip, representing a 133% increase in shipping times. 
 
Rather than weather events affecting the Red Sea like in Panama, geopolitical conflicts have been the main driver. <a href="https://www.bbc.com/news/world-middle-east-67614911">Beginning in early December 2023</a>, Iranian-backed Houthi Rebels residing in Yemen have been responsible for multiple attacks on US naval vessels and commercial ships entering the shipping lane. While utilizing an advanced armory of drones, missiles, and speed boats, Houthis have carried out successful attacks on over two dozen commercial ships since the beginning of the Red Sea Crisis.
 
Amid these major safety concerns, shipping giants like Maersk have since decided to avoid the Red Sea altogether. <a href="https://apnews.com/article/red-sea-yemen-houthis-attack-ships-f67d941c260528ac40315ecab4c34ca3">Experts estimate that over 90% of shipping activity</a> that regularly uses the Red Sea has now rerouted, instead sailing around Africa via the Cape of Good Hope. The rerouting of Asia-Europe travel has significantly impacted shipping prices – contributing to a nearly 170% increase in the cost of shipping a 40-foot container ($1,500 to $4,000). The major contributor to higher shipping costs is the added fuel needed to sail on the alternative route around Africa.
 
European consumers and manufacturers alike have already begun feeling the adverse effects of the Red Sea Crisis. For industries like automobile manufacturers heavily reliant on the flow of parts from Asia to Europe through the Red Sea, output has already begun to slow. <a href="https://www.reuters.com/business/autos-transportation/tesla-berlin-suspend-most-production-two-weeks-over-red-sea-supply-gap-2024-01-11/">Both Tesla and Volvo</a> have begun suspending some production activity due to a widespread shortage of components due to the events currently occurring in the Red Sea. This trend may lead to delays for automotive buyers, especially for electric vehicles that rely heavily on advanced chips and battery materials from Asia. For consumers, major retailers like Target and Ikea have already warned customers that shipping delays are near the horizon. Target, for example, relies heavily on manufactured apparel from India and Pakistan that has historically traveled through the Red Sea and Suez Canal. Although consumers have been largely insulated from any price shocks from the shipping crisis, they should continue to expect delays and reduced inventory for goods like attire and furniture. To keep up with shipping delays, retailers are limiting the total stock of goods available for purchase.
<h2 class="contentH2">Actionable Insights</h2>
<h4 class="contentH3 contentH4">1. Assessing and Diversifying Supply Chains</h4>
Amid the two concurrent crises affecting the Panama Canal and Red Sea shipping lanes, it is paramount that procurement professionals reassess and diversify their supply chains to mitigate risk. For example, firms on the East Coast are highly likely to face increased shipping costs for goods originating from China, along with significant shipping delay risks. Even businesses relying on ports in the West Coast may experience interruptions, as many shipping containers are being rerouted to ports in Los Angeles and Seattle to finalize their trips on land. Additionally, buyers relying on European manufacturers should continue to monitor the Red Sea/Suez Canal Crisis, as many producers are already facing inventory shortages and manufacturing delays.
<h4 class="contentH3 contentH4">2. Prioritizing Inventory Management</h4>
In the face of heightened delay risks for critical input goods, procurement departments should accurately assess safety stock levels for both components and finished goods. The cost of holding additional inventory can be weighed against the cost of potential manufacturing and selling disruptions that can occur due to the events happening in Panama and the Red Sea.
<h4 class="contentH3 contentH4">3. Considering Shipping Insurance</h4>
As the frequency of geopolitical and climate change events increase, shipping insurance can be a valuable way of insulating your business from these external factors. Shipping insurance provides coverage against loss, damage, or delay that occurs when goods are in transit. Key benefits include financial protection and coverage for situations like climate change and geopolitical events while providing global coverage. Marine cargo insurance is offered by the leading insurance companies by market share like AIG, RLI Corporation, and Travelers Insurance.
<h2 class="contentH2">Conclusion</h2>
The existing crises affecting the two channels are expected to continue having widespread repercussions on global trade. Companies and their procurement departments should continue to act decisively and strategically to best insulate their firms from the looming financial implications resulting from the events in Panama and the Red Sea.
 
 
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Global shipping faces major disruptions due to climate issues and geopolitical conflicts. Read more for insights on how procurement professionals can take actional steps.

How Shipping Disruptions Along the Panama and Suez Canals Will Affect Procurement

Business Research Analyst

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">While cost savings are still king for procurement departments, seeking cost savings at the expense of everything else can have wide-reaching consequences that include credit risk. </blockquote>
 
<blockquote class="quote">S&amp;P Global downgraded the credit ratings of 200 companies between 2020 and 2022 for supply chain issues. </blockquote>
 
<blockquote class="quote">As supply chain risk increases, procurement departments should seek to maximize visibility into their supply chains and take the necessary steps to minimize disruptions, therefore protecting the company's credit rating.</blockquote>
 
Supply chain risk is not just a concern for supply chain management professionals: it can also result in financial problems for companies. <a href="https://www.spglobal.com/_assets/documents/ratings/research/101587702.pdf">S&amp;P Global</a> reported in 2023 that it had downgraded the credit ratings of 200 companies from early 2020 to late 2022 which had run into supply chain issues.
 
While supply chain management professionals value cost savings, sometimes seeking cost savings can make a company’s supply chain more vulnerable. For example, many companies have adopted just-in-time inventory practices that involve the company keeping inventory levels to a minimum. This may bring about short-term savings for your company in the form of lower storage costs but a lower inventory level makes the company’s supply chain more vulnerable to disruptions. A vulnerable supply chain, in turn, increases the likelihood that a supply chain disruption will hurt your company’s credit rating, thus raising borrowing costs and wiping out these cost savings.
 
<h2 class="contentH2">Credit ratings explained</h2>
S&amp;P Global is one of the “big three” credit rating agencies along with Fitch and Moody’s. S&amp;P Global’s rating system has roughly <a href="https://www.spglobal.com/ratings/en/about/intro-to-credit-ratings">20 different levels</a>, with AAA being the highest (with the lowest probability of missed payments) and D being the lowest (with the highest probability of missed payments). All ratings from AA to CCC can have a plus or a minus added to signify lower or higher risk. Lenders consider these ratings when deciding whether to loan money to a company and what rate to charge. A company with an AA+ credit rating would enjoy a lower interest rate than a company with an AA credit rating, which is one level below AA+. A rating of BB+ or lower is considered “speculative” or “junk” debt, and the borrower will have to pay higher interest rates. Lower interest rates translate into lower financing costs, giving companies with higher credit ratings a competitive advantage. You can find S&amp;P Global's credit ratings in order below:
<ul>
<li>AAA, AA+, AA, AA-, A+, A, A-</li>
<li>BBB+, BBB, BBB-, BB+, BB, BB-, B+, B, B-</li>
<li>CCC+, CCC, CCC-, CC, C, D</li>
</ul>
<h2 class="contentH2">How does supply chain risk impact credit risk? </h2>
Companies that face supply chain issues may find themselves unable to secure critical inputs, which could force them to scale down or even cease operations until the input becomes available again. This was the case for <a href="https://money.usnews.com/investing/news/articles/2023-03-07/s-p-cuts-nissan-credit-rating-to-junk-status">Nissan</a>, which had its credit rating cut to BB+ from BBB- by S&amp;P in March 2023 over concerns that supply chain issues would impact its sales. 
 
Alternately, in some cases the company may still be able to secure an input but it will be paying higher prices for the product. This was the case for <a href="https://disclosure.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/2798241">Weber</a>, a manufacturer of outdoor grills, which had its credit rating cut to B+ by S&amp;P in February 2022 due to supply chain disruptions which increased input costs and shipping costs.
 
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<h2 class="contentH2">Who is at risk? </h2>
Of the 200 companies that had their credit ratings downgraded, 30% were consumer goods manufacturers, 15% were manufacturers of capital goods and machinery and 10% were restaurants or retailers. Technology companies and manufacturers of cars and trucks were tied for fourth place, with each industry accounting for 9% of these downgrades.
 
Furthermore, a <a href="https://www.chicagobooth.edu/review/global-supply-chains-can-hurt-companys-credit">2020 study</a> found that higher fixed costs, higher debt levels, and higher levels of competition can make a company’s credit rating more vulnerable to supply chain disruptions.
<h2 class="contentH2">Is supply chain risk increasing?</h2>
Supply chain risk appears to be getting worse over time as the risk of natural disasters, cyberattacks and geopolitical turmoil increases. <a href="https://www.mckinsey.com/capabilities/operations/our-insights/risk-resilience-and-rebalancing-in-global-value-chains">McKinsey</a> found that the average company can expect to experience a supply chain disruption lasting one month or longer every 3.7 years. As a result, the risk that your company’s credit rating will be hurt by a supply chain disruption is rising, which strengthens the case for supply chain resilience.
<h2 class="contentH2">How can supply chain disruptions impact a company's finances?</h2>
Furthermore, the impact of a supply chain disruption can be high. In the same study, McKinsey estimated that over a decade, the average company can expect financial losses equivalent to 42% of one year’s earnings before interest, taxes, depreciation, and amortization (EBITDA) stemming from severe supply chain disruptions. Supply chain management professionals may want to weigh these potential losses against the cost savings from keeping minimum levels of inventory.
 
We can get a rough estimate of the financial impact of Nissan’s March 2023 credit rating downgrade. <a href="https://www.spglobal.com/en/research-insights/articles/the-cost-of-a-notch">S&amp;P Global</a> wrote in 2019 that the yield on corporate debt with a rating of BBB- (like Nissan before March 2023) was 2.84 percentage points above that of a Treasury bond while the yield on corporate debt with a BB+ rating (like Nissan after March 2023) was 3.60 percentage points above a Treasury bond. Assuming these pre-COVID figures hold, this credit downgrade could raise Nissan’s interest rates by 0.76 percentage points. For a billion dollars in debt, this would translate to roughly $38 million in additional interest payments over five years. Furthermore, this only covers the credit costs. Supply chain disruptions that lead to credit rating downgrades can also shave billions of dollars off of a company’s market capitalization.
 
<img src="https://content.ibisworld.com/media/uchbscfb/shutterstock_1439240216-1.jpg?width=720&amp;height=387.1625929861849" alt="" width="720" height="387.1625929861849">
 
<h2 class="contentH2">Actionable Insights</h2>
Fortunately, companies can secure their creditworthiness against the impact of supply chain disruptions. While companies with high debt levels, high fixed costs, and high levels of competition are more vulnerable, some industries are characterized by these so reducing debt, fixed costs, and competition may not be feasible. Furthermore, some companies may be able to reduce risks by holding more inventory, but this strategy may not work for every company because some inputs are subject to spoilage (such as <a href="https://www.procurementiq.com/market-intelligence/Medical-Gloves">nitrile gloves</a> and N95 masks) or obsolescence (such as GPUs).
 
Supply Chain Mapping: Companies can get a more complete view of their supply chain by mapping their supply chain. A <a href="https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/consultancy/deloitte-uk-procurement-and-supply-chain-resilience.pdf">2022 survey</a> of 468 supply chain management professionals by Deloitte and the Chartered Institute of Procurement &amp; Supply found that only 13% of the people surveyed had complete visibility over their supply chains while 71% had little to no visibility beyond second-tier suppliers. Mapping the complete supply chain, including second-, third- and fourth-tier suppliers, may help supply chain management professionals uncover hidden risks.
 
Dual/Contingent Sourcing: Dual sourcing involves using two suppliers for a certain good during ordinary circumstances while contingent sourcing involves identifying a backup supplier for emergency situations. Both strategies may help supply chain management professionals reduce supply chain risk, although there are some limits; if both suppliers are concentrated in the same region, dual/contingent sourcing may not provide much relief in the event of a natural disaster.
 
Regionalizing Supply Chains: Some companies are regionalizing their supply chains, which involves sourcing goods from the same region where they are consumed to reduce risks. For example, companies may still manufacture goods in China but sell these goods in China rather than in the United States or Germany. For products sold in the United States, companies may seek suppliers based in Mexico; for products sold in Germany, companies may seek suppliers based in Poland. Regionalized supply chains are shorter and less complex than global ones, which reduces the risk that they will be disrupted by wars, natural disasters, or issues with maritime chokepoints such as the Suez Canal or Panama Canal.
 
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Sometimes seeking cost savings exclusively can make a company’s supply chain vulnerable. Read more for insights into protecting your credit rating through supply chain management. 

Supply Chain 101: Supply Chain Risk Can Mean Credit Risk, Too

<h2 class="contentH2">Key Takeaways</h2>
 
<blockquote class="quote">The United Auto Workers (UAW) strike is a rapidly evolving labor movement that will significantly affect the supply chain.</blockquote>
 
<blockquote class="quote">Buyers contracted with trucking, logistics, and metal and steel suppliers face a higher risk of supply chain disruptions.</blockquote>
 
<blockquote class="quote">Procurement professionals need to bolster their supply chains against the effects of the UAW strike through supplier diversification, regular supplier assessments, and contract management.</blockquote>
 
 
<a href="https://www.procurementiq.com/blog/economics-labor-disputes">As we wrote back in August with the UPS-Teamsters union event,</a> 2023 has been riddled with labor movements across different sectors of the American economy. Some, like the UPS strike, successfully negotiated better employee pay, benefits, and working hours. Unfortunately, other walkouts were not as successful. The SAG-AFTRA strike affecting the movie and television industry was hopeful of reaching an equitable result after months-long debates over the use of AI and uneven streaming revenue distribution. However, negotiations <a rel="noopener" href="https://www.thewrap.com/why-sag-studio-talks-ended-fran-drescher/" target="_blank">broke down again</a> just last week, resulting in further uncertainty for the thousands of Americans working in the sector. 
 
The latest labor strike movement by the United Auto Workers (UAW) bears many similarities to the UPS Teamsters strike. The ultimate goal of the strike is to guarantee higher wage growth over the next four years than what Ford, GM, and Stellantis have offered. The UAW is asking for a 36% pay rise over the next four years, while the American Big 3 automakers <a rel="noopener" href="https://apnews.com/article/bill-ford-executive-chairman-uaw-contract-talks-27b702b36599bf1706e1c692ccfda1c6" target="_blank">have only promised about 20%.</a> In addition, the union is asking for better pay for new employees, reinstitution of overtime pay provisions, and better protections against projected manufacturing plant closures. The inflationary environment has eroded real wages for workers in the last three years and has been the primary driver of strike activity, <a rel="noopener" href="https://apnews.com/article/auto-workers-battery-plants-strike-contract-3e5b9a970cdf9b0de9c79fcebe315694" target="_blank">while the rise of electric vehicles (EVs)</a> has also threatened the long-term job outlook for workers currently employed at American ICE plants.
 
As the UAW strike enters month two, ripple effects are already being felt across the automotive sector. On October 11th, <a rel="noopener" href="https://www.npr.org/2023/10/18/1206897321/uaw-strike-ramps-up-as-kentucky-facility-walks-off-jobhttps:/www.npr.org/2023/10/18/1206897321/uaw-strike-ramps-up-as-kentucky-facility-walks-off-job" target="_blank">the 8,700 workers employed at Ford’s Kentucky truck plant</a> (over $25 billion in annual revenue) joined the strike. The rapid deterioration of the firm’s manufacturing capabilities has reduced the supply of vehicles entering the market, with models like the Ford Ranger already experiencing dealership shortages. Additionally, vehicle parts have faced supply constraints, with dealerships and individuals <a rel="noopener" href="https://www.nytimes.com/2023/09/28/business/economy/uaw-strike-dealerships-parts-suppliers.html" target="_blank">reporting vehicle repair and maintenance delays</a>. Individual buyers have also changed their purchasing behavior, with some opting to buy UAW vehicles to support the strike, while others are shifting away from US automakers entirely.
 
This labor strike movement will not only affect the automotive sector but the US and the global supply chain as a whole. Let’s investigate the sectors that will be hit hardest if the UAW strike persists in the coming months.
 
<img src="https://content.ibisworld.com/media/zi1epofj/shutterstock_2226861139.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
 
<h2 class="contentH2">How will the UAW strike affect supply chains? </h2>
In a recent press conference by General Motors, CEO Mary Barra stated, “<a rel="noopener" href="https://www.cnbc.com/2023/09/27/uaw-strikes-threaten-already-vulnerable-auto-parts-suppliers.html" target="_blank">For every GM job, there’s six others in the economy that depend on us running</a>.” A prolonged strike by the UAW will have widespread effects across the supply chain, so we should investigate those industries most at risk.
 
<h3 class="contentH3">Trucking &amp; Logistics</h3>
The trucking, logistics, and freight industry is forecasted to be the hardest hit by a prolonged strike by the UAW. According to the <a rel="noopener" href="https://www.freightwaves.com/news/experts-warn-of-dire-supply-chain-effects-from-prolonged-uaw-strike" target="_blank">American Trucking Association president</a>, the trucking industry transports over $950 billion of vehicles annually across the United States. The trucking industry, particularly smaller tier 2 and 3 companies, heavily relies on the continuous supply and demand loop of vehicles being manufactured, transported, and sold to consumers. A slowdown or halt in this loop due to a reduction in the supply of cars, likely resulting from a prolonged UAW strike, presents a significant financial risk for these firms. High interest rates and diminishing PPP funds allocated to smaller trucking firms add further risk of insolvency and job loss in the trucking and logistics industry.
<h3 class="contentH3">Car Dealerships</h3>
Consumers will feel the brunt of the UAW strike when visiting car dealerships. With the Louisville Ford plant strike, car inventory shortages are expected to hit dealerships nationwide soon. Popular models, like the Ford Bronco and Ford Ranger, have already experienced rapid price growth amidst low supply. New car sales are forecast to continue rising in the next few months despite high interest rates, which will add further upward pressure to vehicle prices. <a href="https://www.npr.org/2023/09/15/1199682850/automakers-are-not-the-only-business-that-will-be-affected-by-the-uaw-strike">Strikes affecting parts manufacturers</a> have also caused long wait times for maintenance and repair services. Amidst the parts shortage, dealerships have even <a rel="noopener" href="https://www.cars.com/articles/inventory-of-uaw-strike-affected-models-is-shrinking-as-shopper-awareness-grows-472799/" target="_blank">started trading parts</a> among themselves to navigate the complex environment. This pressure applied on dealerships by the UAW strike may also lead to insolvency and job loss in the sector, similar to what is occurring with trucking &amp; logistics.
<h3 class="contentH3">Upstream Suppliers</h3>
Key upstream suppliers like the metal and steel industry are heavily reliant on automotive manufacturing activity to drive business operations. In 2022, <a rel="noopener" href="https://www.autonews.com/editorial/auto-industry-watches-us-steel-sale-closely" target="_blank">the automotive sector accounted for an estimated 30%</a> of the total revenue for notable steel firms like Cleveland-Cliffs. With the UAW strike escalating, smaller steel firms are at risk of insolvency, while larger firms like US Steel have already begun widespread layoffs and refinery closures. Instability in the steel industry can lead to price volatility and supply shortages for buyers from other major sectors like construction, energy,  and machinery manufacturing.
 
<img src="https://content.ibisworld.com/media/4xffjuzy/shutterstock_2363802003.jpg?width=720&amp;height=481.27523910733265" alt="" width="720" height="481.27523910733265">
<h2 class="contentH2">What are the best practices for dealing with the UAW strike? </h2>
The widespread UAW strike can pose significant challenges for procurement professionals, particularly those in industries directly or indirectly connected to the automotive sector. Here are some strategies for navigating this challenging landscape:
<h3 class="contentH3">Regular Supplier Assessment</h3>
Procurement professionals are responsible for regularly assessing suppliers to drive efficiency and business growth. These assessments, honing in on aspects like performance, capabilities, and risk levels, play an integral role in maintaining operational equilibrium, notably during crises such as a widespread UAW strike. Standard assessment tools include key performance indicators (KPIs) and service-level agreements (SLAs). Relevant KPIs include on-time delivery rate, lead time, and supplier responsiveness, all of which give you insight into how well a supplier navigates the effects of the UAW strike. For SLAs, you should consistently compare supplier performance with SLA obligations. Including penalty clauses in contracts can help ensure that business operations are not interrupted due to a supplier’s inability to navigate the consequences of the UAW strike.
<h3 class="contentH3">Supplier Diversification</h3>
Supplier diversification should always be a focus in procurement operations, but it is imperative during supply chain uncertainty. As the UAW strike could spill over into upstream industries like metal and steel, you should ensure they have a widespread group of suppliers to mitigate supply chain risk. Diversifying allows greater flexibility in operations, as a larger number of suppliers reduces the likelihood of shipping delays, price shocks, and business disruptions. Additional benefits include <a rel="noopener" href="https://www.panorama-consulting.com/supplier-diversification-strategy/" target="_blank">increased price competition, bargaining power, and improved quality of goods and services</a> throughout the supply chain. Re-examining suppliers and diversifying is especially important for industries affected by the strike, like metal and trucking. 
<h3 class="contentH3">Contract Management and Post-Strike Evaluations</h3>
Key contract clauses are another way you can protect your business against labor strikes. For example, Force Majeure clauses free both parties from obligation during unexpected external events like widespread strikes. Additionally, key contract clauses related to Cancellation outline the circumstances allowing contract termination without incurring legal liabilities or penalties. These clauses can provide businesses with more control and flexibility during challenging situations. Readers can explore Force Majeure and Cancellation clauses under the <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/proqnow/businessrequirements.aspx?entid=1393" target="_blank" data-anchor="?entid=1393">Passenger Vehicles report</a> in our procurement report library. You can see an example of our Key Contract Clauses section below. 
 
<img src="https://content.ibisworld.com/media/0r1ggmiw/key-contract-clauses.png?width=720&amp;height=346.60998937300747" alt="" width="720" height="346.60998937300747">
 
Although the UAW strike is ongoing, you should implement post-strike evaluations upon its conclusion. Post-strike evaluations allow buyers to assess the strike’s impact on their supply chain while identifying vulnerable suppliers for future strike events. Fully quantifying the UAW strike's financial impact will help budget for similar labor movements that will add supply chain instability. You should also carefully examine existing contingency plans and lines of communication further to drive efficiency in the event of a future strike.
<h2 class="contentH2">Final thoughts</h2>
The United Auto Workers (UAW) strike has considerably impacted various sectors, with significant implications for supply chains. This evolving event requires robust resilience strategies from procurement professionals regardless of industry. From regular supplier assessments and diversification to strategic contract management and thorough post-strike evaluations, these valuable approaches are necessary to navigate this uncertain supply chain landscape and potential future labor disputes. The situation underscores the importance of preparedness, adaptability, and vigilance in managing business operations amidst a constantly changing economic and labor environment.
 
 
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The UAW strike will affect the automotive sector and the global supply chain. Read more to discover how the strike will affect your supply chain and what you can do to adjust.

How the UAW Strike Will Affect Supply Chains and Procurement

ProcureCon Barcelona is just around the corner, and for procurement professionals, it's one of the most eagerly awaited events of the year. With thoughtful keynote speakers, networking opportunities, education opportunities, interactive workshops, and chances to trade procurement stories and best practices, it’s tough to decide what to attend.
 
That’s why we’ve identified the top highlights you simply cannot miss at this year’s event.
Keynote Speakers and Thought Leadership Sessions
One of the biggest opportunities to learn at ProcureCon Barcelona comes from the lineup of procurement thought leaders and executives serving as keynote speakers.
 
Here’s a selection of the presentations we’re looking forward to the most!
 
Day 1 | 8:55 - 9:15 AM | Miguel Gonzalez | Commercial mindset: How to think more commercially in procurement and create the table rather than wait for a seat at it
 
Day 1 | 11:15 - 11:45 AM | Panel discussion | Digital Transformation: Where to focus your digital transformation initiatives to reduce transactional working
 
Day 1 | 12:25 - 12:45 | Jonas Artmeier | Supply chain transparency: How to leverage the full potential of digital technologies
 
Day 1 | 2:45 - 3:45 | Fiona Adams, ProcurementIQ | Data-driven insight: How to use market-driven data to enhance your communication and category management strategies
 
Day 2 | 9:15 - 9:45 AM | Panel discussion | How to balance supplier relationships with uncomfortable conversations you need to have in the current economic climate
 
Day 3 | 8:55 - 9:15 AM | Robert Turner | How we need to transform procurement and the CPO role to go beyond savings and offer our organizations the deep insights that create value
 
Networking Opportunities
ProcureCon Barcelona is an ideal platform to connect with the brightest in the procurement world, as well as tool providers. Networking is a crucial aspect of any industry event, and here's how you can make the most of it:
<ul>
<li>Strategic Preparation: Before the event, research like-minded attendees and speakers, creating a targeted list of contacts to approach.</li>
<li>Active Engagement: Participate in discussions! Ask questions, initiate conversations, exchange contact information, and don’t miss out on this opportunity to connect and share insights with your peers.</li>
<li>Post-Event Follow-Up: Don’t forget to maintain your new connections by following up with your new friends and seek collaborations beyond the conference. If you see a tool or strategy you like, bring it back to your internal stakeholders, discuss the solution or strategy, and explore what it would take to implement. Don’t let all the ideas generated at the conference slip away two weeks after the event is over.</li>
</ul>
ProcurementIQ at ProcureCon Barcelona
Day 1 | 2:45 - 3:35 PM | Track D Workshop
 
Join us for the ProcurementIQ workshop on Day 1, where you'll get an introduction to our cutting-edge market intelligence solutions and a chance to learn how insightful market-driven data can enhance your storytelling and category management strategies.
 
Fiona Adams, our director of client value realization, will cover:
<ul>
<li>Facilitating faster decision making: How storytelling enhances communication and engagement (case studies and examples of successful storytelling in procurement)</li>
<li>The role of data-driven insights in expediting procurement processes</li>
<li>Using ProcurementIQ data to create compelling narratives</li>
<li>Guided exercises to explore category-specific insights</li>
<li>Identifying KPIs to measure success</li>
</ul>
 
Don’t forget to visit the ProcurementIQ in the main hall at Booth 18.  At our booth, you can expect to find:
 
<ul>
<li>Market intelligence reports tailored to your industry.</li>
<li>Expert consultations to answer your procurement queries.</li>
<li>Opportunities to demo our ProIQ products.</li>
<li>Free trial offers</li>
<li>And more!</li>
</ul>
 
ProIQ is proud to sponsor and partner with events like these, furthering our mission to provide invaluable solutions to the best and brightest procurement leaders around.
 
Don't miss out on the chance to enrich your knowledge and skills at ProcureCon Barcelona - we'll see you there!
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

ProcureCon Barcelona is just around the corner. Read more for the top 5 highlights you simply cannot miss at this year’s event.


ProcureCon Barcelona Guide: Navigating the Conference

Key Takeaways:
 
China's domestic economic issues, coupled with a slowing global economy, are currently driving a significant decline in both exports and imports.
 
Fewer imports may lead to price reductions for commodities such as steel and aluminum while prompting greater volatility in shipping costs.
 
Reduced demand for Chinese exports could lower the prices of Chinese goods, offer increased bargaining power for international buyers, and potentially lead to longer supply chain lead times due to the instability.
 
Monitoring the ongoing economic situation in China and understanding its impact on global pricing and supply chains are critically important for future strategic procurement decisions.
 
China is a pillar of global trade, serving as the largest trading partner of over <a rel="noopener" href="https://www.wilsoncenter.org/blog-post/china-top-trading-partner-more-120-countries#:~:text=China%20is%20the%20largest%20trading,trader%20with%20Russia%E2%80%94and%20Ukraine." target="_blank" data-anchor="#:~:text=China%20is%20the%20largest%20trading,trader%20with%20Russia%E2%80%94and%20Ukraine.">120 countries</a> and <a rel="noopener" href="http://english.scio.gov.cn/pressroom/2022-06/15/content_78271432.htm" target="_blank">constituting 30%</a> of global manufacturing output. With the Chinese economy stymied by intermittent lockdowns, Beijing’s abandonment of its zero-COVID policy at the turn of the year was met with great optimism. At last, the economy began to show signs of strength as consumer spending, exports, and imports received a much-needed boost. The government officially set a <a rel="noopener" href="https://www.cnbc.com/2023/03/05/china-sets-gdp-target-of-around-5percent-for-2023.html" target="_blank">5% GDP growth target</a> for 2023, and analysts widely expected to see this conservative estimate surpassed.
 
Fast forward to the Summer of 2023, and the rosy picture of China’s economy has dimmed. As the country faces a slew of macroeconomic issues that continue to disrupt the economy, procurement professionals abroad are now tasked with preparing for potential ripple effects on the global economy. What's happening to China's economy, and how does this impact procurement?
Why are Chinese imports declining? 
With the end of lockdowns, analysts expected the pent-up consumer demand to spearhead China's economic recovery. Yet imports to China have <a rel="noopener" href="https://www.reuters.com/world/china/chinas-july-exports-imports-fall-much-faster-than-expected-2023-08-08/" target="_blank">decreased 12.4%</a> year on year in July and <a rel="noopener" href="https://www.cnn.com/2023/09/07/economy/china-trade-august-decline-hnk-intl/index.html" target="_blank">8.8% in August.</a> What’s going wrong? 
 
To understand the decrease in imports, we must examine consumer sentiment in the country and its impact on the economy. Of particular importance is the significant influence of the property sector.
<ul>
<li>In China, property accounts for an immense percentage of household wealth <a rel="noopener" href="https://www.china-briefing.com/news/explainer-whats-going-on-in-chinas-property-market/" target="_blank">at 70%</a>, nearing <a rel="noopener" href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4589866/#:~:text=Housing%20assets%20accounted%20for%2079,household%20wealth%20in%20rural%20China." target="_blank" data-anchor="#:~:text=Housing%20assets%20accounted%20for%2079,household%20wealth%20in%20rural%20China.">80% in larger cities</a>.</li>
<li>The price-to-income ratio for buying a house in China <a rel="noopener" href="https://www.numbeo.com/property-investment/country_result.jsp?country=China" target="_blank" data-anchor="?country=China">exceeds 30:1</a>, dwarfing that of the United States at <a rel="noopener" href="https://www.realestatewitch.com/house-price-to-income-ratio-2021/#:~:text=The%20average%20house%2Dprice%2Dto%2Dincome%20ratio%20in%20the,enough%20to%20purchase%20a%20home." target="_blank" data-anchor="#:~:text=The%20average%20house%2Dprice%2Dto%2Dincome%20ratio%20in%20the,enough%20to%20purchase%20a%20home.">closer to 5:1</a>.</li>
<li>The property sector is the most substantial contributor to China’s GDP, <a rel="noopener" href="https://fortune.com/2023/08/17/china-real-estate-fitch-james-mccormack-downgrade-warning/" target="_blank">making up 30%</a> of the overall economy – a percentage that is nearly twice that of other major economies.</li>
</ul>
With anxieties over a burgeoning real estate bubble, the government introduced the “<a rel="noopener" href="https://eac-consulting.de/china-three-red-lines-policy/" target="_blank">three red lines</a>” policy to combat speculative investments. The "three red lines" benchmark set restrictions on debt-to-assets and debt-to-equity ratios while requiring property developers to divulge further details on their debt positions. In effect, this policy triggered defaults (<a rel="noopener" href="https://www.washingtonpost.com/business/2023/08/28/china-evergrande-s-rise-massive-default-and-debt-restructuring/d98a95d4-460f-11ee-b76b-0b6e5e92090d_story.html" target="_blank">Evergrande</a>) and record net losses (<a rel="noopener" href="https://www.cnn.com/2023/08/30/business/china-country-garden-raise-funds-earnings-intl-hnk/index.html" target="_blank">Country Garden</a>) from some of the country’s largest developers, as well as a liquidity crunch for major trusts and investment groups (<a rel="noopener" href="https://www.reuters.com/markets/asia/zhongrong-trusts-missed-payments-trigger-fears-among-chinese-investors-2023-08-16/" target="_blank">Zhongrong</a>).
 
In China, <a rel="noopener" href="https://www.nytimes.com/interactive/2023/01/24/world/asia/china-unfinished-apartments.html" target="_blank">90%</a> of properties are sold before they are completed. Amid the liquidity crisis, several homebuyers are on the hook for <a rel="noopener" href="https://www.reuters.com/business/unpaid-workers-silent-sites-chinas-property-woes-hit-country-garden-2023-08-23/" target="_blank">unfinished properties</a> sold to them by financially strapped developers with indefinite timelines, if any, for the completion of these projects. In the face of these economic uncertainties and concerns over the health of the real estate market, new home sales <a rel="noopener" href="https://www.cnn.com/2023/08/01/economy/china-real-estate-country-garden-intl-hnk/index.html#:~:text=The%20drop%20in%20new%20home,4.7%25%20from%20a%20year%20earlier." target="_blank" data-anchor="#:~:text=The%20drop%20in%20new%20home,4.7%25%20from%20a%20year%20earlier.">declined 33%</a> year on year in July, and the value of both new and existing homes <a rel="noopener" href="https://www.bloomberg.com/news/articles/2023-08-16/china-s-housing-slump-is-much-worse-than-official-data-shows#:~:text=Judging%20by%20China's%20official%20statistics,existing%20homes%20have%20dropped%206%25." target="_blank" data-anchor="#:~:text=Judging%20by%20China's%20official%20statistics,existing%20homes%20have%20dropped%206%25.">continues to fall</a>.
 
<img src="https://content.ibisworld.com/media/4c3lfcrg/shutterstock_2136170815.jpg?width=754&amp;height=266&amp;mode=max" alt="" width="754" height="266">
 
This is only one challenge China is facing. The youth unemployment rate in China has risen every month in 2023, standing at <a rel="noopener" href="https://www.nytimes.com/2023/08/15/business/china-youth-unemployment.html" target="_blank">21.3%</a> in June before the government ceased publishing these statistics. Consumer prices <a rel="noopener" href="https://www.cnbc.com/2023/08/09/china-reports-smaller-than-expected-drop-in-consumer-prices.html" target="_blank">declined 0.3%</a> year-on-year in July, which, accompanied by high unemployment, has led to mounting concerns about stagflation. $9 trillion of off-balance-sheet debt <a rel="noopener" href="https://www.bloomberg.com/news/articles/2023-08-24/china-local-government-debt-has-investors-worried-about-bond-defaults" target="_blank">continues to burden</a> local governments.
 
Amid such uncertainty and turmoil, Chinese citizens have and will continue to prioritize saving over spending, regardless of governmental efforts to encourage more consumer expenditure. Domestic economic woes and a reduction in imports will most directly cause a decline in commodity prices. As China’s economy slows, industrial energy consumption decreases, with fewer goods being produced as industries scale back operations, restricting demand for oil and gas.
 
As China is the largest consumer of steel and aluminum, decreased consumer spending on big-ticket items such as cars and housing will continue to place downward price pressure on these commodities. If China, a significant consumer of raw materials, reduces its imports, producers of these raw materials in other countries may adjust by scaling back their production. This can result in the reduced availability of these raw materials globally.
 
Fewer imports into China would also reduce the demand for freight, creating an imbalance in the shipping market. With excess capacity, shipping lines may raise freight rates to offset the lost revenue from reduced demand. Fewer imports may disrupt shipping schedules as carriers cancel sailing to balance supply and demand, leading to further volatility in freight rates and availability. Reduced imports will lead to a surplus of empty shipping containers that will need repositioning back to their origin, inflating costs for shipping companies which will likely pass on to buyers.
 
In light of these potential disruptions, procurement officials should establish contract terms that mitigate the impact of escalated freight rates and guarantee reliable scheduling and availability for shippers particularly exposed to such risks.
Why are Chinese exports declining?
While domestic troubles are primarily responsible for the decline in imports, the reduction in export volumes reflects shifting global trends beyond China’s influence. With the end of lockdowns, China anticipated strong global demand and increased production. However, surging inflation and rising interest rates globally, particularly in the United States and Europe, prompted consumers and businesses to tighten their belts in 2023. The slowing of the global economy has hampered Chinese exports significantly, having <a rel="noopener" href="https://www.bbc.com/news/business-66436582#:~:text=Official%20figures%20show%20that%20exports,boost%20the%20post%2Dpandemic%20recovery." target="_blank" data-anchor="#:~:text=Official%20figures%20show%20that%20exports,boost%20the%20post%2Dpandemic%20recovery.">declined 14.5%</a> year on year in July – the steepest decline since the initial outbreak of the coronavirus pandemic.
 
The drop is more significant when looking at the United States specifically, where Chinese exports <a rel="noopener" href="https://www.cnbc.com/2023/08/08/china-reports-double-digit-plunge-in-july-exports-and-imports-missing-expectations.html" target="_blank">declined 23.1%</a>. This is in part explained by the practice of “<a rel="noopener" href="https://www.atlanticcouncil.org/content-series/future-of-tech-competition/offensive-friendshoring-and-deteriorating-us-china-relations/" target="_blank">friendshoring</a>”, as the United States and other Western nations have reconfigured supply chains to become more secure and less dependent on perceived hostile nations – including China. The recently passed CHIPS and Science Act in 2022 is a direct result of this rebalancing strategy. Moreover, direct investment liabilities, which is a measure of foreign direct investment in China, fell to $4.9 billion from April to June in 2023 – down 87% from the same period last year, representing the <a rel="noopener" href="https://news.bloomberglaw.com/banking-law/china-foreign-investment-gauge-at-25-year-low-amid-high-tensions" target="_blank">lowest amount</a> in any quarter in 25 years.
 
<img src="https://content.ibisworld.com/media/uchbscfb/shutterstock_1439240216-1.jpg?width=720&amp;height=387.1625929861849" alt="" width="720" height="387.1625929861849">
What does this mean for procurement? 
Less global demand for Chinese goods will significantly weigh on the prices of Chinese exports. To account for falling demand, China may consider devaluing the Yuan, which has already <a rel="noopener" href="https://www.bloomberg.com/news/articles/2023-08-14/yuan-set-to-test-this-year-s-low-as-chinese-growth-sputters" target="_blank">slipped roughly 5%</a> since the beginning of the year, to boost global demand for products, which would further lower the prices of Chinese exports to international consumers.
 
In procurement, you may gain greater bargaining power in negotiating contracts with Chinese suppliers, as these companies will be eager to retain or gain business. Such a strategy would be particularly advantageous to buyers with larger contracts and order volumes.
 
At the same time, a struggling Chinese economy could lead to increased lead times and supplier defaults. You must ensure your supply chains are resilient to such shocks by proactively sourcing alternative suppliers and planning contingency stock planning to avoid disruptions.
 
Your department should adopt a comprehensive perspective that encompasses all layers of your supply chain, taking into account not only Tier 1 suppliers but also the integral role and potential vulnerabilities of Tier 2 and Tier 3 suppliers.
Continued monitoring of the economic situation in China and its impact on global pricing and supply chains will be key for making strategic procurement decisions in the future.­­
 
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China is a pillar of global trade, but the country faces a slew of macroeconomic issues. What's happening to China's economy, and how does this impact procurement?

China's Economic Downturn: Implications for Global Trade

Procurement professionals often talk about global sourcing and global supply chains, but what they really mean is local or regional sourcing all over the world. 
 
In order to be actionable, information on pricing, suppliers, market trends, and ESG performance have to be drawn from the country in question - but to support fast-paced, global business, they also need to be centrally available. 
 
Join Lyle Dixon Smith, SVP of Business Development at Procurement IQ, and Ben Kempenich, Senior Business Research Analyst at ProcurementIQ, to learn how to address the global dynamics at play in your category strategies.
<iframe src="https://secure-web.cisco.com/1niu3yi2FhX219R8Ongja_ABvWnfbcwqaTiDv5WxARujZjcI8dZScEieRRD9WqFEPZwqrCApKuvbENo8ejfbqUPW_RD8e5NlhF81znXh0DYNm_EN2TRPEAl3BWFXarBHLCw2yWrLDfbVkaMaiIgGriBK6iAnvRnWWtz5U1MouAGYhHgh1O1FoFyaRBdRPzmJl_Z-ge2Rbp28dWyRdHA-nmgScBIDj107kSXpVSyv5-oGp0D4XW-zXm1vuB-dLnO8VsbpouxMLShCSnULBH_1gnrnI479xgWtv-YOdjHzabNUIFwIwi5liQRzfxqxcVoegX_oG2nB2yHnC-wWeqKqQTQ/https%3A%2F%2Fplayer.vimeo.com%2Fvideo%2F852791650%3Fh%3Dbdf10d0029" width="640" height="564" frameborder="0" allow="autoplay; fullscreen" allowfullscreen=""></iframe>
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Join Lyle Dixon Smith and Ben Kempenich of ProcurementIQ to learn how to address the global dynamics at play in your category strategies.

Categorypalooza: Leveraging Robust Data in Global Sourcing

Los Angeles, California 
August 16, 2023 
 
ProcurementIQ, the market intelligence leader for procurement, is proud to announce that Fiona Adams has joined the company’s executive staff as the director of client value realization, effective immediately.   
 
In her new role, Adams will develop and lead initiatives designed to maximize the value and return on investment ProcurementIQ clients receive as part of their membership. She will report to and work with Senior Vice President Vincent Roush. 
 
“Adams will impact the client experience in countless ways,” said Roush. “She’ll help clients realize the full potential of our market intelligence, but she’ll also elevate the product itself. As an industry leader and ProcurementIQ user, she has a deep understanding of the current and future needs of procurement departments worldwide. Her knowledge in the field and her new role at our company positions her to ensure our tools are exactly what procurement professionals need, when they need it.”  
 
An experienced procurement leader with over two decades of sourcing and procurement consulting experience, Adams will help procurement departments and professionals worldwide achieve their goals through the successful utilization of ProcurementIQ’s suite of market intelligence solutions. Her firsthand expertise in global and strategic sourcing enables her to directly affect the value clients can bring to their business by supporting client procurement strategy initiatives as well as training category managers and other users on market intelligence and ProcurementIQ tool utilization. 
 
She will also work in concert with ProcurementIQ’s product development team on enhancing current tools and creating future solutions.  
 
The director of client value realization position was created specifically for Adams, who joins the ProcurementIQ team from Nordstrom, where she was the senior strategic sourcing manager for two years. Before Nordstrom, Adams spent time in senior procurement positions across Adidas, WNS Denali, Starbucks, and others.  
 
“We’re very excited to have Fiona join the ProcurementIQ management team,” Roush concluded. “With her help, our clients are in a better position than ever to turn their ideas into action.”
 
 
 
About ProcurementIQ: ProcurementIQ is the leading market intelligence provider built specifically for procurement. With coverage that spans more than 1,000 categories, ProcurementIQ has helped Fortune 500 companies, government departments and agencies, and hundreds of small businesses achieve success through quicker access to market insights and data. 
 
Contact marketing.iq@procurementiq.com for more information.

ProcurementIQ is proud to announce that Fiona Adams has joined the company’s executive staff as the director of client value realization, effective immediately.   

ProcurementIQ Names Fiona Adams Director of Client Value Realization

Key Takeaways
<ul>
<li>The Teamsters union and the global shipping giant have provisionally resolved the looming UPS strike.</li>
<li>The union must still vote on approving the tentative deal, which could take until August 23. If the vote fails, the union may still strike.</li>
<li>Labor strike frequency has grown significantly in the last year due to various economic factors like inflation and income inequality.</li>
<li>Although labor movements can occur locally, they carry widespread implications on the global supply chain.</li>
<li>Procurement departments should continue to monitor labor movements, as strikes are expected to become more common as worker dissatisfaction grows alongside worsening economic conditions.</li>
</ul>
The United Parcel Service (UPS) was in <a rel="noopener" href="https://www.procurementiq.com/blog/ups-labor-strike" target="_blank">months-long negotiations</a> with over 340,000 employees represented by the International Brotherhood of Teamsters. On July 25th, the Teamsters union and UPS reached a tentative, preliminary deal worth upwards of $30 billion. The provisional agreement marks a significant landmark for UPS workers, who were awarded many of the benefits they were fighting for, such as raises for full-time and part-time drivers as well as air conditioning for new delivery vans.  
 
While some hail it as a victory for the Teamsters, <a rel="noopener" href="https://www.washingtonpost.com/business/2023/07/25/ups-strike-deal-teamsters/" target="_blank">not everyone within the union is satisfied</a>, marking another window in which the Teamsters union now has to sell the deal to its own members. Among other issues, some points of discontent among union members include the size of pay increases for part-time workers and heat control in delivery vehicles—such as air-conditioning—only seeing implementation in new service vans from 2024 on, not vehicles currently in use.
 
The UPS situation is just one of many labor disputes that have occurred in the past year.
 
Here’s what we know now and how we, as procurement professionals, can prepare for potential labor strikes:
What are the key details of the UPS Teamsters Agreement? 
<ul>
<li>After months of tense negotiations, UPS workers have reached a tentative five-year deal with their employer that provides several key provisions that will benefit employees, including:
<ul>
<li>Existing part-time workers will be awarded a pay raise to at least $21 per hour, which equates to a 35% raise compared to the current part-time pay of $15.50 across the United States.</li>
<li>Full-time UPS workers will have wages raised to an average pay of $49 per hour. The pay raise is equivalent to a 6% raise on current salaries. Additionally, average wages across UPS must grow by at least $7.50 per hour over the next five years.</li>
<li>Lastly, mandatory overtime on employee off days is being removed. This provision will benefit the work-life balance of UPS drivers. Currently, most work between 50-60 hours a week due to high demand and mandatory overtime clauses.</li>
</ul>
</li>
<li>Along with the benefits outlined in the new agreement, UPS drivers <a rel="noopener" href="https://www.npr.org/2023/06/14/1182147381/ups-workers-facing-extreme-heat-win-a-deal-to-get-air-conditioning-in-new-trucks" target="_blank">successfully bargained for mandatory air conditioning units in new delivery vans</a>.</li>
<li>Although the deal must be ratified by a union vote in August, the Teamsters’ leadership is optimistic that these changes will be agreed-upon and finalized in the next month.</li>
</ul>
The potential UPS strike is just one of many labor movements across the United States. Let’s investigate why strikes have increased drastically in the past year.
 
<img src="https://content.ibisworld.com/media/gaudtgil/shutterstock_2334412515.jpg?width=720&amp;height=418.08917197452234" alt="" width="720" height="418.08917197452234">
 
What are the economics of labor strikes?
The frequency of <a rel="noopener" href="https://www.ilr.cornell.edu/news/research/strikes-52-2022-labor-action-tracker#:~:text=Findings%20for%202022%20include%3A,number%20of%20workers%20on%20strike." target="_blank" data-anchor="#:~:text=Findings%20for%202022%20include%3A,number%20of%20workers%20on%20strike.">strikes grew by over 50% in 2022</a>, with strike activity projected to continue increasing by the end of 2023. Aside from UPS, the WGA/SAG-AFTRA Hollywood strike began in July, with over 170,000 actors and writers joining the fight. Additionally, the United Auto Workers union is preparing to halt manufacturing activity on September 14th if automakers Ford, General Motors, and Stellantis don’t meet contract terms.
 
So what’s the deal? Why are we seeing such an increase in labor disputes and strike activity?
 
Let’s look at several economic trends across different US sectors for the answer.
<ul>
<li>Inflation: Persistent inflation is a crucial factor motivating workers across the country to fight for better pay. Rising prices are outpacing wage growth, ultimately reducing purchasing power for millions of Americans. Prices for essentials like gasoline, food, and rent have made it difficult to make ends meet. In the UPS strike, a primary motivator was experienced, full-time, and part-time wages being significantly outpaced by inflation.</li>
<li>Corporate Profits: A common theme across many strikes across the United States in the last year has been record corporate profits. For example, <a rel="noopener" href="https://www.cnn.com/2023/01/31/investing/ups-earnings/index.html" target="_blank">UPS experienced its first year exceeding $100 billion in profit for 2022</a>, with similar projections for 2023. The rise in corporate profit has encouraged animosity among workers who feel they are the backbone of the company and have not seen their wages grow in turn.</li>
<li>Income Inequality: Rising corporate profits have been accompanied by income inequality growth in the United States. According to the <a rel="noopener" href="https://www.cfr.org/backgrounder/us-inequality-debate" target="_blank">Council on Foreign Relations</a>, the United States is the world leader in income inequality among developed economies. Since 1979, the top 0.01% of earners have experienced an excess of 500% growth in household income. Meanwhile, the middle 60% of earners in the US have only seen their average household income grow 53% in the same period. Slow wage growth and inflation pressures have contributed to increasing working-class strife.</li>
</ul>
 
Local disruptions like labor strikes can potentially make a global impact, disrupting supply chains and adding difficulties to sourcing and procurement activities. Let’s look at some projected labor movements that procurement professionals should monitor.
Which local disruptions could have global implications?
<ul>
<li>The projected United Auto Workers (UAW) union against Detroit’s Big Three car companies (Ford, GM, and Stellantis) is a potential disruption stemming from labor strikes. As production for electric vehicles (EVs) grow, union workers are concerned about their job security and possible raises in the future. As <a rel="noopener" href="https://spectrum.ieee.org/the-ev-transition-explained-2658797703#:~:text=Further%2C%20given%20that%20EVs%20are,assembly%20line%20jobs%20may%20disappear." target="_blank" data-anchor="#:~:text=Further%2C%20given%20that%20EVs%20are,assembly%20line%20jobs%20may%20disappear.">EV manufacturing requires far less labor than traditional ICE manufacturing</a>, union workers worry that they will eventually be laid off due to decreased labor demand in the industry. Additionally, Tesla’s cheaper, non-union labor adds pressure to union work in the auto industry.</li>
<li>Some potential consequences of the possible UAW strike on the US and global supply chain include:
<ul>
<li>Effects on Parts Suppliers: If the 150,000 UAW workers were to strike, the labor movement would undoubtedly disrupt the automotive supply chain. Part manufacturers for both simple components (nuts, bolts, wiring) and complex systems (sensors, electrical systems) would be left with excess inventory and reduced revenue due to the forecasted slowdown in vehicle production. As parts are often produced internationally by upstream manufacturers, this has broad, negative implications for the global supply chain.</li>
<li>Impact on Commodity Producers: The automotive supply chain relies heavily on upstream raw materials suppliers. For example, <a rel="noopener" href="https://www.steelspecialtiesinc.net/the-steel-drive/" target="_blank">auto production accounts for about 16% of global steel consumption as of 2020</a>. In addition to automotive steel, <a rel="noopener" href="https://www.spglobal.com/commodityinsights/en/ci/products/natural-rubber-chemical-economics-handbook.html" target="_blank">over 78% of natural rubber was used for tires and related products in 2022.</a> The UAW strike could cause a demand shortage that threatens the financial health of these upstream material suppliers, who often operate internationally.</li>
</ul>
</li>
<li>Labor strikes in one industry can have widespread spillover effects into related sectors. You should begin taking preventative measures to protect your supply chains against the growing frequency of labor movements in 2023.</li>
</ul>
 
<img src="https://content.ibisworld.com/media/z53ijpba/shutterstock_702447661.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
How should you prepare for labor disruptions? 
Here are some steps that can help secure sourcing operations and decrease supply chain risk in the next few years.
<ul>
<li>Diversifying Supplier Base: Contracting with multiple related suppliers for goods or services helps mitigate the risk of business disruptions due to labor strikes. If strikes affect a partnership with a supplier, you can increase purchasing frequency from a competitor.</li>
<li>Real-Time Planning and Research: Procurement departments need to monitor the capabilities of suppliers continuously. Strikes typically occur after months of planning, which should give you ample time to shield their operations in the event of a forecasted strike.</li>
<li>Labor Strike Contract Clauses: When contracting with a supplier, you can include a contract clause to outline actionable steps if a labor strike was to occur. The contract clause may consist of a financial penalty clause or plans for alternative production. </li>
</ul>
The Key Contract Clauses section of our <a rel="noopener" href="https://www.procurementiq.com/category-list" target="_blank">market intelligence reports</a> can serve as a guide for stipulations you may want to include in contracts with your suppliers. Force majeure clauses--as seen below in our <a href="https://www.procurementiq.com/market-intelligence/Paper-Towels">paper towels report</a>--are often made applicable to lockouts and labor strikes.
 
<img src="https://content.ibisworld.com/media/zhofeu5r/forcemajeurepapertowels.png?width=859&amp;height=179&amp;mode=max" alt="" width="859" height="179">
 
Labor strikes are yet another obstacle that procurement departments may be navigating soon. Local disruptions can severely affect supply chains, making it paramount for procurement to remain vigilant through regular preparation.
 
 
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UPS Teamsters. United Auto Workers. Screen actors and writers. Why are we seeing so many labor disputes and strikes in the second-half of 2023? 

Understanding the Economics of Labor Disputes

Key takeaways:
<ul>
<li>Generative artificial intelligence (AI) has the potential to replace menial work in content creation, customer service, human resources (HR) and recruitment, tourism and travel, and other industries.</li>
<li>Generative AI has limited potential to disrupt primary sector industries, industries that rely on interpersonal trust, and those that are highly regulated, as well as industries that rely on fresh creative content.</li>
<li>There are further artificial intelligence implications for socially conscious procurement and diversity, equity, and inclusion (DEI) initiatives within organizations.</li>
</ul>
Recently, AI language models have emerged as powerful tools <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">transforming a wide variety of industries.</a> These models, such as OpenAI’s ChatGPT, Google’s Bard, and others, have the ability to generate, analyze, and understand large volumes of text-based data. However, the impact of these language models will vary across different sectors. Which industries will AI language models affect the most, and which ones will AI affect the least?
 
Which industries could generative AI disrupt? 
Industries often cited as targets for AI disruption include content creation, customer service, HR and recruitment, and tourism and travel. However, these discussions often fail to mention a key caveat: AI can replace basic and menial tasks, but it struggles to accomplish complex jobs and advanced creative work at its current stage of sophistication.
 
To illustrate the distinction between basic and advanced work, let’s look at artistic vocations such as graphic design, copywriting, and creative direction. While AI’s impact on these careers is hotly debated, there is one thing that is known for sure: current language models operate based on existing bodies of knowledge and the data sets they’re trained on, which is to say they lack originality in their inputs. Language models can reproduce content based on what already exists, but it cannot innovate or create new and original content, so its impact on this field all depends on how creative you need the AI to get.
 
Looking to generate simple, generic copy for product descriptions on a website? ChatGPT has you covered. Looking for clever prose for an advertisement campaign to guide the artistic direction of a brand? You’re better off with human ingenuity.
 
<img src="https://content.ibisworld.com/media/yh0bikyk/shutterstock_2248595561.jpg?width=720&amp;height=477.44952178533475" alt="" width="720" height="477.44952178533475">
 
On one hand, businesses with relatively simple marketing needs stand to benefit from virtually free content generation thanks to the <a rel="noopener" href="https://www.analyticsvidhya.com/blog/2023/03/an-introduction-to-large-language-models-llms/" target="_blank">large language models (LLMs).</a> However, businesses planning a sophisticated marketing campaign that requires the touch of human ingenuity might find that <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Marketing-Consulting-Services" target="_blank">the prices for the remaining experts are higher than before.</a>
 
For example, <a href="https://techcrunch.com/2023/03/21/adobe-firefly-generative-ai/">Adobe recently introduced Firefly</a>, a generative AI model that can quickly produce images and text for commercial campaigns. This technology was also able to identify a recent increase in solo travelers, after which it generated content for a campaign that highlighted the value of solo travel with specific deals. This illustrates AI’s potential to perform simple reasoning based on existing information. However, when it comes to highly sophisticated marketing campaigns, there are limits to AI’s ability to understand cultural nuances, tell compelling stories, and make predictions about the future.
 
While much of the public discourse on AI asks which industries will be affected, a better question might be “Which industries won't be affected?”
 
Which industries are less affected by generative AI?
Industries that rely on interpersonal trust
There are many reasons why face-to-face human interaction is valuable, but underpinning that value is one important human commodity: trust. After all, the ability to empathize with and trust each other is part of what makes us human. Eye contact, handshakes, and shared experiences are all elements that establish a connection between human beings. AI is incapable of replicating that.
 
Trust is especially useful and necessary in negotiations that involve high-stakes purchases, long-term contracts, and unclear stakeholder incentives. When transaction volume is low and the market isn’t efficient, trust is what fills in the gaps. Trust is something that gets one party to agree to a deal when they don’t have all the information necessary to fully analyze risk. Industries that rely heavily on the commodity of trust within human interactions include financial services and legal services.
 
Why is trust necessary? This could be boiled down to one economic concept: market efficiency. Efficient markets are markets where information is readily available to all parties, competition between suppliers is strong, and market prices react quickly to new information. In inefficient markets, however, trust helps bridge the gap between buyer and seller. Real estate, a market often considered inefficient, can serve as an example here. Real estate transactions can involve a long courting process, where the seller has to first build trust in order to communicate how the intangible aspects of a property justify the price. Market inefficiencies heighten the scrutiny of buyers, thereby making the sales role—and its ability to build relationships and trust—imperative.
 
<img src="https://content.ibisworld.com/media/nv4nfszx/shutterstock_1067103281.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
 
There is, however, an important distinction to make between interpersonal reactions that require trust and those that don’t. Some menial customer service work do not require the skill and connection of human worker. AI language models can swiftly assume the role of conversational customer support through chatbots and other programs that help customers from point A to point B. This development already has momentum, with one report noting that 80% of internet consumers have interacted with a chatbot. The same report found that <a href="https://bloggingwizard.com/chatbot-statistics/">chatbots are capable of executing full customer conversations about 70% of the time.</a>
 
Industries in the primary sector
Industries that rely on moving objects through physical space are less likely to be disrupted by AI advancement. This includes almost all industries in the primary sector of the economy, which are industries that extract materials from natural resources: agriculture, mining, oil and gas extraction, and others.
 
Because of their demand stemming back to biological needs like food and warmth, these industries are insular to AI language models.
 
Industries that are heavily-regulated
Highly regulated industries, such as finance, <a href="https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2021/08/how-fda-regulates-artificial-intelligence-in-medical-products#:~:text=FDA%20is%20tasked%20with%20ensuring,patients%20if%20it%20is%20inaccurate.">healthcare</a>, and legal sectors, face significant barriers to adopting AI language models due to compliance and privacy concerns. These sectors prioritize data security, confidentiality, and the interpretation of complex regulations, <a href="https://www.ama-assn.org/practice-management/digital/health-care-ai-advances-rapidly-what-role-regulators">often requiring human judgment.</a>
 
What are the risks in AI driving procurement initiatives? 
Although the jury is still out on the overall ethicality of generative artificial intelligence, AI algorithms may perpetuate biases that socially conscious initiatives aim to reverse. AI is trained on historical data, <a href="https://www2.deloitte.com/xe/en/insights/industry/public-sector/open-data-ai-explainable-trustworthy.html">which may contain biases and discrimination that have existed throughout the past.</a> Without human decision-making, algorithms might learn to replicate these historical biases in their decisions. For example, AI-driven candidate screening and hiring may be counterproductive to diversity, equity, and inclusion (DEI) initiatives. In general, a strictly AI-driven procurement strategy could steer an organization away from <a href="https://www.procurementiq.com/blog/procurement-supplier-diversity">socially conscious procurement initiatives</a>.
 
Recent concerns about LLMs changing their behavior over time have also surfaced. <a rel="noopener" href="https://arxiv.org/pdf/2307.09009.pdf" target="_blank">According to a recent study,</a> it’s “unclear how each [software] update affects the behavior of these LLMs,” which “makes it challenging to stably integrate LLMs into larger workflows.” Updates to data sets or other aspects of the AI may affect its “thought process” and how it goes about producing content, resulting in an answer to a question or prompt that’s different from what it would’ve produced months ago.
 
Final Thoughts
As the new paradigm progresses, human attributes like emotional intelligence will become more valuable in some industries. Ensuring that your human-facing workforce is distinguishable from AI can give businesses an edge in areas like sales, customer service, and internal leadership. Businesses may want to consider <a href="https://www.procurementiq.com/market-intelligence/Psychometric-Testing-Services">placing an emphasis on emotional intelligence traits</a> when <a href="https://www.procurementiq.com/market-intelligence/Permanent-Personnel-Recruitment">hiring new employees.</a>
 
When considering utilizing AI, you should ask yourself the following questions:
<ul>
<li>Could this product or service, as applied to our organization, benefit from human originality?</li>
<li>To what degree do business transactions in this market require interpersonal trust?</li>
<li>Does this industry primarily operate in the primary sector?</li>
</ul>
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ChatGPT, Bard, and other language AI have the potential to disrupt several industries. What traits do those industries share? Which industries will language AI affect the least?

Generative AI or Human Ingenuity: Where Does Your Industry Stand?

Key Takeaways
<ul>
<li>UPS drivers may go on strike if the company does not reach a new agreement with their labor union, the International Brotherhood of Teamsters, by August 1.</li>
<li>UPS drivers went on a strike for 15 days in 1997 that cost the company hundreds of millions of dollars.</li>
<li>A strike would have a major impact on global supply chains as UPS accounts for roughly 24% of US parcel shipments.</li>
<li>Although both sides have said negotiations are making progress, risks remain if a deal is not agreed to soon.</li>
<li>Procurement and supply chain management professionals should plan contingencies for supply chain disruptions that result from labor union strikes.</li>
</ul>
 
UPS and the International Brotherhood of Teamsters, which represents most of their full-time drivers, are currently negotiating a new National Master Agreement which would cover roughly 330,000 workers in the United States. UPS employees represented by this labor union have <a rel="noopener" href="https://www.kcci.com/article/des-moines-potential-ups-strike-approaches-as-company-negotiates-with-union/44009037" target="_blank">threatened to go on strike</a> if a new agreement is not reached by August 1. The union recently <a rel="noopener" href="https://teamster.org/2023/06/ups-strike-votes-start-this-week/" target="_blank">called for a strike authorization vote</a>; a majority ‘yes’ vote from its constituency of more than 340,000 teamsters across the United States enables the union to call for a nationwide strike if a deal is not signed by the deadline. 
 
On June 16, the teamsters overwhelmingly voted to authorize a strike. With 97% of teamsters voting yes, Teamsters General President Sean M. O’Brien stated, "This vote shows that hundreds of thousands of Teamsters are united and determined to get the best contract in our history at UPS. If this multibillion-dollar corporation fails to deliver on the contract that our hardworking members deserve, UPS will be striking itself."
 
<a rel="noopener" href="https://about.ups.com/us/en/newsroom/negotiations/teamsters-call-for-strike-authorization-vote-.html" target="_blank">UPS issued a press release</a> regarding the strike vote, stating, “This vote is a routine part of the bargaining process and does not mean that there will be a strike.”
 
The stakes are high as UPS transported roughly <a rel="noopener" href="https://www.businesswire.com/news/home/20230328005199/en/Pitney-Bowes-Parcel-Shipping-Index-Finds-US-Volumes-One-Year-and-One-Billion-Parcels-Ahead-of-Pre-Pandemic-Forecast" target="_blank">one out of every four packages</a> shipped in the United States in 2022. Procurement and supply chain management professionals should prepare for disruptions as a strike by UPS employees would have a major impact on the global supply chain, resulting in shortages of inputs, higher prices, and longer lead times.
What are the points of contention? 
The workers are seeking higher wages, better pensions, and more paid time off. UPS workers say they currently work <a rel="noopener" href="https://www.kcci.com/article/des-moines-potential-ups-strike-approaches-as-company-negotiates-with-union/44009037" target="_blank">six days a week</a> with no paid sick time. Furthermore, the company has experienced significant growth in the last five years: operating profits increased 86.4% from 2018 to 2022, and workers feel that the company should share the wealth as part of their new collective bargaining agreement.
 
General safety has also been a concern the teamsters are seeking to address. UPS does not air condition a majority of its fleet of delivery vehicles, which has resulted in more than <a rel="noopener" href="https://www.nbcnews.com/business/economy/hot-seat-ups-delivery-drivers-are-risk-heat-stroke-kidney-n1031321" target="_blank">100 UPS workers being hospitalized for heat illnesses</a> since 2015. UPS and the International Brotherhood of Teamsters agreed on new preventative safety measures in their negotiations this June, including vehicle enhancements to increase airflow and cooling.
 
 
<img src="https://content.ibisworld.com/media/bqdbj500/shutterstock_2042952506.jpg?width=720&amp;height=480" alt="" width="720" height="480">
 
What happened during the 1997 UPS strike?
While history can only inform so much of the present, you may want to look at how labor disputes in the transportation industry have been resolved in the past for additional context.
 
This isn’t the first time that teamsters working for UPS have gone on strike: a large-scale strike took place in 1997, with <a rel="noopener" href="https://en.wikipedia.org/wiki/1997_United_Parcel_Service_strike" target="_blank">185,000 Teamsters</a> going on strike in what became one of the largest labor walkouts in the United States since World War II. The strike occurred due to concerns about job security, wages, and the use of part-time workers who received fewer benefits than their full-time counterparts.
 
The strike lasted 15 days and cost UPS $600 million. UPS lost market share to its competitors, including FedEx and the US Postal Service. The agreement that ended the strike raised starting pay from $8 per hour to $8.50 per hour for part-time workers and raised driver wages by $3.10 per hour. Other part-time workers received a $4.10 increase in their hourly wages. Additionally, UPS agreed to reduce its use of subcontractors and to create more full-time jobs.
Which industries would be most affected by a UPS strike? 
Although a strike by UPS workers would affect most of the economy, some industries face a higher risk than others. Many retailers depend heavily on carriers like UPS for shipping. A UPS strike would mean empty shelves, longer wait times, and higher shipping costs. However, larger retailers that manage their own shipping are in a better position to weather a potential UPS teamsters strike than others. One source estimated that Amazon shipped <a rel="noopener" href="https://www.cnbc.com/2021/12/04/how-amazon-beats-supply-chain-chaos-with-ships-and-long-haul-planes.html" target="_blank">72% of its own packages</a> in 2021.
 
Manufacturers would also be affected as manufacturing requires a constant stream of inputs from suppliers who are often scattered across long distances. Exposure would be higher for manufacturers with longer and more complex supply networks such as vehicle manufacturers. Manufacturers would also struggle to ship their finished goods to buyers as some of them may contract with UPS.  
 
Shortages of inputs would also affect maintenance and repair because equipment cannot be fixed if replacement parts and other supplies cannot be shipped. Equipment and machinery would have to be taken offline, affecting industries across the economy.
 
<img src="https://content.ibisworld.com/media/0vba3f1k/shutterstock_1557241358.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
 
What can procurement and supply chain management departments do?                                                                                                                  
Procurement departments can start by assessing their exposure to a potential strike. You should ask your suppliers for information on which shipping companies they are using to ship goods to their facilities. You can categorize this data by supplier, by product, by importance, and by the frequency of shipments. If you don’t have a clear understanding of which shipping methods your suppliers utilize, now is the time to begin asking those questions.
 
You can then assess your exposure to UPS and any disruptions that may result should a strike occur. The biggest risk will come from products that are both important and frequently shipped. Risk will be lower for products that are important but only shipped once a year or once a month. Risk will also be low for non-essential products that your organization can live without.
 
If most of your shipments of an essential item are coming from UPS, that could present a significant risk and you may want to develop contingency plans or diversify your shipping. You may also want to stock up on essential items or identify alternate suppliers so that you will be in a better position if a strike does occur.
 
Your organization could be affected even if you do not use UPS because a UPS strike would lead to a sharp decline in freight transportation, driving up spot rates.
 
You should also examine your contracts with both upstream suppliers and downstream buyers. Will you be held liable if you are unable to fulfill your contractual obligations due to a shortage of input goods? Will you be eligible for compensation from suppliers if they are unable to uphold their contractual obligations? Or does the strike count as a force majeure event?
 
You should also inform your downstream buyers of the situation and let them know about the steps you will be taking. Manage their expectations and be transparent about the risks that you face. Otherwise, your downstream buyers may be alienated, which could lead them to take their business elsewhere. 
 
Even after taking all these steps, your organization may still be affected. Will you be eligible for insurance if that does occur?
 
Finally, you should monitor the situation and remain in contact with your suppliers and shipping companies.
 
 
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UPS teamsters may go on strike if a new labor agreement is not reached by August 1. How should you prepare for supply disruptions driven by strikes? Read more to find out. 

Navigating Uncertainty: Examining the Supply Chain Impact of a UPS Labor Strike

Key Takeaways 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">The procurement workforce is growing older, demonstrating a need to develop and train the next generation of procurement professionals. </li>
<li data-leveltext="" data-font="Symbol" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Recent global supply chain events like the pandemic show the benefits of having a <a rel="noopener" href="https://www.procurementiq.com/blog/workplace-diversity-spotlight-building-supporting-a-diverse-workforce" target="_blank">diverse workforce</a> with multiple skill sets and perspectives. </li>
<li data-leveltext="" data-font="Symbol" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Procurement departments that take initiative through active recruitment will benefit from a strong, resilient, long-term purchasing team.  </li>
</ul>
As unemployment in the US reached new lows in April 2023, many industries enjoyed a busy hiring year despite inflation fears. In some cases, the hiring of new employees has been too good, <a rel="noopener" href="https://managementconsulted.com/consultant-hiring-delayed-2023/" target="_blank">as top consulting firms delayed start dates for new MBA graduates due to the recent glut in new hires.</a> In contrast, procurement is facing the opposite issue. 
 
Even as experienced procurement professionals transition to upper management or retirement, the procurement workforce has seen an increase in its average age. The recruitment of young, passionate professionals should be a priority for companies looking to retain a strong purchasing team and cost savings in the long term.  
What is the average age of a procurement professional?  
The <a rel="noopener" href="https://www.zippia.com/purchasing-manager-jobs/demographics/" target="_blank">average age of a procurement professional</a> is 46 years old, which is noticeably higher than other professions. For example, the average age of individuals working in management consulting is 43, while software engineers possess an average age of 39. These two career paths tend to be among the most ‘popular’ for college graduates, with consulting firms and tech companies heavily recruiting current university students and new graduates.  
 
In the last few decades, longer life expectancy in the United States has been the primary driver of aging workforces across all industries, with the <a rel="noopener" href="https://www.bls.gov/opub/mlr/2020/beyond-bls/what-to-do-about-our-aging-workforce-the-employers-response.htm" target="_blank">number of workers over 55 doubling in the last 20 years</a>. With an older workforce, businesses incur higher labor costs in the form of high salaries, insurance, and paid time off that has accrued over many years. Additionally, when these individuals decide to retire, firms lose valuable experience and industry knowledge that is not guaranteed to be replaced with new hires.  
 
Individuals are also working longer than in the past due to an inability to afford retirement. In the procurement field, however, this issue should be mitigated. Though California’s cost of living is higher than many other states, the average salary of a procurement manager in Los Angeles <a rel="noopener" href="https://www.salary.com/research/salary/alternate/procurement-manager-salary/los-angeles-ca" target="_blank">ranges from $121k and $153k</a>, compared to an average salary of $87,000 for product managers in the same area. The median salary for procurement managers in the United States is $123,400. 
 
The above-average salary for procurement managers should result in a workforce that is able to effectively plan for retirement. While this is a positive sign for employee satisfaction, it ultimately puts procurement at risk of losing institutional knowledge sooner – a factor that businesses must account for. 
 
Therefore, it’s imperative that businesses begin training the next generation of procurement professionals while their current leaders can train and educate them while simultaneously investing in solutions that can <a rel="noopener" href="https://www.procurementiq.com/solutions/your-needs" target="_blank">train staff and minimize the loss of institutional knowledge</a>.  
 
<img src="https://content.ibisworld.com/media/kwlnfqne/shutterstock_1179957049-1.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
Why should procurement focus on the next generation?  
<a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Procurement-Consulting-Services" target="_blank">Finding new hires in the procurement field</a> will only grow more important as time passes and existing professionals begin to reach retirement age. Organizations can help retain employees with valuable skill sets by implementing strategies that revolve around encouraging their individual growth, providing opportunities to learn new skills, and fostering an environment that supports an employee's overall job satisfaction. 
 
Hiring a recent college graduate and gradually tasking them with more important duties, thereby empowering them and facilitating their personal and professional growth is a proven management methodology that procurement must lean into to rejuvenate the industry and inject it with fresh ideas. 
 
Employers that focus on employee satisfaction also find a marked increase in employee loyalty, as <a rel="noopener" href="https://www.shrm.org/resourcesandtools/hr-topics/talent-acquisition/pages/flexible-work-critical-retention.aspx" target="_blank">work-life balance and job satisfaction</a> remain one of the top considerations for candidates evaluating careers. By recruiting and elevating young professionals, you can ensure employees with valuable skills and perspectives stay with your business longer.
  
The <a rel="noopener" href="https://www.procurementiq.com/blog/supply-chain-lessons-learned-from-the-coronavirus" target="_blank">coronavirus pandemic</a> rapidly transformed the work environment towards digitalization and remote collaboration. Younger employees are often <a rel="noopener" href="https://www.business.com/articles/tech-savvy-millennials-at-work/" target="_blank">better equipped to adapt to this change</a>. Many millennials have even become ‘reverse mentors’ and helped their older coworkers adjust to the digital world. This improved engagement and job satisfaction for both parties, demonstrating just one benefit of a diverse workforce and introducing more young workers to the procurement field.  
 
Recent global events like the pandemic and the <a rel="noopener" href="https://www.procurementiq.com/blog/russia-ukraine-transportation" target="_blank">Russian invasion of Ukraine</a> also provided valuable experience for new procurement professionals. With the global supply chain becoming more complex and volatile than ever, events like these prepare the next generation of professionals for future adverse trends on the horizon. 
 
These include <a rel="noopener" href="https://www.extensiv.com/blog/supply-chain-management/challenges" target="_blank">material scarcity, worsening economic conditions, and high inflation</a>. This experience will nurture an employee’s ability to react to drastic changes across multiple categories, strengthening your team and potentially leading to cost savings or prevention the next time world events affect categories and supply chains. 
Where should you start recruiting?  
Procurement departments should understand that the training of procurement professionals does not occur over a short period, but rather through years of valuable experience, support, and training. There are tangible opportunities in the <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Permanent-Personnel-Recruitment" target="_blank">talent acquisition</a> of young, recent graduates that show an interest in the field. 
 
Seeking new graduates with interesting and valuable skill sets, then training them to become confident and competent category managers and sourcing professionals will ensure procurement as a profession continues to be a high-value necessity for strategic businesses. Prioritizing job satisfaction through internal hiring and promotions will also increase the likelihood that these recent graduates will become valuable experts in your procurement department in the long run.  
 
There are multiple ways procurement departments can recruit young talent in the coming years. College career fairs are alive and well and are a great way to meet interested candidates in person, improve brand recognition, and educate young professionals about procurement as a viable, engaging profession. 
 
Additionally, posting on university career portals is a great way to garner interest from job seekers. This method would be highly effective in advertising the procurement field to a population that may not understand procurement and its opportunities, as well as recruiting those that did not initially have an interest before their job search began.  
 
<img src="https://content.ibisworld.com/media/512ir5uw/shutterstock_708127807-1.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
Where are the procurement teams at career fairs?  
When you think of a career fair, you probably imagine recruiters from finance, consulting, engineering, and tech companies. They’re searching for management consultants, product managers, and computer engineers. 
 
Procurement rarely, if ever, factors into these recruitment conversations. It’s not a point of discussion among students or professors — yet. 
 
As a business analyst for a procurement market intelligence provider, I often find myself having to first explain the procurement field when discussing my career. When speaking with family and friends outside the industry, how many times have you had to define your title or change it to something more familiar, like purchasing, buying, and other synonyms?  
 
Procurement departments are integral to many businesses’ bottom lines, but the name recognition is just not there yet, which may contribute to the current lack of new blood in the field. Procurement is still a growing initiative among many companies, and it has yet to reach mainstream appeal and awareness. Educating young professionals about the industry is a crucial next step to hiring and retaining talent in future procurement positions. 
Final Thoughts 
Procurement is on the rise. There are great thinkers and leaders in the industry that are leading the charge into solidifying procurement’s role as a critical element of strategic businesses.  
 
That’s why procurement should begin recruiting its next generation of thinkers and leaders now – while there’s still time for the current generation to pass down their wealth of knowledge. 
 
Procurement departments should understand the value of hiring the next generation to ensure they gain valuable experience from current professionals and that industry experience is not lost. <a href="https://www.procurementiq.com/blog/recession-2023">As we enter an uncertain landscape for the remainder of 2023</a>, it is more important than ever for procurement to plan for the future.  
 
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

The procurement workforce is growing older, demonstrating a need to develop and train the next generation of procurement professionals. How can you recruit the next gen of talent? 

Why Procurement Must Recruit the Next Generation of Talent

Key Takeaways
<ul>
<li>Poorly optimized inventory levels lead to excess costs and reduced revenue.</li>
<li>There are several inventory optimization technologies that provide greater visibility and insight into your inventory and supply chain.</li>
<li>No matter the size of your business, inventory optimization tools help drive efficiency and growth.</li>
</ul>
In 2020, just-in-time delivery practices were <a rel="noopener" href="https://executiveeducation.wharton.upenn.edu/thought-leadership/wharton-at-work/2021/08/rethinking-your-supply-chain/" target="_blank">heavily scrutinized</a> when disrupted global supply chains left shelves empty and inventory levels thin. Three years later, high-interest rates and surging inflation has limited demand for products, leading to overstocking and increased inventory carrying costs. Amid these volatile conditions, the importance of optimizing inventories has drastically increased. Inventory management cannot be an afterthought for strategic businesses, as a poorly-optimized inventory has numerous negative impacts on your ability to meet customer demand, increase efficiency, and ultimately maximize your profitability. When inventories are overstocked, these impacts include: 
<ul>
<li>Tied-up working capital in <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Inventory-Management-Software" target="_blank">inventory</a></li>
<li>Higher overhead costs associated with <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Warehouse-Management-Systems" target="_blank">storage space</a> and insurance costs</li>
<li>More working time and <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Temporary-Warehouse-Staffing" target="_blank">labor</a> directed toward managing excess inventory</li>
<li>Items becoming expired or obsolete, resulting in write-offs and unnecessary spend</li>
</ul>
When inventories are understocked, this leads to:
<ul>
<li>Reduced sales and revenue</li>
<li>Delayed product deliveries, which negatively impact customer satisfaction</li>
<li>Customers turning to competitors when items are out of stock</li>
<li>Greater spending directed towards expedited shipping and rush orders to meet demand</li>
</ul>
Whether inventories are overstocked or understocked, inefficient inventory management leads to greater costs, lower sales, and less profitability — thus limiting the growth of your business. So how do you ensure you’re managing your inventory optimally?
 
Inventory optimization solutions and tools help your procurement team achieve the perfect balance between carrying enough inventory to meet demand and not carrying so much inventory that you’re overspending on logistics and putting yourself at risk.
 
Here are four types of tools you can implement to ensure your inventory is efficient, optimized, and ready for whatever challenges your business and supply chain might face.
 
<img src="https://content.ibisworld.com/media/w00fxujh/shutterstock_2141469545.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
 
1. Cloud-based Inventory Management Systems
Cloud-based <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Inventory-Management-Software" target="_blank">inventory management systems</a> are one of the latest developments in inventory optimization, providing an easy way for businesses to track their inventory in real time. Instead of keeping stock and inventory information in Excel sheets, logbooks, and email chains, cloud computing provides all the data you need in one centralized archive.
 
Cloud computing systems alert users whenever any sudden changes in inventory levels occur, providing time to pivot and adjust strategies accordingly. These systems can also detect errors as they arise, reducing both the number of errors and the time spent on quality control. When <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Hosting-Services" target="_blank">data is stored in the cloud</a>, users can be sure their information is backed up and secured.
 
You won’t need to maintain any servers on-site, and you’ll spend less time and energy ensuring your systems are secure and up to date, as these tasks will be handled by your supplier.
 
One vendor that <a rel="noopener" href="https://blog.fishbowlinventory.com/case-studies/prince-michel-vineyard-and-winery/" target="_blank">transitioned from tracking inventory manually</a> with spreadsheets to an inventory management system with cloud capabilities improved net income by 17% (saving over $10,000 in eliminating stockouts), reduced inventory adjustments by 10%, and increased cash flow by 40%. Those are big savings for such a relatively small investment in technology, and it illustrates why procurement must continue investing in digital transformation efforts.
 
2. AI Demand Forecasting
AI demand forecasting technology leverages machine learning to unveil underlying trends in data to forecast demand more accurately. With AI demand forecasting, you can create demand projections for multiple applications, including individual products, product categories, and the total demand across an entire product line.
 
With improved forecasts backed by the AI algorithms, you’ll receive suggestions on pricing strategies and tactics such as promotional offers that boost sales and increase turnover. It can be challenging to anticipate unpredictable fluctuations in demand and supply to prevent stockouts and inventory buildup, especially when many procurement departments continue to use lagging indicators when forecasting demand.
 
AI demand forecasting analyzes constraints in real time and arms users with the knowledge they need to make informed decisions on their inventory and stock — backed by data. According to a provider of AI demand forecasting, their software <a rel="noopener" href="https://c3.ai/products/c3-ai-demand-forecasting/" target="_blank">increases demand forecast accuracy</a> by 5-15% and planner efficiency by 20-50%.
 
<img src="https://content.ibisworld.com/media/wwwhksmx/shutterstock_1831476553.jpg?width=720&amp;height=480.51009564293304" alt="" width="720" height="480.51009564293304">
 
3. RFID Systems
Radio Frequency Identification (RFID) systems use radio wave technology to track inventory as it moves through your supply chain and warehouse. By utilizing this technology, your business can identify bottlenecks and inefficiencies in the supply chain and react to any changes as they occur. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Inventory-Management-Software" target="_blank">Inventory management practices</a> that require manual counting pale in comparison to RFID systems, which automatically provide inventory counts with a high degree of accuracy, reducing labor costs and search times while allowing workers to focus on higher-level tasks.
 
When paired with IoT devices (hardware such as sensors, gadgets, and other machines that collect and exchange data via the internet), RFID systems improve visibility and knowledge of the conditions of your goods by looking at pressure, temperature, and vibration. With greater durability and simultaneous tag scanning that can be read without a line of sight, RFID systems have a distinct advantage over traditional barcode systems when it comes to inventory optimization.
 
RFID systems are far quicker than manually recording inventory by hand or using barcodes. The pen and paper method relies on an individual employee’s speed, accuracy, and effectiveness and is subject to vary from employee to employee. While the barcode method can be considerably faster, they also scan each code individually with a beam of light that requires line of sight. RFID scanners, however, <a rel="noopener" href="https://www.peaktech.com/blog/rfid-vs-barcode-comparison-advantages-disadvantages/" target="_blank">can read many codes at once</a>, streamlining your process.
 
4. Replenishment Software
Replenishment software analyzes the inventory levels at a given location and automatically generates purchase orders and replenishment plans. Replenishment software recommends the specific purchase orders and shipping quantities of specific products for any single location, such as a store or warehouse. At the same time, this software will ensure you’re not ordering more product than you need, as these systems take into account both your supply chain and inventory capacity. If you prefer to manually review and consider purchase orders, you can still use replenishment software as guidance in your daily activities.
 
Early warning replenishment signals can alert buyers when they should consider restocking items, giving you and your procurement team the foresight to prepare and meet customer demand. Some suppliers of automatic replenishment solutions report stockout reductions of up to 85%, ensuring greater than 99% of on-shelf availability for products and automating 100% of store ordering.
 
<img src="https://content.ibisworld.com/media/jmddzk5d/warehouse-workers.png?width=720&amp;height=480" alt="" width="720" height="480">
 
Where should you start? 
Now that you know the advantages of optimizing your inventory solutions, the next big question is: where to start? How should you get going? Well, first you’ll need to do some digging into your own data.
 
Begin by assessing your current inventory management processes and identifying areas for improvement. Review your historical sales data to identify patterns in demand and supply, and conduct an analysis of current inventory levels and ordering processes. Armed with that information, you can begin identifying inventory optimization tools that will best suit your needs. By taking a data-driven approach, conducting a thorough analysis of your process to find bottlenecks, and performing due diligence on tools you could implement, you can achieve significant cost savings and improved operational efficiency.
 
If you already have optimization tools and are thinking of incorporating more, make sure you think about how those tools will work together or communicate, as implementing tools that don’t function seamlessly together can cause more problems than they solve.
 
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

Inventory management cannot be an afterthought for strategic businesses. Read the full article to learn about four tools that can help you optimize your inventories.

4 Tools for Inventory Optimization

Key Takeaways
<ul>
<li>Silicon Valley Bank and Signature Bank collapsed in March 2023 after depositors panicked over their uninsured deposits.</li>
<li>Startups and technology companies may face financial difficulties in the short term as Silicon Valley Bank played a major role in financing them.</li>
<li>Procurement professionals may need more detailed measures of vendor financial risk as uninsured deposits are not reflected in the Altman Z-Score.</li>
</ul>
 
What happened to Silicon Valley Bank?
Before its collapse, Silicon Valley Bank (SVB) was the 16th largest bank in the United States, with $212 billion in assets at the end of the fourth quarter of 2022. However, unlike most of its peers, SVB had a very high share of deposits in excess of the Federal Deposit Insurance Corporation (FDIC) limit of $250,000 per depositor per account type per institution (93.9% according to S&amp;P Global). The high share of uninsured deposits left the bank vulnerable to bank runs. A bank run is when large numbers of customers of a specific bank withdraw their money at the same time over fears about the bank’s solvency—a bank’s ability to pay off debts. When customers withdraw more money than the bank has on hand, the bank will utilize its entire cash reserves and even default on their loans. The FDIC was established in 1933 to <a rel="noopener" href="https://www.investopedia.com/terms/b/bankrun.asp" target="_blank">reduce the frequency of bank runs.</a>
 
Most of SVB’s depositors were startups and technology firms, who preferred doing business with SVB because the bank had cultivated relationships in the area and was seen as friendlier to startups. Many of these depositors put “their eggs in one basket” and did not diversify their investments, which put both themselves and the bank at risk.
 
Ultimately, the trigger for the bank run was an increase in interest rates. The Federal Reserve started raising its benchmark rates in March 2022 in response to inflation; the target range rose from 0.0% to 0.25% in March 2022 to 4.75% to 5.0% in March 2023. Higher interest rates led to asset markdowns for financial institutions; according to the Stanford Institute for Economic Policy Research (SIEPR), SVB’s assets declined by 16.0% from March 2022 to March 2023.
 
On March 8, SVB announced a $1.8 billion loss; in response, the stock fell 60.4% on March 9. Depositors panicked, knowing that most of their deposits were uninsured. They moved to withdraw their money, which caused the bank to collapse on March 10.
 
This was the second-largest bank failure in US history (after the failure of Washington Mutual in 2008). And it had a domino effect: <a rel="noopener" href="https://www.cnbc.com/2023/03/13/signature-bank-third-biggest-bank-failure-in-us-history.html" target="_blank">depositors pulled $10 billion out of Signature Bank</a>, which also had a high share of uninsured deposits, on March 10. As a result, regulators closed Signature Bank on March 12. Signature Bank was also a major bank, with $110 billion in assets at the end of 2022. Then the next domino began to fall. Depositors started withdrawing funds from First Republic. In response, five of the largest banks in the United States <a rel="noopener" href="https://www.cnn.com/2023/03/16/investing/first-republic-bank/index.html" target="_blank">extended a $30 billion emergency loan</a> to the bank on March 16. And on March 19, the Swiss investment bank <a rel="noopener" href="https://www.cnn.com/2023/03/19/business/credit-suisse-ubs-rescue/index.html" target="_blank">UBS agreed to buy Credit Suisse</a>, which had already been greatly weakened by the Greensill and Archegos scandals and was at risk of failing.
 
<img src="https://content.ibisworld.com/media/fvtlwfav/graph-g108a61c09_1920.png?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
 
What does the SVB collapse mean for vendors?
Startups and the technology sector, industries already under pressure to cut costs <a rel="noopener" href="https://www.procurementiq.com/blog/layoffs-2023-top-five" target="_blank">after seeing widespread layoffs into 2023</a>, will suffer from the collapse of SVB. SVB played an important role in financing technology companies and funding will most likely dry up with the bank gone. This means that buyers may need to play a role in financing cash-strapped companies in their own supply networks. However, this also presents an opportunity for buyers. The decline in funding will hurt startup and technology company valuations, which gives buyers an opportunity to acquire promising startups whom they have used as suppliers at bargain prices.
 
Other banks may also be affected, threatening them and suppliers banking with them. According to SIEPR, the <a rel="noopener" href="https://siepr.stanford.edu/news/many-us-banks-face-same-risks-brought-down-silicon-valley-bank" target="_blank">average US bank has seen a 9.0% decline in the market value</a> of its assets over the past year. Furthermore, SIEPR found that 1,600 banks in the United States would not have enough money to cover their uninsured deposits in the event of a bank run.
 
Further rate hikes by the Federal Reserve will result in more asset write-downs for banks. During its May 3 meeting, the Federal Reserve raised rates by an additional 0.25 percentage points, taking the fed-fund rates to a range of 5.0% to 5.25%, the highest range since 2007. More banks could face runs as this trend continues, threatening the companies that bank with them.
 
<img src="https://content.ibisworld.com/media/robjrb3s/financial-services.png?width=720&amp;height=480" alt="" width="720" height="480">
 
What lessons can procurement and suppliers draw from the SVB collapse?
The old expression “Don’t put all your eggs in one basket” is truer than ever. Having uninsured deposits is an unnecessary risk for your organization, as you cannot always expect that the Treasury and the FDIC will come to the rescue as bailouts are often politically unpopular.
 
Furthermore, you should <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Financial-Data-Services" target="_blank">research supplier financials</a> and ensure that companies in your supply network are not putting all their eggs in one basket either. Traditional metrics of vendor financial risk may not offer a complete picture. The Altman Z-Score is a good measure of vendor financial risk, but it does not account for a company having 20.0% of its cash assets as uninsured deposits. Roku, iRhythm Technologies, and Oncorus kept over 20.0% of their cash in SVB, and much of these deposits were probably over the FDIC limit.
 
Buyers should also take a look at the financial condition of the banks they do business with. Banks are suppliers too, providing services such as <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Corporate-Treasury-Services" target="_blank">Corporate Treasury Services</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Business-Credit-Card-Services" target="_blank">Business Credit Card Services</a>, and <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Equipment-Financing-Services" target="_blank">Equipment Financing Services</a>. A bank with uninsured deposits accounting for 90.0% of its assets is vulnerable to a bank run, which could jeopardize its financial health and shut it down, disrupting service availability.
 
 
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Before its collapse, Silicon Valley Bank was the 16th largest bank in the United States. Then a bank run changed everything. What lessons can procurement learn from SVB's collapse?

What happened to Silicon Valley Bank?

Los Angeles, California
April 24, 2023
 
ProcurementIQ, the leading provider of market intelligence for procurement, announced today it will offer its Sourcing Snapshot on the <a rel="noopener" href="https://marketplace.coupa.com/en-US/home?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=" target="_blank" data-anchor="?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=">Coupa App Marketplace</a>, connecting businesses with certified pre-built sourcing solutions. <a rel="noopener" href="http://www.coupa.com" target="_blank">Coupa Software</a> certified the Sourcing Snapshot for use within the Coupa Business Spend Management (BSM) Platform, its cloud-based platform that empowers companies around the world with the visibility and control they need to make smarter spending decisions. 
 
Sourcing Snapshot enables Coupa users with ProcurementIQ subscriptions to access key market insights for over 1,000 categories directly from Coupa’s sourcing events portal. Upon downloading the app, users will find ProcurementIQ’s vast collection of market data—including high-level cost dynamics and trends, buyer leverage projections, and other important market factors—already mapped to the commodities within the Coupa Sourcing solution. Armed with this information, users can confidently negotiate with suppliers and secure better deals for their organization.
 
“In today’s unpredictable economy, market and supply chain conditions are constantly changing,” said Roger Goulart, executive vice president of business development and alliances at Coupa. “It’s essential that procurement has access to unbiased and dependable market intelligence to make the best purchasing decisions possible, which is why we’re proud to add ProcurementIQ’s market research to the Coupa App Marketplace.”
 
<img src="https://content.ibisworld.com/media/qdxiyjxz/screenshot-101.png?width=682&amp;height=370&amp;mode=max" alt="" width="682" height="370">
 
As a certified CoupaLink solution, <a rel="noopener" href="https://marketplace.coupa.com/en-US/apps/411546/?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=" target="_blank" data-anchor="?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=">ProcurementIQ’s Sourcing Snapshot</a> meets the requirements established by Coupa through its CoupaLink Partner Program and is available in the Coupa App Marketplace. The <a rel="noopener" href="https://www.coupa.com/partners/coupalink" target="_blank">CoupaLink</a> Partner Program enables software partners to build complementary solutions that easily connect into the Coupa platform. Customers benefit by discovering and connecting solutions to optimize their business spend and reduce business risk while minimizing the cost of third-party software integration.
 
“Connecting the Sourcing Snapshot into Coupa's Business Spend Management Platform gives our customers a streamlined sourcing experience and enables them to access essential market insights in one easy-to-access place on the Coupa platform,” said Thomas Larson, ProcurementIQ’s global product manager. “We’re proud to be a part of the Coupa App Marketplace and a trusted CoupaLink technology partner. We look forward to our relationship with Coupa to further help customers transform their procurement departments into more strategic, agile sourcing practitioners.” 
 
For more information on ProcurementIQ’s Sourcing Snapshot and how it can streamline your sourcing process, visit the Coupa App Marketplace at <a rel="noopener" href="https://marketplace.coupa.com/en-US/home?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=" target="_blank" data-anchor="?utm_source=ProcurementIQ&amp;utm_medium=Press-Release&amp;utm_campaign=New-App-Announcement&amp;utm_trm=Q2-2023&amp;utm_content=ProcurementIQ&amp;utm_last_engagement=">marketplace.coupa.com</a>.
 
__
 
Coupa, Coupa Business Spend Management (BSM), CoupaLink, and all Coupa logos are trademarks or registered trademarks of Coupa Software, Inc. All rights reserved.
 
About ProcurementIQ
ProcurementIQ offers a suite of products and services that cater directly to solving your problems, like achieving cost avoidance targets, improving speed to market, training and upskilling employees, centralizing category knowledge in your department and building relationships with stakeholders.
 
Media Contact
For more information on ProcurementIQ or the Sourcing Snapshot, contact <a href="mailto:marketing.iq@procurementiq.com">marketing.iq@procurementiq.com </a>

ProcurementIQ's Sourcing Snapshot is now available in the Coupa App Marketplace, extending Coupa's platform and streamlining your sourcing process.

ProcurementIQ’s Sourcing Snapshot Certified as Coupa Business Spend Management Platform Ready

Key Takeaways
<ul>
<li>All signs are pointing towards a recession occurring in 2023, but there’s a slight chance that the Federal Reserve can achieve a “soft landing.”</li>
<li>The retail and manufacturing sectors are forecasted to be hit harder by recessionary pressure than other industries like real estate and food service.</li>
<li>A recession provides an opportunity for procurement professionals to achieve cost savings through spend analysis, contract review, and automation.</li>
</ul>
 
Why are signs pointing to a recession in 2023?
As an analyst at ProcurementIQ, I often research pricing information and market outlooks for various industries. In the last year, inflationary pressure hindering sourcing opportunities has been a common theme across all markets. Rising input costs and commodity prices have added significant risk to vendor financial health and to the relationships between buyers and sellers.
 
Uncertain economic conditions present a major opportunity for procurement professionals. Those who can navigate the rocky market landscape will be rewarded with cost savings and stability. Those who cannot, however, will run into sourcing obstacles and profit reduction. <a rel="noopener" href="https://www.procurementiq.com/blog/layoffs-2023-top-five" target="_blank">We have already seen significant layoffs</a> begin in several industries as businesses continue to cut back on spending.
 
Inflation has also dominated airways in the last two years. Between May 2020 and June 2022, the <a rel="noopener" href="https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm" target="_blank">12-month change in the consumer price index (CPI) rose from 0.1% to over 9%</a>, which is the current peak. Fortunately, the Federal Reserve introduced interest rate hikes from <a rel="noopener" href="https://fred.stlouisfed.org/series/FEDFUNDS" target="_blank">8 basis points at their lowest to over 4.3% today</a>, which has shrunk the 12-month change in CPI in the last two months. The recent slowing of inflation has eased the problem facing millions of Americans in the past year: price growth outpacing wage growth.
 
Why a recession might be avoided:
<ul>
<li>Falling inflation: As mentioned before, inflation has recently fallen from its 9% peak in June 2022. Although unlikely, inflation continuing to fall amidst tightening rates in 2023 may allow us to reach a <a rel="noopener" href="https://hbr.org/2023/02/why-firms-are-struggling-with-the-u-s-economys-soft-landing" target="_blank">"soft landing"</a> of the US economy.</li>
<li>Unemployment rate: The labor market in the United States is cooling down, with <a rel="noopener" href="https://fred.stlouisfed.org/series/JTSJOL" target="_blank">the number of job openings falling</a> as firms continue to downsize to preserve profit levels. An increase in the unemployment rate can reduce discretionary spending and wage growth and is a valuable tool to combat inflation. You should know, however, that this is a tightrope act that can prolong recessions if unemployment creeps too high.</li>
<li>Consumer spending: Americans reduced their spending in late 2022, which caused retailers to lower their prices for goods plagued with persistent inflation like groceries. Though the consumer spending forecast is uncertain, a reduction in spending will ease inflationary pressure, allowing the Federal Reserve to reduce rate hikes in response and lower the risk of a 2023 recession.</li>
</ul>
<img src="https://content.ibisworld.com/media/pvhdsdll/shutterstock_1302837301.jpg?width=720&amp;height=473.88535031847135" alt="" width="720" height="473.88535031847135">
 
Which 5 industries will be most impacted by a recession? 
 
Retail
Historically, the retail sector has been the first to feel the effects of a recession. Consumers cut back spending, businesses slash prices to retain customers, and profit margins are swiftly eroded. These effects are forecasted to amplify amidst high input costs and lead times. For example, <a rel="noopener" href="https://fred.stlouisfed.org/series/WPU091405" target="_blank">pulp and paper prices reached all-time highs</a> in the last three months, significantly increasing retail shipping costs. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Paperboard-Packaging-Papers" target="_blank">ProcurementIQ estimates an 18.8% compound annual growth rate for Paperboard &amp; Packaging Papers between 2020 and 2023. </a> In the next few months, retailers must decide to preserve price levels and lose customers or cut prices and reduce profit levels due to lower purchasing volume.
 
Manufacturing
The manufacturing sector was hit hard during the coronavirus-induced downturn beginning in April 2020, <a rel="noopener" href="https://fred.stlouisfed.org/series/PCUOMFGOMFG" target="_blank">with the US manufacturing Producer Price Index (PPI) growing by over 27% since</a>. Commodities used in all sectors soared in price over the period, and even after recent declines prices remain above pre-pandemic levels. In addition to rising input costs, soaring gasoline and diesel prices have increased shipping and freight costs for manufacturers in late 2022 and early 2023. If consumer spending falls in the next few months, the sector will feel the combined effect of reduced demand and high input costs, severely reducing profit outlooks.
 
Travel and Tourism
Similar to the retail sector, the travel and tourism industry is typically the first to feel a reduction in spending during a recession. However, the coronavirus-induced pandemic created pent-up demand for travel that has maintained profit levels since domestic and international travel reopened in 2022. According to the U.S. Travel Association, <a rel="noopener" href="https://www.ustravel.org/research/monthly-travel-data-report" target="_blank">travel spending continues to outpace pre-pandemic highs seen in 2019</a>. Based on this data, the travel and tourism sector is better equipped than most to handle the projected 2023 recession.
 
<img src="https://content.ibisworld.com/media/xodc1vnm/shutterstock_2129414411.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
 
Real Estate 
<a rel="noopener" href="https://fred.stlouisfed.org/series/MSPUS" target="_blank">The real estate market has undergone steady growth since the recovery from the 2008-2009 financial crisis but is now experiencing rapid growth since Q2 of 2020</a>. Low interest rates, generous fiscal policy, and a favorable economic outlook were the key contributors to the exponential rise in home prices. Unsurprisingly, the recent tightening of interest rates has cooled the market in recent months. Major cities like Seattle have experienced a <a rel="noopener" href="https://www.seattletimes.com/business/real-estate/us-housing-cools-further-with-prices-down-3-from-the-peak/" target="_blank">decline in median home prices</a> that has continued into 2023. Worsening economic conditions are shifting real estate into a buyer’s market, as low demand for homes is causing sellers to reduce listing prices in order to make sales.
 
Restaurants
Restaurants are notorious for operating on thin margins and are highly susceptible to reduced profits during economic downturns. According to the <a rel="noopener" href="https://restaurant.org/research-and-mediahttps://content.ibisworld.com/media/press-releases/restaurant-operators-end-2022-with-mixed-outlook/" target="_blank">National Restaurant Association</a>, over 85% of restaurants raised menu prices in the last year to preserve profits. In addition to food costs, rising wages and high energy costs have also contributed to financial instability in the market. If consumer spending towards eating out falls, over half of the restaurants nationwide are fully prepared to begin layoffs. However, the restaurant industry <a rel="noopener" href="https://www.forbes.com/sites/jackkelly/2023/02/14/us-jobs-report-shows-record-hiring-of-part-time-restaurant-and-bar-workers-while-linkedin-data-shows-hiring-slowdown-for-white-collar-workers/?sh=3be1297f22af" target="_blank" data-anchor="?sh=3be1297f22af">remains strong with hundreds of thousands of job openings nationwide</a> at the time of publishing this article.
 
What should I do if my business will be impacted by the recession?
Procurement can take the following steps if your business is likely to be affected by recessions.
<ul>
<li>Conduct spend analysis: Procurement professionals <a rel="noopener" href="https://sievo.com/resources/spend-analysis-101" target="_blank">should refresh their knowledge of analyzing procurement spend</a>. Procurement professionals who can better utilize spend analysis gain increased cost savings and higher profit levels.</li>
<li>Review contracts: Procurement pros should review existing contracts to discover if there are opportunities to negotiate pricing, payment terms, and delivery schedules. Contract review also helps to mitigate risk stemming from prior contractual obligations.</li>
<li>Identify alternative suppliers: Access to alternative suppliers provides several benefits to procurement professionals. Procurement organizations benefit from increased negotiation leverage as they can walk away from a deal if contract terms are unfavorable. Additionally, supply chain resilience is bolstered, especially in recessions.</li>
<li>Utilize automation/AI: <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">When procurement teams integrate AI capabilities, employees can shift from focusing on monotonous tasks to higher-level, more complex tasks.</a> This change in employee responsibility increases cost savings, boosts productivity, and encourages employee satisfaction compared to an entirely manual process. AI also assists procurement pros in navigating recessionary landscapes in real time.</li>
</ul>
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

Signs are pointing towards a recession occurring in 2023, but there’s a slight chance that the Federal Reserve can achieve a soft landing. Which industries will be affected most?

Recession 2023: The Top 5 Industries That Will Be Affected

Key Takeaways 
<ul>
<li>Acquiring, deploying, and integrating the right tools for your sourcing process is a pervasive challenge in procurement. </li>
<li>Integration remains one of the largest pain points for procurement leadership and teams. </li>
<li>We’ve identified four digital tools that can aid your digital transformation efforts and integrate automation into your processes. </li>
</ul>
There’s no question that <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">automation and artificial intelligence</a> are at the heart of procurement’s digital transformation efforts.
 
 Deploying these tools makes businesses faster and more efficient with greater scalability, providing real-time strategic insights based on market data and trends. Despite the value digital tools can bring, procurement departments are still tasked with considering how best to integrate artificial intelligence and automation into their businesses.
   
“Having a litany of solutions that don't work in concert with each other only increases costs, bloats processes, and creates unnecessary headaches for you and your team instead of streamlining your sourcing activities.” 
- Thomas Larson, Global Product Manager, ProcurementIQ 
 
Why is automation in procurement so difficult? 
One of the most common challenges of procurement is the need to deploy the right tools effectively. Procurement must therefore devise strategies and goals across each department to deploy automated systems with a cohesive plan. 
 
Some businesses may shy away from such technologies <a rel="noopener" href="https://www.procurementiq.com/blog/southwest-procurement-digital-transformation" target="_blank">due to a lack of clear return on investment</a>, especially during times of economic hardship like recessions, where companies look to cut costs rather than deploy new and expensive processes, platforms, and software.  
 
It makes sense. It’s also the wrong perspective to take. According to McKinsey research, “nearly 70 percent of the top economic performers, compared with just half of their peers, are using their own software to differentiate themselves from their competitors.” Times of economic hardship are exactly when automation, AI, and digital solutions should be leveraged to mitigate the negative impacts of rising costs and lower profits.  
 
How do digital tools assist procurement in weathering recessions? 
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Reduced labor costs: Digital tools allow businesses to automate repetitive tasks and cut costs, allowing workers to concentrate on higher-value tasks and more thoroughly analyze data to make informed decisions. </li>
</ul>
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Improved efficiency: Digital tools improve efficiency by streamlining processes and automating menial tasks that would otherwise take an employee away from higher-priority duties. Digital tools can improve productivity, thereby reducing labor costs and allowing your business to stay competitive during tough economic times.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Greater flexibility: By analyzing data in real time, digital tools help businesses quickly identify trends and adjust for changes in the market before their competitors.  </li>
</ul>
 
<img src="https://content.ibisworld.com/media/witnu4qa/software_li.jpg?width=552&amp;height=368" alt="" width="552" height="368">
What are the challenges of integrating custom digital tools into your procurement process? 
Despite the many benefits of automation and digitization, there are several major pain points for procurement departments incorporating digital tools:  
 
Automation and integration strategies require a cohesive deployment plan, which means your organization must devise strategies and goals across many departments to ensure automation systems meet everyone’s needs and are rolled out effectively.  
 
But there’s a difference between custom-built integrations and off-the-shelf tools. While customized tools are designed to meet a company’s needs, there are a number of drawbacks that associated with building solutions from the ground-up that may make them unsuitable for your business. 
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">The risk of error is always present when integrating custom systems and tools with each other, which may cause unforeseen delays that disrupt business operations and require time to fix. </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Integration requires testing and quality assurance to ensure that the systems are working as intended, which raises costs.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Any customized tool will require ongoing maintenance and support; updates, patches, and fixes add to the total cost of ownership. </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Future changes to algorithms or data structures will require more significant changes, including total redevelopment of the tool. </li>
</ul>
Customization and integration may also require the development of custom codes, APIs, and integrations with other systems, which can be prohibitively expensive and lead to other issues. 
 
When should you use off-the-shelf tools instead of custom-built solutions?  
Deploying the right tools is crucial. Though deploying many different tools that are best-in-class might seem like the right move, if they don’t work in concert with each other, they can lead to ineffective, bloated processes.  
 
Off-the-shelf software solutions are built to meet the common requirements of most companies and are usually available at lower costs. They’re also more often easier and faster to implement because they require less development time, fewer resources, and can be integrated with other software tools.  
 
However, pre-made software may not be tailored to meet your exact needs, especially as your business grows. Ultimately, digital tools should create value by efficiently integrating business functions and processes that are part of the same workflow. Bridging the gap between custom-built tools and off-the-shelf solutions is half the battle.  
 
To help you identify which solutions could be right for your workflows and needs, we’ve identified four unique, proven tools that range between custom-builds and off-the-shelf solutions to help you integrate automation into your procurement processes. 
 
Coupa 
Coupa is a cloud-native business spend management platform that automates procurement tasks from start to finish. Coupa shows all spend activities on a single platform. This alleviates the need to use several different systems to track spend on goods and services independently from one another, which often leads to poor spend visibility and budgeting decisions. 
 
Coupa allows users to automate invoice matching and manage supplier payments using supporting documentation, providing instant reconciliation and automatic payments. Coupa’s spend analysis not only helps to automate payments but also flags suspicious transactions.  
 
Coupa’s inventory management software provides users with visibility into their inventory availability in real-time, helping you identify and reduce wasteful spend by limiting overbuying and stock buildup. 
 
Perhaps Coupa’s most unique feature, however, is its App Marketplace. Coupa is a market leader at integrating its spend management software with other third-party technology companies. From the <a rel="noopener" href="https://marketplace.coupa.com/en-US/home" target="_blank">Coupa App Marketplace</a>, you can add other companies’ integrated solutions to Coupa’s spend management platform seamlessly.  
 
With this structure, Coupa does the integration heavy lifting for you, which can be an invaluable factor in cutting costs and streamlining workflows. You won’t need to leave the platform to accomplish many different tasks, especially when you’re utilizing the Coupa App Marketplace to its fullest.  
 
IBM Supply Chain Intelligence Suite 
The IBM Supply Chain Intelligence Suite uses artificial intelligence to <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Supply-Chain-Management-Software" target="_blank">help procurement with supply chain management</a>. IBM’s suite monitors all types of events that could impact the availability, quality, and costs of goods and services, prompting users with smart alerts and suggestions to avoid stockouts and late shipments. In one central dashboard, users can search and filter critical information pertaining to their supply chains, providing them with the information they need to make better decisions. Since this tool looks at your company’s specific supply chain needs, IBM’s Supply Chain Intelligence Suite requires a custom-built solution to effectively implement. 
 
If you’re unsure of an event’s impact on your supply chain, IBM provides actionable insights to help guide your decision-making process through analytics-based predictions and recommendations. This can help you refine your supply chain process flows in ways you may not have considered previously. 
 
<img src="https://content.ibisworld.com/media/0zhczyrc/shutterstock_1483602617.jpg?width=588&amp;height=307&amp;mode=max" alt="" width="588" height="307">
 
Icertis
Icertis is a <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Contract-Management-Software" target="_blank">contract lifecycle management platform</a> that uses AI technology to help procurement departments more efficiently manage contracts. Icertis establishes a single system of record for all contracts and contract data, minimizing the administration of contracts by digitizing processes relating to intelligent contract setup, contract operations, governance, risk, compliance, reporting, and dashboards. 
 
According to Icertis, <a rel="noopener" href="https://www.icertis.com/intelligent-transactions/" target="_blank">poor contract management erodes 9.2% of a contract’s value.</a> By turning contracts into on-demand data, Icertis leverages the power of AI to accelerate time to revenue, reduce cycle time, and increase negotiation effectiveness by providing visibility into historical, ongoing, and future contracts, helping users maximize the full value of their contracts. 
 
Icertis can be acquired off-the-shelf. Icertis also offers pre-built integrations with Coupa, SAP Ariba, Salesforce and more. 
 
HICX
Supplier management platforms such as HICX create supplier portals that act as a gateway for users to access all suppliers with accurate and updated data. HICX automatically collects data to ensure risk profiles are updated, and suppliers adhere to compliance programs. Users can issue certification requests, track responses and follow-ups, and store documentation in a single location. 
 
HICX onboards suppliers with dynamic forms that automatically take relevant information and populate required fields into ERPs. This allows users to eradicate processes that are inefficient, as <a rel="noopener" href="https://www.hicx.com/customers/mondelez-international/" target="_blank">one case study</a> demonstrated that HICX reduced the average time to onboard suppliers by as much as 86%. 
 
HICX offers low-code customization intended to bridge the gap between custom-built software and faster pre-built solutions. 
 
Choosing the Right Procurement Solution
 
"Two-thirds of survey respondents are prioritizing significant change to procurement digitization in the next one to three years, with half aiming for complete transformation. " 
2022 Global EY Chief Procurement Officer Survey 
 
The best time to invest in procurement tools was five years ago; the second best time is now. When finding the right solution for your procurement transformation, the only wrong choice is not choosing a solution at all. 
 
Significant change to procurement digitization is necessary if procurement is going to meet current and future challenges head-on. It also can be difficult, time-consuming, and expensive. Not every business is going to completely overhaul their digital transformation efforts overnight. For most, this is a multi-year process that harbors the danger of going too big too quickly.  
 
You don’t need to accomplish this process overnight, and not every need requires a custom-built solution that takes years to develop and thousands—if not millions—of dollars to build and implement.  
 
Even Microsoft chose to use Icertis for its contract management software instead of building the solution itself. Identifying when to opt for the custom software and when to purchase a tool that’s ready to implement is the crucial element of successful digital transformation.  
 
Whether you opt for pre-built tools or customized software, using digital solutions to streamline your business processes can and should be part of the future of your business. 
 
 
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Integrating automation tools into procurement processes is crucial if procurement is to survive future challenges. What are the top 4 tools you can use to integrate workflows? 

The Top Four Tools That Help Procurement Integrate Workflows

Key Takeaways
<ul>
<li>Cybersecurity spending is being outpaced by cybercrime costs, demonstrating widespread vulnerability to outside attacks.</li>
<li>Businesses should continue investing in cybersecurity measures, especially as we enter the projected 2023 recession.</li>
<li>New, growing cybersecurity capabilities like threat detection software and cyber insurance will better insulate procurement from cyberattack consequences.</li>
</ul>
With recent hiring cutbacks and layoffs – and what seems like an impending 2023 recession – companies are looking for new places to cut costs, and procurement is left wondering how to implement new, more severe cost savings goals. With that being said, cybersecurity should not be an area procurement cuts back on. While it was one of the fastest-growing industries from 2015 to 2022, cybersecurity has recently seen slower growth than its historical trends. However, the rate of cyberattacks has only increased.
 
What are the latest cybersecurity trends?
Cybersecurity spending grew quickly between 2017 and 2020 but began rising exponentially after the coronavirus pandemic spurred the remote work movement (<a rel="noopener" href="https://www.embroker.com/blog/cyber-attack-statistics/" target="_blank">12-17% YoY growth from 2017-2021</a>). During this period, there was a widespread shift to contracting with large, established cybersecurity firms. Partnering with a single, enterprise-level cybersecurity firm provides clients with a single point of contact for all cybersecurity needs, improving operational efficiency while reducing potential issues related to integration.
Unfortunately, cyberattacks and their financial costs have also snowballed during the last five years. According to a <a rel="noopener" href="https://www.embroker.com/blog/cyber-attack-statistics/" target="_blank">recent study by insurance firm Embroker</a>, cybercrime costs are forecast to increase from $3 trillion in 2015 to over $10.5 trillion in 2025. There have been several factors contributing to these increased costs.
<ul>
<li>The implementation of remote work policies across the country has been a significant driver of cyberattack growth, adding millions of vulnerable endpoints in the form of employee laptops, mobile devices, and tablets.</li>
<li>Combined with vulnerabilities in file sharing and communication software like Slack and Microsoft Teams, malicious attackers have more potential attack points than ever.</li>
<li>Phishing and social engineering attacks remain the most common method of cyberattacks, while ransomware tactics are continually growing in frequency and complexity.</li>
</ul>
Concerns surrounding cyberattacks have led to the market growing rapidly in recent years, demonstrated by high stock prices for leading providers like CrowdStrike Holdings Inc. and Fortinet Inc. between 2020 and late 2022. However, cybersecurity companies have not been immune to recent economic conditions and the projected 2023 recession. <a rel="noopener" href="https://www.mimecast.com/blog/budgets-fall-short-of-cyber-resilience/" target="_blank">According to a recent survey</a>, 36% of IT professionals think that their organization is spending too little on cybersecurity, which is a 33% increase compared to 2022. This reduction in business investment has resulted in many smaller cybersecurity firms beginning layoffs in 2022 and early 2023. In contrast, large, enterprise-level cybersecurity firms have remained insulated from widespread layoffs as of March 2023.
 
<img src="https://content.ibisworld.com/media/z4iasrlm/shutterstock_175801847.jpg?width=720&amp;height=237.70700636942678" alt="" width="720" height="237.70700636942678">
 
What is the danger of underinvesting in cybersecurity?
Underinvestment in cybersecurity can lead to a variety of consequences for procurement professionals, with the most notable being supply chain attacks. Businesses can often be partnered with dozens of suppliers, adding sources of vulnerability to outside interference and data breaches. From supply chain attacks, hackers can gain access to sensitive customer information, confidential trade secrets, and passwords.
 
<a rel="noopener" href="https://coverlink.com/cyber-liability-insurance/target-data-breach/" target="_blank">The 2013 Target data breach</a> was one of the most notable supply chain attacks in history: over 40 million credit and debit card records were stolen from customers after hackers targeted a vulnerable node from one of the corporation's third-party suppliers. After the attack, Target was responsible for paying an $18.5 million settlement. Researchers estimate the company lost over $200 million in the following year as consumers avoided shopping at the retail store.
 
The ongoing digital transformation of businesses has kept cybersecurity demand high in the last year. Due to this trend, cybersecurity positions are the least likely to be cut compared to other positions at tech firms like HR, finance, operations, marketing, and sales, demonstrating the market's resiliency.
 
However, <a rel="noopener" href="https://www.darkreading.com/risk/svb-meltdown-cybersec-startups-access-capital" target="_blank">Silicon Valley Bank's recent collapse</a> is forecast to significantly slow the growth of cybersecurity start-ups due to now limited credit lines and reduced access to venture capital (VC). SVB was known as the most abundant source of VC funding available to budding start-ups in the sector. With the funding now gone, small firms must either reduce costs through layoffs or find a new funding source in a highly competitive environment.
 
Why should procurement invest in cybersecurity in the face of budget cutbacks? 
You should understand that investing in cybersecurity is a long-term strategy that provides preemptive savings to your business. <a rel="noopener" href="https://www.procurementiq.com/blog/southwest-procurement-digital-transformation" target="_blank">The collapse of Southwest Airlines' technical systems in December 2022</a> shows the dire financial consequences of neglecting necessary, protective business investments.
 
Cybersecurity investment maintains supply chain continuity and keeps company confidential information such as financial data, supplier contracts, and intellectual property safe. Due to growing cyberattacks and privacy concerns, various jurisdictions have implemented specific cybersecurity measures to protect sensitive customer data. These include but are not limited to:
<ul>
<li>The EU General Data Protection Regulation (GDPR)</li>
<li>The California Consumer Privacy Act (CCPA)</li>
<li>The Canadian Personal Information Protection and Electronic Documents Act (PIPEDA)</li>
</ul>
The consequences of non-compliance to any of these data protection regulations are severe. Direct financial penalties include hefty fines proportionate to a firm's global revenue. A privacy breach will also damage an organization's reputation and erode customer, supplier, and partner trust. This trend is clearly illustrated by the 2013 attack on Target, where consumers shifted their spending to competitors amid privacy concerns.
 
<img src="https://content.ibisworld.com/media/wkeb5wq2/shutterstock_1847939188.jpg?width=720&amp;height=330.54197662061637" alt="" width="720" height="330.54197662061637">
 
What next steps can procurement take?
You should continue to invest in cybersecurity measures like:
<ul>
<li>IT departments</li>
<li>System upgrades</li>
<li>Threat detection capabilities</li>
<li>Cybersecurity insurance</li>
</ul>
Investment is especially important in the current uncertain economic environment. Threat detection software protects against cyberattacks in real-time, alerting businesses when a breach occurs. In the event of Target's breach, threat detection software would have allowed a much more rapid response to the attack, potentially saving the retailer millions in damages. Procurement professionals should look into their current threat detection capabilities to avoid similar consequences.
 
Like threat detection software, <a rel="noopener" href="https://content.naic.org/article/naic-report-shows-premiums-grew-61-cyberthreats-rose-2021" target="_blank">the cyber insurance market has rapidly grown by over 61% between 2020 and 2021</a>. These insurance policies minimize financial losses that result from data breaches. Additionally, investing in cyber awareness training reduces the risk that procurement users will fall victim to common scams like phishing and social engineering.
 
As you saw in both the 2013 Target attack and during the 2022 holidays, investing in regular system upgrades and maintenance is typically much cheaper than disaster-level events. Reputational damage is challenging to recover from and often leads to a considerable reduction in annual profit levels when consumers shift spending to competitors.
 
Procurement should also continue to prioritize <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles" target="_blank">conducting due diligence on suppliers</a>. Supplier cybersecurity measures, policies, and practices should be regularly reviewed to minimize the risk of costly supply chain attacks. To address this, procurement professionals should <a rel="noopener" href="https://www.procurementiq.com/rfp-templates" target="_blank">include cybersecurity requirements</a> in their contracts with suppliers. Cybersecurity KPIs ensure that cybersecurity concerns are being recorded and handled by suppliers.
 
Cybersecurity investment is only growing in importance as businesses continue to undergo widespread digital transformation. In the wake of budget cuts and the projected recession of 2023, it may be tempting to reduce cybersecurity spending to preserve profit. However, the preemptive savings associated with cybersecurity almost always outweigh the financial cost of a data breach.
 
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Though cybersecurity was one of the fastest-growing industries through 2021, it's growth has slowed. Read more to learn why procurement should continue investing in cybersecurity.

Cybersecurity Trends and Why It’s More Important Than Ever

Copywriter

Key Takeaways 
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">The <a rel="noopener" href="https://www.dol.gov/agencies/eta/layoffs/warn" target="_blank">WARN Act can help employees and procurement</a> departments stay atop layoffs across a wide variety of sectors and states.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Layoffs could affect supplier fulfillment and negotiations, as well as harbor other hidden costs that could impact procurement. </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="1" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Procurement must take the initiative and communicate directly with suppliers experiencing or planning layoffs so that their supply chains remain intact.  </li>
</ul>
We’re only three months into 2023 and procurement has faced more challenges than ever, including <a rel="noopener" href="https://www.wsj.com/articles/the-companies-conducting-layoffs-in-2023-heres-the-list-11673288386" target="_blank">mass layoffs across various industries</a> and a seemingly inevitable recession.  
 
While the impact of layoffs in 2023 will have wide-ranging effects beyond procurement, job cuts across massive sectors, <a rel="noopener" href="https://www.axios.com/2023/02/13/tech-layoffs-innovation" target="_blank">like technology</a> and manufacturing, have the potential to radically alter the sourcing landscape. 
 
In part one of our two-part series, we covered the WARN Act and <a rel="noopener" href="https://www.procurementiq.com/blog/layoffs-2023-top-five" target="_blank">the top five sectors facing the most layoffs</a>. In part two, let’s take a look at how the layoffs will affect your suppliers and your sourcing strategy. 
How does the WARN Act help you prepare for supplier layoffs?  
Whether the layoffs are due to copycat behavior, rising costs, or overhiring after pandemic restrictions eased, you must consider how these events will affect your suppliers, your supply chain, and your ability to meet cost savings goals. 
 
Using the WARN Act and the measures outlined in part one, you can identify which categories you, your team, and your department cover that are undergoing or likely to experience layoffs in 2023. From there, you can identify if any of your suppliers have given layoff notices through the WARN Act, then take measures to ensure your sourcing strategy accounts for supplier layoffs. 
 
But don’t be afraid of <a rel="noopener" href="https://www.oxfordcollegeofprocurementandsupply.com/why-communication-is-key-to-supply-chain-success/" target="_blank">querying your suppliers directly</a> about their employment plans for 2023 and if they’re planning any hiring cutbacks or layoffs. The WARN Act only covers United States-based employers of more than 100 people. Your team should constantly communicate with your suppliers regarding any potential actions that may affect their ability to deliver the agreed-upon goods and services in your contracts.  
 
<img src="https://content.ibisworld.com/media/s0tfk2kq/shutterstock_1491177698.jpg?width=720&amp;height=389.8089171974523" alt="" width="720" height="389.8089171974523">
How could layoffs affect supplier negotiations?  
For suppliers that have cited reduced demand and order volumes as principal drivers of layoffs, buyers will find increased leverage during negotiations as reduced demand pressures prices downward and restricts price growth. With a lack of demand, suppliers are more likely to consider buying conditions and requests that may be otherwise rejected to ensure deals make it over the finish line.  
 
You can also have greater assurance that the ongoing digitization and optimization in nearly all sectors will lead to higher productivity at reduced costs in the future, which should increase suppliers’ profit margins. Not only do higher margins reduce vendors’ financial risk and decrease the likelihood of supply chain disruptions, but with higher profit margins, suppliers will eventually have an increased capacity to negotiate prices. 
 
There are several hidden costs associated with layoffs, particularly regarding <a rel="noopener" href="https://www.forbes.com/sites/nazbeheshti/2023/02/16/are-big-layoffs-in-big-tech-a-bad-sign-for-well-being-in-the-workplace/?sh=4c2d4f70180b" target="_blank" data-anchor="?sh=4c2d4f70180b">employee satisfaction and productivity.</a> Your supplier should clearly outline how buyers are protected from such costs and explain what strategies are in place to mitigate negative implications for their clients.  
What are some challenges your suppliers might face? 
<a rel="noopener" href="https://www.supplychaindive.com/news/shrinking-demand-sparks-logistics-layoffs-flexport-ch-robinson/641035/" target="_blank">Layoffs can indicate decreased demand</a> for goods and services, which could result in lower purchasing volumes for procurement departments. Procurement teams may need to adjust their strategies and negotiate with suppliers on smaller orders. 
 
Suppliers may also merge with other companies or go out of business. This could impact procurement departments’ supplier portfolios and require you to find new suppliers or renegotiate contracts with existing suppliers.  
What are questions you should ask suppliers experiencing layoffs?  
<ol>
<li>How will layoffs or hiring freezes affect the quality of goods and services you provide? </li>
<li>How will layoffs affect your delivery timeline of goods and services? </li>
<li>What measures are you taking to ensure there are no disruptions to our supply chain? </li>
<li>How will layoffs affect your ability to fulfill orders? </li>
<li>Will there be any changes to pricing due to layoffs? </li>
<li>Can you provide us with a list of the roles and responsibilities of employees that were laid off? </li>
<li>Do you have contingency plans to deal with any unforeseen disruptions resulting from layoffs? </li>
</ol>
 
<img src="https://content.ibisworld.com/media/qbmkou3l/shutterstock_1737674894-1.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
What are some challenges your procurement department may face?  
Unfortunately, we’ve seen procurement departments experience their share of layoffs over the last few months, with more expected to occur throughout 2023. In addition to aggressive cost-saving goals to prepare for a recession, procurement departments may be forced to pursue these goals with a fraction of the manpower it’s used to. 
 
Layoffs in particular may be followed by other budgetary cuts, which could impact your ability to invest in new technologies, hire new staff, or engage in strategic initiatives. A reduced staff will also likely increase the workload on remaining category managers, affecting their ability to meet deadlines, deliver high-quality work, and meet cost-saving goals.  
What can procurement do to weather layoffs and an impending recession? 
Recessions, layoffs, and hiring cutbacks are out of procurement’s hands. There are several processes, however, that you can focus on to help your company save money and withstand the uncertainty of our current economic landscape. 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="4" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Focus on creating value. You can help your company weather layoffs and a recession by focusing on creating value instead of just cost-cutting. This can take the form of identifying opportunities to improve product quality, collaborating with suppliers to find innovative ideas and solutions that can help you develop new products or services, and evaluating the feasibility and ROI of new product and service ideas.  </li>
<li data-leveltext="" data-font="Symbol" data-listid="4" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Implement inventory management processes. Your company may face challenges with cash flow due to a declining level of demand for your product or service. By forecasting demand and monitoring inventory, you can reduce inventory holding costs and ensure you have the right amount of inventory on hand to meet demand. </li>
<li data-leveltext="" data-font="Symbol" data-listid="4" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Analyze spending and identify cost-saving opportunities. This has always been procurement’s focus, and it’s more important now than ever. Between consolidating your supplier base to negotiate better deals or sourcing products and services from inexpensive alternatives, finding areas to cut costs will always be an area procurement can deliver value.  </li>
<li data-leveltext="" data-font="Symbol" data-listid="4" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769226&quot;:&quot;Symbol&quot;,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;&quot;,&quot;469777815&quot;:&quot;hybridMultilevel&quot;}" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Double down on your digital transformation efforts. As <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">artificial intelligence becomes more prevalent</a> in a variety of industries, procurement may need to seriously consider integrating digital tools that can free employees from menial tasks.  </li>
</ul>
 
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As companies gear up for what seems like a recession, many industries are experiencing large layoffs. How will this affect procurement and its sourcing strategies?

Layoffs in 2023: Preparing Procurement for Challenges Ahead

Key Takeaways
<ul>
<li style="font-weight: 400;" aria-level="1">In a reverse auction, the buyer seeks to purchase a product or service and potential suppliers bid to offer the lowest price they are willing to accept.</li>
<li style="font-weight: 400;" aria-level="1">Reverse auctions can bring buyers cost savings and many other, less immediately-tangible benefits. </li>
<li style="font-weight: 400;" aria-level="1">Reverse auctions are an important tool that can help procurement with its digital transformation efforts.</li>
</ul>
It’s barely three months into 2023, and we’ve already seen <a rel="noopener" href="https://www.procurementiq.com/blog/layoffs-2023-top-five" target="_blank">scores of layoffs</a>, media outlets promising an impending recession, and companies placing even more severe cost-savings burdens on their procurement departments. It’s a tough landscape to navigate. 
 
That’s where reverse auctions come in. In light of 2023’s latest challenges, we wanted to highlight reverse auctions as an example of how investing in digital transformation can help procurement weather some of the challenges it’s facing. 
 
A reverse auction differs from a traditional format in that the party running the auction is looking to buy a product or service instead of selling. As the phrase suggests, it reverses the roles of buyer and seller. In a reverse auction, the buyer dictates what goods or services are needed and asks vendors to bid against each other to win business. As <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles" target="_blank">suppliers compete with each other</a> for the contract, in many cases it can result in better-quality goods or services at lower prices.
 
Reverse auctions can be hosted on e-procurement platforms, which helps automate the process and <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">reduces the need for human intervention</a>. That alone makes it an important solution as procurement faces layoffs and time crunches heading into 2023 and beyond.
What are the different types of reverse auctions?
There are two primary types of reverse auctions: <a rel="noopener" href="https://www.youtube.com/watch?v=fQoFp46RAQk" target="_blank" data-anchor="?v=fQoFp46RAQk">Dutch and Japanese</a>.
 
In a Dutch reverse auction, a low initial price is set for the good or service in question. The auction manager then increases the price by a predetermined amount until a seller accepts the bid and agrees to provide the goods or services at that price.
 
A Japanese reverse auction differs in that a high initial price is set which is then decreased by a predetermined amount. Once the price is decreased, sellers are asked whether they would like to accept that price or withdraw. This continues until only one seller is left. The seller remaining wins the bid and must supply the good or service at that price.
 
<img src="https://content.ibisworld.com/media/qh5htw54/shutterstock_581581747-1.jpg?width=720&amp;height=480.00000000000006" alt="" width="720" height="480.00000000000006">
 
How much can you save with reverse auctions?
Reverse auctions bring about “hard-dollar” cost savings by increasing competition. Studies have shown that savings from reverse auctions can range from 11.0% to over 23.0%.
 
In a <a rel="noopener" href="https://www.businessofgovernment.org/sites/default/files/Reverse%20Auctioning.pdf" target="_blank">study</a> done for the IBM Center for The Business of Government, David C. Wyld found that cost savings from reverse auctions for the US Department of State from the 2007 to 2010 fiscal years amounted to 11.0%.
 
Similarly, a study by the University of Arkansas Information Technology Research Institute found that reverse auctions generated net savings of 15.0% for buyers.
 
The General Services Administration (GSA) also reported that federal agencies using reverse auctions netted savings of 19.0% in the 2013 fiscal year and over 23.0% in the 2014 fiscal year.
What are some of the other benefits of reverse auctions?
Reverse auctions also bring about “<a rel="noopener" href="https://www.investopedia.com/terms/s/softdollars.asp" target="_blank">soft-dollar</a>” savings in the form of improvements to the procurement process which are important but more difficult to quantify.
 
First, reverse auctions speed up the sourcing process. Between offers and counteroffers, negotiating individually with suppliers involves a lot of back-and-forth, which can take several weeks; a reverse auction can compress this cycle into a few hours.
 
Second, reverse auctions offer increased transparency and enhanced compliance. Reverse auction software is highly structured and limits opportunities for corruption. For example, the bidder’s identity may be concealed until the offer is accepted. Furthermore, reverse auction software allows both internal and external stakeholders to see how the process unfolded and why a particular bidder won.
 
Reverse auctions also can help <a rel="noopener" href="https://www.procurementiq.com/blog/procurement-ai-improve-roi" target="_blank">automate the procurement process</a>, which means less administrative work for procurement professionals. This boosts productivity by freeing up your task list to work on higher-value tasks instead of routine paperwork.
 
The federal government found that <a rel="noopener" href="https://www.federalregister.gov/documents/2020/12/07/2020-24936/federal-acquisition-regulation-reverse-auction-guidance" target="_blank">reverse auctions increase small business participation.</a> This can help buyers who want to increase the number of goods and services sourced from small businesses. 
What are the drawbacks of reverse auctions? 
The main drawback of reverse auctions is their focus on the purchase price at the expense of other considerations that go into goods and services. Quality may be sacrificed in the name of cost, and the auction may be won by a supplier that charges a low price but supplies substandard goods. Furthermore, a supplier could charge a very low purchase price to win the auction but more than make up for the lower price by charging high shipping and handling fees.
 
Another drawback of reverse auctions is that they are only suitable for a limited selection of goods.
 
<img src="https://content.ibisworld.com/media/l41fbsr3/wait_tech.jpg?width=0&amp;height=0&amp;mode=max" alt="" width="720" height="499.8726114649682">
What goods should be purchased using reverse auctions?
<a rel="noopener" href="http://www.wvlegislature.gov/wvcode/ChapterEntire.cfm?chap=5A&amp;art=3&amp;section=10D" target="_blank" data-anchor="?chap=5A&amp;art=3&amp;section=10D">Chapter 5A of the West Virginia Code</a> specifies the types of goods that should be purchased using reverse auctions. There are certainly other kinds of goods that could be made to fit this format, but we believe this list encompasses a good “best-practices” use case. 
 
According to this code, goods purchased using reverse auctions should:
<ol>
<li>    Have a low level of price volatility</li>
<li>    Be sold by a large and competitive group of suppliers</li>
<li>    Be purchased mainly based on price</li>
<li>    Have simple specifications</li>
<li>    Have little variance between suppliers</li>
<li>    Require a low level of collaboration with the supplier</li>
</ol>
How should you incorporate reverse auctions into your digital transformation playbook? 
Reverse auctions can be a valuable tool for procurement departments <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Procurement-Consulting-Services" target="_blank">looking to streamline their purchasing processes</a> and obtain the best possible prices for goods and services. To incorporate reverse auctions into your digital transformation playbooks, consider following these steps:
<ul>
<li style="font-weight: 400;" aria-level="1">Identify the appropriate goods and services that are suitable for reverse auctions.</li>
<li style="font-weight: 400;" aria-level="1">Select the right e-procurement and technology platform.</li>
<li style="font-weight: 400;" aria-level="1">Establish and train your staff on best practices for conducting reverse auctions, such as setting clear rules for bidding, monitoring bidding activity, and evaluating bids.</li>
<li style="font-weight: 400;" aria-level="1">Identify potential suppliers and invite them to participate in the reverse auction through an <a rel="noopener" href="https://www.procurementiq.com/rfp-templates" target="_blank">RFP process</a> or by contacting suppliers directly.</li>
</ul>
Cost-saving measures such as reverse auctions may grow amid concerns that the United States is headed toward a recession. You can learn more about e-procurement by reading ProcurementIQ’s core report on <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Procurement-Software" target="_blank">procurement software</a> or by <a rel="noopener" href="https://www.procurementiq.com/blog/what-is-e-procurement" target="_blank">visiting our blog</a>.
 
Interested in more information on the best reverse auction platforms? Let’s get you started with some <a rel="noopener" href="https://www.procurementiq.com/custom-research" target="_blank">custom research</a>.
 
Follow <a rel="noopener" href="https://www.linkedin.com/company/28619552/admin/" target="_blank">ProcurementIQ on LinkedIn</a> to get notified of the latest procurement news and market developments from our experts to yours.

How do reverse auctions save procurement money and bolster your digital transformation efforts? Read more to find out. 

From Traditional to Digital: The Impact of Reverse Auctions on Digital Transformation

Key Takeaways: 
<ul>
<li>Employees affected by mass layoffs may be protected by the Worker Adjustment and Retraining Notification (WARN) Act.  </li>
<li>The WARN Act of 1988 is a U.S. labor law that protects employees by requiring employers of 100 or more employees to provide 60 calendar-day notice of planned closings and mass layoffs.  </li>
<li>Mass layoffs occurring in 2023 are due to several factors, including copycat behavior and overhiring after pandemic restrictions eased.  </li>
</ul>
 
Layoffs are never fun to talk–or write–about. Yes, they impact industries and the economy. Yes, that has wider implications for procurement as we prepare for what looks like an inevitable recession. But it’s important to remember the people who are affected.
  
It might be of little consolation, but there are several measures workers and procurement departments can take to identify whether they might be affected by the wave of mass layoffs occurring across the United States. 
 
In the first part of this two-part series, we’re going to highlight a resource that may have gone overlooked as well as five major industries that are being affected by layoffs.  
What is the WARN Act?  
The <a rel="noopener" href="https://www.dol.gov/agencies/eta/layoffs/warn" target="_blank">Worker Adjustment and Retraining Notification Act of 1988</a> is a U.S. labor law that protects employees, their families, and communities by requiring most employers of 100 or more employees to provide 60 calendar-day advance notice of planned closings and mass layoffs.  
 
According to the U.S. Department of Labor, employees “must receive a written notice 60 days before the date of a mass layoff or plant closing” if they meet certain requirements laid out by the WARN Act. If employers don’t give adequate notice, affected employees may be entitled to back pay and benefits for up to 60 days. While these financial consequences may not break the bank for large companies, the WARN Act provides an easy way for businesses to comply and gives workers crucial notice that can help them plan appropriately in case they find themselves temporarily out of work. 
 
Affected companies and the number of layoffs expected can be found on a state-by-state basis through a state’s department of labor or employee development website. For example, New York and California, two of the states experiencing high numbers of layoffs, have their WARN Act notices located here:  
 
<a rel="noopener" href="https://dol.ny.gov/warn-notices" target="_blank">New York</a>  
 
<a rel="noopener" href="https://edd.ca.gov/en/Jobs_and_Training/Layoff_Services_WARN" target="_blank">California</a>  
Why are we seeing mass layoffs in major industries entering 2023?  
There are a number of factors that are causing mass layoffs across many different industries. While there’s no “one size fits all” data point, we’ve noticed several common elements that are contributing to the wave of layoffs. 
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="4" data-aria-level="1">Cutbacks: Generally, business executives have expressed that they’re conducting layoffs in response to corporate spending pullbacks, high inflation, and recession fears.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="5" data-aria-level="1">Overhiring: Overzealous recruiting as pandemic concerns waned led to perceived company “bloating” irrespective of actual profit margins and macroeconomic factors facing different industries.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="6" data-aria-level="1">Planned layoffs: Likewise, companies use macroeconomic factors as a reason to conduct layoffs they would have likely carried out regardless of the economy or their company’s financial outlook.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="2" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="7" data-aria-level="1">Mimetic behavior: Many other industries look to the tech industry for guidance on how to navigate complicated macroeconomic environments since the industry enjoys the luxury of big balance sheets and high profit margins. The mass layoffs in the technology sector may have influenced other industries to mimic a leading industry’s strategy. </li>
</ul>
<img src="https://content.ibisworld.com/media/pvdnnuer/shutterstock_314846426-1.jpg?width=710&amp;height=473&amp;mode=max" alt="" width="710" height="473">
Which five sectors are facing the biggest layoffs?  
While we’re seeing layoffs across a wide variety of industries, these five sectors stand out as areas that will have far-ranging effects across the procurement world:  
1. Technology 
The layoffs in the technology sector have garnered the most media attention, as the larger firms in this industry like Amazon, Google, and Meta, take center stage of mainstream business discourse. Tech sector layoffs can be especially deep as roles are often organized around developing specific products, and companies are decisive when it comes to axing a <a rel="noopener" href="https://www.axios.com/2023/02/13/tech-layoffs-innovation" target="_blank">product that is deemed unprofitable</a>, making entire teams redundant. 
 
Mass layoffs in tech can in part be explained by mimetics – if one major player lays off thousands of employees, other competitors may follow suit as they see such a move to be advantageous in the market and within the broader macroeconomic perspective.  
With Meta laying off <a rel="noopener" href="https://www.forbes.com/sites/qai/2022/12/07/meta-layoffsfacebook-continues-to-cut-costs-by-cutting-headcount/#:~:text=Announcement%20of%20layoffs,division%20will%20see%20fewer%20cuts." target="_blank" data-anchor="#:~:text=Announcement%20of%20layoffs,division%20will%20see%20fewer%20cuts.">11,000 employees</a> last November and Elon Musk’s swift takeover of Twitter and <a rel="noopener" href="https://www.cnn.com/2022/12/22/tech/twitter-layoffs-continue/index.html%22%20/h%20HYPERLINK%20%22https://www.cnn.com/2022/12/22/tech/twitter-layoffs-continue/index.html" target="_blank">workforce cull</a>, several tech leaders of large companies are now considering whether their own organizations require downsizing. While some organizations might opt to thin their workforce more subtly by requiring workers to return to the office instead of allowing continued remote or hybrid work, most will choose to use layoffs, where they can control who stays and who goes.
 
2. Automotives 
Historically, automotive sector layoffs have come from strategic decisions on plant locations, based either on the models manufactured there or cost considerations surrounding the labor pool, access to materials, and regulatory environment. More recently, the automotive sector has conducted layoffs primarily because electric vehicle (EV) manufacturing requires less labor than traditional automotive manufacturing. 
 
Recent studies by Ford, Volkswagen, and consulting firm AlixPartners showed electric car components require <a rel="noopener" href="https://www.businessinsider.com/ev-electric-car-auto-industry-jobs-layoffs-employment-ford-2022-8" target="_blank">30.0-40.0%</a> less labor compared to components for gas-powered vehicles. This means that companies prioritizing EV manufacturing, a group that is growing due to the recent expansion of federal grants and loans for greener technologies, must consider downsizing their workforce regardless of the surrounding macroeconomic environment.  
Ford continues to trim its workforce for this very reason. Last summer, the company <a rel="noopener" href="https://www.bloomberg.com/news/articles/2022-07-20/ford-plans-up-to-8-000-job-cuts-to-help-fund-investments-in-evs%22%20/h%20HYPERLINK%20%22https://www.bloomberg.com/news/articles/2022-07-20/ford-plans-up-to-8-000-job-cuts-to-help-fund-investments-in-evs" target="_blank">laid off 8,000 employees</a> in gas vehicle assembly and a <a rel="noopener" href="https://www.cnn.com/2023/02/14/cars/ford-job-cuts-europe/index.html%22%20/l%20%22:~:text=Ford%20has%20announced%20plans%20to,over%20the%20next%20three%20years." target="_blank">further 3,200 in Europe</a> as the company plans to go fully electric by 2035. Unlike in the tech sector, these layoffs are unlikely to cease even as interest rates decline and economic conditions improve, as the shift towards EVs will continue to reduce <a rel="noopener" href="https://www.epi.org/publication/ev-policy-workers/" target="_blank">tens of thousands</a> of jobs over the next decade.  
 
3. Financial Services
The banking and financial services sector has seen major players shed thousands of employees as operating costs continue to rise and profits decline. For example, <a rel="noopener" href="https://www.reuters.com/business/finance/goldman-sachs-reports-69-drop-q4-profit-2023-01-17/" target="_blank">Goldman Sachs</a> had an almost 70% drop in fourth-quarter profit last year while operating expenses increased by 11% from 2021 to 2022, prompting a 6% layoff of their total workforce. Morgan Stanley let go of <a rel="noopener" href="https://www.nytimes.com/2022/12/06/business/morgan-stanley-layoffs.html" target="_blank">1,600</a> employees in December, citing less deal flow and a natural trimming-down process after years of successive growth.  
 
Several of these cuts are in credit and investment divisions, as even Bank of America – one of the last major holdouts of the financial sector in staving off layoffs – announced they would be <a rel="noopener" href="https://fortune.com/2023/02/16/bank-of-america-planning-layoffs-investment-bank-jobs/" target="_blank">cutting positions in their investment bank</a>. 
 
4. Logistics and Transportation 
The logistics and transportation sector has seen major upheaval in recent months, with FedEx laying off <a rel="noopener" href="https://www.wsj.com/articles/fedex-to-cut-more-than-10-of-officer-director-jobs-11675270871" target="_blank">12,000 workers</a> since June and Flexport axing <a rel="noopener" href="https://www.wsj.com/articles/freight-forwarder-flexport-is-laying-off-20-of-its-workforce-11673468390" target="_blank">20% of its workforce</a>. In 2021, many suppliers in this market engaged in bidding wars with competitors for employees as they were in dire need of personnel to meet demand. As consumer spending cooled and shifted from products to services, demand for shipping services has declined and keeping high-salaried drivers cuts into company profits.  
 
At the same time, the shift toward automation and digitization post-pandemic has led to improved efficiencies. This trend has been a driving factor behind <a rel="noopener" href="https://www.transportdive.com/news/ch-robinson-confirms-former-ceo-fired-additional-layoffs-likely/641879/" target="_blank">CH Robinson’s layoffs</a>. The company laid off 650 workers last November and has plans to further reduce headcounts in 2023 to cut costs.  
 
<img src="https://content.ibisworld.com/media/bopjzwue/1-24-2023-airline-2.jpg?width=710&amp;height=473&amp;mode=max" alt="" width="710" height="473">
5. Manufacturing 
A mix of rising input costs and external demand has weighed on the manufacturing sector. Declining consumer spending on products has impacted the manufacturing sector in much the same way as freight and logistics. When interest rates are high and an unfavorable economic environment drives costs up, manufacturing companies tend to respond by reducing the wage bill in nonessential roles such as marketing and research development, while maintaining jobs in core functions.  
 
3M is cutting 2,500 jobs in manufacturing due to poor returns in 2022 when sales dropped 6% from Q4 2021 to Q4 2022. Unfortunately, weak forecasts for 2023 suggest that continued cuts may be necessary. Meanwhile, the Dow Jones Chemical Company slashed 5% of its workforce, citing higher production costs due to the Russian invasion of Ukraine.  
 
Actionable Insights 
<ul>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="8" data-aria-level="1">You can gain a greater understanding of your negotiating leverage with suppliers as well as the general direction an industry is heading in by researching layoff data and checking WARN Act notices.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="9" data-aria-level="1">Ask suppliers directly about which factors are impacting their decisions on layoffs and how your business may be impacted by such decisions.  </li>
<li data-leveltext="●" data-font="Times New Roman" data-listid="3" data-list-defn-props="{&quot;335552541&quot;:1,&quot;335559684&quot;:-2,&quot;335559685&quot;:720,&quot;335559991&quot;:360,&quot;469769242&quot;:[8226],&quot;469777803&quot;:&quot;left&quot;,&quot;469777804&quot;:&quot;●&quot;,&quot;469777815&quot;:&quot;multilevel&quot;}" aria-setsize="-1" data-aria-posinset="10" data-aria-level="1">Ask your suppliers how your business will be protected from the costs of their layoff decisions.  </li>
</ul>
 
Check back next week for part two of this series to learn more about how layoffs across the economy could impact procurement and how to best mitigate impacts for your organization.
 
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As companies gear up for what seems like a recession, many industries are experiencing large layoffs. Read more to see which sectors are experiencing the largest layoffs.

Layoffs in 2023: Five Sectors Experiencing the Most Layoffs

Remote work: as the world adjusts to our post-pandemic reality, teleworking has taken center stage. But how does this affect procurement? Read the article to learn more!

How Can Procurement Use Remote Work to Its Advantage?

Key Takeaways
<ul>
<li>Procurement departments must leverage automation and artificial intelligence (AI) to improve ROI.</li>
<li>You should thoroughly evaluate the costs and benefits of AI to determine whether these new technologies will bring value to your business.</li>
<li>If your procurement team has decided to implement automation and AI within your business, there are several best practices you should adhere to.</li>
</ul>
 
With supply chain issues, past examples of <a rel="noopener" href="https://www.procurementiq.com/blog/southwest-procurement-digital-transformation" target="_blank">failures to integrate technology (Southwest)</a>, and a looming recession, procurement must now more than ever dedicate itself to digital innovation and digital transformation. This must come in the form of integrating automation into key areas of the procurement process.
 
A <a rel="noopener" href="https://www.cnbc.com/advertorial/2021/07/06/the-very-real-roi-of-artificial-intelligence.html" target="_blank">study</a> by the AI for Good Foundation, UC Berkeley, Columbia University, and the University of Maryland found that between 2010 and 2018, companies that invested in AI “saw an 11 to 15% increase in overall job growth and sales, and roughly a 1% boost in market share.” Firms with more digital capital will see the greatest productivity gains, regardless of industry.
 
While investment in AI is typically concentrated among the top-performing companies, others will not want to be left behind in this digital transformation. Automation and AI are at the heart of digital innovation, as they are vital to:
<ul>
<li>Improving ROI</li>
<li>Increasing productivity</li>
<li>Internal innovation</li>
<li><a rel="noopener" href="https://www.procurementiq.com/rfp-templates" target="_blank">Automating menial tasks</a></li>
<li>Upskilling employees</li>
</ul>
 
<a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Automation-Integration-Services" target="_blank">Incorporating AI into your organization is a sizable task</a>. Nonetheless, you must do your due diligence and explore how AI can help automate processes within your business due to the great opportunities they provide. Even if such investments aren't viable for your business just yet, you'll want to prepare yourself for when the presents itself.
How can AI improve procurement's ROI? 
In procurement departments, automated AI tools monitor KPIs, track vendor performance and compliance, process and approve purchase orders, manage contracts, and classify spend. While there are several ways in which automation and artificial intelligence can improve ROI, the clearest and most obvious advantage of this technology lies in improved productivity and efficiency.
 
AI works faster and operates longer compared to manual systems. When tackling mindless tasks, there’s no comparison between the productive capabilities of AI and typical employees. Incorporating AI can also lower wage bills and decrease administrative costs as you won’t need to hire additional staff, helping your business weather recessions that constrain revenue and profitability.
AI is equally less prone to error, especially errors relating to complex calculations. With better transaction accuracy and greater standardization, the percentage of payments on time will likely increase. Reducing charges related to delayed payment interest expenses dampens the effects of revenue leakage. According to Deloitte, artificial intelligence systems can reduce business process costs by 25-40% on average.
 
Implementing AI systems increases customer satisfaction and net promoter scores. For example, chatbots can provide answers to customer queries instantaneously with high accuracy, allowing human agents to tackle more complex queries outside of the AI’s expertise. By scanning and tagging emails, human agents can address multiple queries without responding to each customer individually, increasing response times.
 
Not only is customer satisfaction positively impacted, but employees equally benefit from AI. With the help of AI systems, employees typically assigned <a rel="noopener" href="https://www.procurementiq.com/rfp-templates" target="_blank">simple, monotonous duties</a> – which are among the least enjoyed by employees – can now focus on higher-level, more fulfilling tasks. This enhances the professional development of employees, providing greater value to the company through their while forwarding their careers. We’re not advocating for AI as a method of replacing employees. Rather, AI is a tool that you can use to enhance your employees’ productivity, effectiveness, and capacity.
 
While AI has measurable advantages, it also can provide insights through detailed analytics and reporting that present additional opportunities for improvement. As you track the performance of your AI system, you should track these unforeseen benefits and improvements to give a fuller picture of the ROI of your AI system. 
What costs are considered when evaluating ROI and AI?
The first, and most obvious question to consider when you’re evaluating ROI is whether the AI implemented will generate greater profits, either by reducing costs or increasing sales. In certain industries such as healthcare and finance, AI has a proven track record of success with clear use cases. However, other sectors may find it more difficult to effectively implement AI systems. For example, the retail sector is flooded with data that lacks integrity and quality; without quality data, these businesses are unable to bring out the most from their AI technologies, thus limiting adoption.
 
While it is true that AI is at the core of digital innovation in almost every industry, it’s possible that AI is not the right decision for your business at this point in time due to the large investments made when implementing such systems. The cost of AI is not simply the price for a developer to build a bot. Investments in clean data, computing power, and storage are paramount. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Data-Archiving-Storage-Services" target="_blank">Costs relating to data centers, in particular the cloud and energy use, can be significant.</a> 
 
Next, you’ll need to <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Support-Services" target="_blank">invest in training IT personnel</a> and business users on how to work with the AI itself. Maintaining and fixing an AI system that is working improperly can be expensive due to the high level of expertise required. Business structures and processes will need revisions, requiring coordination across all departments. Buyers must also consider one-time implementation and integration costs, along with licensing fees.
 
Because design, compliance, and governance costs can easily get out of hand when not properly managed and monitored, your procurement department and your finance team must evaluate ROI projections over the long term. This includes taking full account of corporate assets necessary for AI implementation.
How do I implement AI in my business or department? 
Once you’ve determined that AI presents an opportunity to automate procurement processes and increase productivity, you must then consider how to implement an effective AI solution. There are several ways to incorporate AI into your business. It may not be feasible to internally design and build your own AI solution. Instead, you may want a custom-built solution designed entirely by an outsourced team. Regardless, you’ll want to consider any existing AI products available. If ready-made solutions already exist, it makes sense to pursue these options first, as they will be significantly cheaper to procure and faster to implement compared to custom-designed tools.
 
You’ll need to find the right processes to <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Consulting-Services" target="_blank">automate and ensure automation tools run properly</a>. Even for established companies, many of the automation processes are redundant. Without proper governance practices, AI will not run as efficiently as possible, leading to higher costs.
 
You’ll also need to have quality data sets in order to increase the efficacy of your AI system. Data should be accurate and complete, with proper annotation and no instance of double records. Establishing data quality assurance practices ensures you’ll train your AI system correctly.
 
Focusing on near-term goals and tracking KPIs is integral to demonstrating the ROI of AI to stakeholders. KPIs will differ depending on the AI in question. Metrics may include engagement rates, mean time to repair, first contract resolution rate, and customer and employee satisfaction. You can tie KPIs back to ROI – expressed in labor hours, money, and time – and use them to demonstrate the efficacy of the AI system used.
 
Final Thoughts
Procurement departments can become torchbearers and champions for AI systems that improve the productivity of virtually every aspect of a business. To accurately evaluate the ROI AI to your business, you should track all investments and costs relating to AI, along with key metrics that point to the AI’s success and improvements.
 
Whether your business implements AI solutions and automation practices in 2023 or not, being knowledgeable of automation practices and AI solutions ensures procurement is not left behind in the age of digital transformation. With a deep understanding of AI’s role within your market, you’ll be ready to pivot when the time is right.
 
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Automation and AI are the keys to digital innovation. Read more to discover AI's use cases in procurement, how to implement AI, and how to ensure you get a positive ROI.

What Does the Rise of Artificial Intelligence Mean for Procurement?

Key Takeaways
<ul>
<li>Southwest Airlines faces financial liabilities for mass cancellations of flights over the holiday season that stemmed from a system failure.</li>
<li>The losses Southwest faces far outweigh the cost of upgrading its systems.</li>
<li>Procurement professionals should take notice of this and other industries’ woes and prioritize <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Consulting-Services" target="_blank">digital transformation</a>.</li>
</ul>
What happened to Southwest Airlines?
Between December 22 and December 30, technical difficulties forced Southwest Airlines to cancel approximately 15,000 flights during the holiday flying season. Such a public disaster during one of the most heavily-traveled times of year has irreparably damaged the airline’s reputation and led to huge financial losses, which the airline has estimated may total $825 million. For reference, the airline earned $827 million in net income during the past twelve months. 
 
But unlike some other disasters, this crisis was foreseeable. On November 14, the airline’s pilots association president, Captain Casey Murray, warned that the airline was “one IT router failure away from a complete meltdown,” and pointed to Thanksgiving, Christmas, and the New Year as times when the system could collapse. Captain Mike Santoro, the association’s vice president, told CNN that employees had been raising concerns over the airline’s <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Asset-Management-Software" target="_blank">aging technology</a> all the way back in 2015.
 
Business experts tend to agree with the captain’s assessment. “For years, the IT research and advisory firm Gartner has admonished executives that, regardless of their industry, that they are or must become a technology company. Each year this becomes increasingly germane and urgent,” Doug Laney wrote in <a href="https://www.forbes.com/sites/douglaslaney/2023/01/05/20-ways-to-avert-your-companys-own-southwest-meltdown/?sh=37e62d6305a0">Forbes</a>. To succeed in an increasingly digital world, experts have told organizations that they must embrace digital transformation.
 
While cost reduction is important, you should also consider the risks of underinvesting in digital innovation. Unreliable software can lead to severe business interruptions whose costs dwarf the cost of upgrades. Henry Harteveldt of the Atmosphere Research Group estimated that modernizing Southwest’s software would cost roughly $50 million to $100 million, which is far less than the estimated $825 million in losses Southwest now faces. Procurement professionals should take notice of this and other industries’ woes and prioritize <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Consulting-Services" target="_blank">digital transformation</a>.
 
<img src="https://content.ibisworld.com/media/qrhlk4ta/1-24-2023-airline-2.jpg?width=614&amp;height=410&amp;mode=max" alt="" width="614" height="410">
 
How did underinvesting in technology cause Southwest's crisis?
This episode was in large part due to Southwest Airlines not investing enough in digital innovation. The airline’s <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Asset-Tracking-Software" target="_blank">crew assignment software</a>, SkySolver, dates back to the 1990s and was nearing its end of life at the time of the meltdown.
 
Winter Storm Elliott, which lasted from December 21 to December 26, led to a wave of cancellations and delays during some of the busiest travel days of the year. Southwest’s aging system couldn’t keep up with these cancellations and delays. The result was predictable: the system broke down. With the system inoperable, Southwest staff had to locate and match crew members to flights using the telephone—much slower and far less efficient than sophisticated software designed to handle such matters. As a result, many flights were cancelled due to the lack of crew members.
 
Although other airlines were also impacted by the winter storm, they were not as affected as Southwest. On December 26, Southwest accounted for roughly 54% of all cancellations among flights that had been scheduled to leave the next day. To make matters worse, Southwest hadn’t <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/IT-Systems-Integration-Services" target="_blank">integrated its reservation system</a> with that used by most of the other airlines, which meant that passengers on cancelled Southwest flights could not be rebooked on flights from other airlines.
 
These passengers were left stranded at the airport and were forced to <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Domestic-Air-Travel" target="_blank">book flights</a> from other airlines at sky-high rates. Passengers who couldn’t find flights on other airlines had to scramble for hotel rooms and ended up paying room rates that were much higher than usual. Some customers ended up spending thousands of dollars. To make matters even worse, Southwest may even have to compensate these customers because their flights were cancelled due to Southwest’s technical difficulties rather than the bad weather.
 
While the losses—including not just the money to compensate passengers but also lost revenue from those cancelled flights—are considerable, the long-term damage to the <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Public-Relations-Services" target="_blank">company’s reputation</a>, which they’d built over decades, is perhaps the largest loss they’ve suffered.
 
It wouldn’t surprise anyone if previously-loyal Southwest passengers avoided the airline in the future.
 
<img src="https://content.ibisworld.com/media/tk5cg4et/1-24-2023-tech-server.jpg?width=646&amp;height=354&amp;mode=max" alt="" width="646" height="354">
What lessons can procurement learn from Southwest's mistakes? 
But what does this all mean for procurement?
 
Procurement leaders who act now may be able to help their organizations avoid similar events. Moreover, while digital transformation may help organizations avoid losses, it can also help organizations capitalize on new opportunities. Procurement leaders can draw two lessons from this episode.
 
Consider the risk of underinvesting in technology.
To make better purchasing decisions, you should assess the risks of underinvesting in technology. You may need to develop new metrics to measure these risks. For example, you can estimate potential losses by considering how often a system crashes and calculating how much the organization would lose if such a crash led to a sharp decline (say 50%) in daily revenue for 10 business days. But don’t worry—you don’t have to do this by yourself. Internal and external experts can help you understand these risks. Once you’ve estimated the losses you could face as a result of technical issues, you’ll be in a better position to determine whether to invest in digital transformation.
 
Seek feedback from across the organization.
The Southwest Airlines episode also illustrates the importance of listening to employees and involving people from across the organization when considering digital transformation. Employees should be asked whether there are any technologies that would help them do their jobs better. Customers and suppliers should be asked whether there are any points of friction when interacting with the organization that might have technical solutions.
 
Southwest Airlines was an extreme case. Employees were practically screaming about the risks of underinvesting in technology, but even organizations with savvier and more attentive managers may be able to learn something from their employees and customers.
How should your procurement department invest in digital solutions? 
Procurement departments can play an important role in their organization’s digital transformation.
 
First, procurement departments should err on the side of supporting software upgrades. Important software upgrades should not be postponed simply for cost reasons because the cost of postponing upgrades to mission-critical systems often outweighs the benefits. If the IT department believes an upgrade is needed, procurement departments should not stand in the way.
 
Furthermore, technology can also be used to enhance procurement and <a rel="noopener" href="https://www.procurementiq.com/market-intelligence/Supply-Chain-Management-Software" target="_blank">supply chain management</a>. For example, reverse auction platforms allow buyers to solicit multiple bids for a product or service from qualified vendors who will then compete with one another for the order, driving the price down.
 
Finally, procurement departments should exercise due diligence when choosing suppliers. Buyers can vet suppliers on their technology preparedness by using <a href="https://www.procurementiq.com/rfp-templates">ProcurementIQ’s RFP templates</a> and incorporating technology integration questions into the RFP process.
Final Thoughts
<ul>
<li>This episode shows that investing in digital transformation now can pay dividends in the form of losses avoided later.</li>
<li>Henry Harteveldt has estimated that fixing Southwest’s software systems would have cost roughly $50 million to $100 million.</li>
<li>Compare this with the $825 million in losses Southwest Airlines has projected it now faces as a result of the flight cancellations.</li>
<li>Spending $100 million on upgrades could have helped Southwest avoid $825 million in losses, yielding a 725.0% return on investment.</li>
</ul>
 
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Digital transformation is a crucial area companies are overlooking. What lessons can procurement learn from Southwest Airlines' holiday mistakes? Read more to find out!

Avoiding Southwest's Mistakes: Why Procurement Must Prioritize Digital Transformation

In our conversations with procurement professionals, we often get asked: how do you know a source is trustworthy or not? It’s a valid question. With blogs, social media sites, and more news companies than anyone can count, how do our analysts verify their market intelligence and how can you determine whether or not your own data is reliably sourced and dependable?
Key Takeaways:
<ul>
<li>Utilize a system like the CRAAP Test to establish best practices.</li>
<li>Consider who wrote the article and if they have authority on the topic, biases, political agendas, or axes to grind.</li>
<li>Identify where and when the article was published.</li>
<li>Understand whether or not an article is based on facts and quantifiable data or if the piece is the author’s opinion.</li>
</ul>
How do you establish market intelligence best practices? 
The best way to ensure you and your department are on the same page is by establishing a system of best practices for verifying your sources. Put your source through its paces. Determine whether or not it’s a trustworthy, accurate, and valuable piece of information. If you don’t know where to start, use an existing methodology such as the CRAAP Test as a jumping-off point.
 
The CRAAP Test is a market intelligence verification methodology that was originally developed by librarians in California. While ProcurementIQ has its own best practices when it comes to identifying trustworthy sources, the CRAAP Test encapsulates many of those principles.
What is the CRAAP Test?
The CRAAP Test is a five-part acronym that will take you through many of the aspects you should consider before utilizing a source. Each element of the acronym is interrelated in some way; by combining them, you’re well on your way to thinking like a ProcurementIQ analyst.
 
Currency
<ul>
<li>How timely is the source?</li>
<li>Some reports are produced so slowly they may no longer be relevant by the time they are released.</li>
</ul>
  Relevance
<ul>
<li>Does the information actually relate to your topic or question?
<ul>
<li>Can the data be relevant as a proxy for other information that isn’t available?</li>
</ul>
</li>
<li>Who is the audience your source is trying to address?
<ul>
<li>Is the intended audience high school students, Ph.D. graduate students, professionals, or a general audience? Make sure your source is targeted at the appropriate level for your needs.</li>
</ul>
</li>
</ul>
 
Authority
<ul>
<li>Who wrote the article or report? Who sponsored or published the source?</li>
<li>What is the author’s experience with the specific topic?
<ul>
<li>Was the article written by an undergraduate student and published on a blog, or was it a peer-reviewed paper written by a Ph.D. student, professor, or analyst with strong experience in the topic?</li>
</ul>
</li>
</ul>
 Accuracy
<ul>
<li>Is the information supported by evidence or peer-reviewed?</li>
<li>Are there spelling, grammatical, or other errors in the text?</li>
</ul>
 Purpose
<ul>
<li>Why was this article, report, or paper written?</li>
<li>Is the information fact, opinion, or propaganda?</li>
</ul>
 
The CRAAP Test and methodologies like it are not intended to serve as be-all-end-all systems, but they are perhaps one of the best jumping-off points for establishing your own best practices and instilling the trained eye of a market analyst in yourself and coworkers.
What makes a source trustworthy? 
So, you have a burning question you need to answer, and you’ve spent hours compiling sources you think might help. But what separates a trustworthy source from an untrustworthy one? Let’s apply the CRAAP Test and other verification principles to determine whether the article you’ve discovered is the right one.
 
A trustworthy source will have been written by an authority on the topic and published on a reputable website. An authority could be a professor or graduate student with expertise in the topic’s field, market researchers and analysts with years of experience, government officials, or other persons with reasonable credentials.
 
While it’s impossible to completely remove bias from the picture, most authoritative writers will approach an article through an impartial lens, declare any biases or stakes they may possess, and base their work around evidence-backed facts.
 
A trustworthy source will be devoid of most spelling or grammatical mistakes and should be published on respected websites. This can include:
 
<ul>
<li>.edu websites and higher education publications</li>
<li>.gov websites and government publications</li>
<li>Reputable news sources such as The Washington Post, Associated Press, Reuters, The New York Times, and Forbes (keeping in mind potential conflicts of interest and author biases)</li>
<li>Academic paper archives such as JSTOR</li>
</ul>
What makes a source untrustworthy? 
Untrustworthy sources may stand up to some parts of the CRAAP Test and your own intuition. While some may appear wildly duplicitous from the onset, not every source will be upfront with its bias or agenda. Here are factors many sources share that will make a source untrustworthy, or at least inappropriate for citation and professional work:
<ul>
<li>Written by someone without immediate authority or experience in the topic, such as undergraduate students, unnamed writers, or legitimate writers without specific knowledge or experience in that topic</li>
<li>Written by someone with implicit bias, political agendas, or investments in the matter (e.g. a cryptocurrency investor writing an article that encourages people to invest in cryptocurrency)</li>
<li>Opinion articles, or opinion-editorial (op-ed) pieces, while valuable in some ways, are not appropriate for citation and your general procurement process without hard data to support the opinion</li>
<li>Spelling and grammatical errors</li>
<li>Published on random websites or blogs
<ul>
<li>Websites with names like yournewsnow.com, newsdaily.net, and trustworthyinfo.blogspot are not likely to contain reliable information</li>
</ul>
</li>
</ul>
This can include a common procurement process such as “going to the market” supplier surveys. While this sort of survey can be useful in addition to other trustworthy sources, surveying suppliers is an instance where the “author” and their implicit biases (i.e. the supplier exaggerating supply chain issues so they can negotiate contracts with higher prices) must be thoroughly scrutinized.
How does ProcurementIQ bridge the gap between procurement and trustworthy sources?
Incorporating source verification into your procurement process and best practices is crucial for an educated procurement department, but holistic procurement solutions such as ProcurementIQ can help bridge the gap and put actionable market intelligence in your hands at a moment’s notice.
 
Our teams of experienced analysts verify our data sources using a variety of different methodologies to ensure our market intelligence is immediate and up-to-date with the latest trends.
 
Our analysts’ ability to complete custom research according to your specific market intelligence needs ensures that you always have the unbiased information you need.
 
<a rel="noopener" href="https://www.procurementiq.com/free-trial" target="_blank" title="Free Trial">Click here</a> to secure your free trial and take advantage of our core collection of market reports!

How can you tell if a data source is trustworthy or not? Read more to find out!

Verify Your Data: How To Ensure Your Source Is Trustworthy

Key Takeaways
<ul>
<li>A procurement operating model (POM) refers to how procurement responsibility is allocated across stakeholders in an organization. POMs can be characterized on a spectrum of centralized to decentralized.</li>
<li>A centralized POM allocates all procurement strategy and purchasing decisions to a single department or team within the organization, usually at its headquarters.</li>
<li>A decentralized POM allocates purchasing decisions to individual stakeholders working at different locations and levels of the organizational hierarchy.</li>
<li>The COVID-19 pandemic has pressured organizations to reconsider their procurement operating models in light of organizational shifts stemming from remote work and the virtual economy.</li>
</ul>
 
The COVID-19 pandemic changed the way organizations approach procurement. It’s only now, after several years, that we’re seeing compelling data to back that up. According to research from KPMG, 83% of organizations have changed their procurement operating model (POM) in the last five years. Organizations are benefitting from delegating purchasing decisions to site managers or even individual employees that work remotely, which is referred to as “decentralized procurement.” This stands in contrast to the more traditional centralized model, where all procurement decisions originate from the corporate headquarters’ procurement division.
 
Of course, not all of these decisions are so black and white: many organizations have adopted a hybrid approach that falls somewhere between fully centralized to decentralized. Hybrid approaches that lead with a centralized strategic initiative but give autonomy to decentralized employees have been referred to as “center-led.”  
 
It’s important to realize that there’s no one-size-fits-all model. The factors discussed below assume that all else is held equal, so you should always consider the unique aspects of your business.
 
Which market factors are relevant for a decentralized approach?
<ul>
<li>Geographic price disparities: Goods and services with geographical price disparities are better suited for decentralized procurement. This way, decentralized purchasers can familiarize themselves with local pricing dynamics based on numerous geographic factors. Common factors for these price disparities include:
<ul>
<li>Infrastructure and proximity to major suppliers can influence shipping costs.</li>
<li>Average wages and income can influence suppliers’ pricing power.</li>
<li>State regulations can influence suppliers’ overhead costs and prices.</li>
</ul>
</li>
<li>Cultural norms: A decentralized approach can help local buyers navigate the cultural norms that surround the sales process, particularly in negotiations, that vary based on different regions of the United States. For example, businesses on the East Coast (i.e., New York City) tend to be more direct and assertive in the negotiation process, whereas businesses on the West Coast can be less direct in their communications.</li>
<li>Seasonal price fluctuations: Goods and services with seasonal price fluctuations are better approached by decentralized processes because purchasing decisions can be made more efficiently to take advantage of discounts and inventory changes. Seasonality is usually due to weather patterns and the holiday season. For example, <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=271">HVAC-related services</a> tend to be in greater demand during the hot summer months, whereas <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1002" target="_blank" data-anchor="?entid=1002">information technology services</a> tend to have steady demand all year round.</li>
<li>Local and small businesses: some markets, particularly for services involving physical labor, require local suppliers so they can travel to the buyer’s site. If you’re engaging with local suppliers, it’s harder for a distant centralized team to properly nurture supplier relationships. The owner of a small business operating locally may be less inclined to trust an executive from corporate headquarters but more willing to trust an employee that has the time to focus on building the relationship.</li>
</ul>
Working with local suppliers as part of a decentralized model typically entails a more streamlined purchasing process with shorter buying lead times. This way, there is less risk involved with delegating purchasing decisions to individuals in your organization that may lack a robust procurement skillset.
 
Which market factors are relevant when considering a centralized approach?
<ul>
<li>Regulatory and compliance: If you’re operating in an industry with lots of regulatory red tape, such as <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=992" target="_blank" title="Healthcare Consulting" data-anchor="?entid=992">health care</a>, <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=341" target="_blank" title="Energy and Utility Consulting" data-anchor="?entid=341">energy</a>, or <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1139" target="_blank" title="Maintenance Turnaround Services" data-anchor="?entid=1139">manufacturing</a>, the centralized approach may be more suitable. That way, you can eliminate the risk of single employees making purchases without a robust understanding of the regulatory environment and corporate policy. This often requires highly specialized knowledge that is seen more in strategic leads as part of a centralized operation.</li>
<li>Homogeneity: Buyers purchasing more homogenous goods and services tend to opt for a more centralized model. This is because many of the advantages a decentralized model provides are not as applicable to goods and services that are relatively standardized.</li>
<li>Purchase frequency and cost: If you tend to purchase one-off big-ticket items, it’s likely that negotiations are a key factor in obtaining a favorable price. Decentralized purchasers may lack the negotiation skills that only a seasoned centralized procurement team has. Stakeholders that are part of a centralized platform are better able to familiarize themselves with the knowledge and skills necessary to obtain a favorable price for a high-stakes purchase.</li>
</ul>

Remote work has changed everything, including procurement operating models. Read more to learn whether a centralized or decentralized model is right for your team!

Why a Centralized or Decentralized Procurement Model Is Right for You

Key Takeaways
<ul>
<li>Supplier diversity refers to a business’s commitment to establishing supply chains that consider and consist of suppliers owned by individuals or groups from underrepresented populations.</li>
<li>Supplier diversity is rapidly improving procurement’s efficacy, inclusivity, and reach.</li>
<li>Because consumers are placing greater importance on the ethical and social conduct of businesses, establishing a diverse base of suppliers is important to maintain a positive brand reputation and an ethical business.</li>
<li>While finding diverse suppliers can be challenging, procurement personnel can take advantage of several resources at their disposal to build a more diverse, inclusive supply chain.</li>
</ul>
Supplier diversity programs encourage procurement departments to source goods and services from suppliers owned by individuals or groups from traditionally underrepresented and underserved populations. Several businesses fall under this distinction, including companies owned by women, veterans, minorities, and LGBTQ+ individuals. With well over 15 different diversity categories and counting, suppliers designated as diverse comprise a vast array of backgrounds and experiences.
 
Too often, supplier diversity is portrayed as a token program with little value-add to businesses. This couldn’t be further from the truth. Available data suggests there is a clear competitive advantage for businesses that implement supplier diversity programs. A recent study by the Hackett Group demonstrated that diverse suppliers met or exceeded buyers’ expectations 99% of the time. A study by supplier.io supported these findings, as 93% of CEOs believed diverse suppliers had a positive impact on their businesses. a diverse supplier base presents value to businesses and their operations. Having a supplier diversity program with equitable supply chains is also the ethically right thing to do.
What benefits does supplier diversity provide?
The ways in which supplier diversity brings value to businesses include:
<ul>
<li>Promoting Inclusivity: Supplier diversity programs encourage inclusivity for its own sake. While inclusivity doesn’t need the backing of hard data to be valuable, supplier diversity programs level the playing field by creating jobs, boosting revenue, and creating opportunities for underrepresented businesses and communities.</li>
<li>Providing Agility: As most diverse suppliers are small or mid-sized enterprises, they are often highly nimble. With greater capabilities to meet specific requests and deadlines as needed, the flexibility of diverse suppliers affords you a competitive advantage within your market. Diverse suppliers provide dynamic solutions, practices, products, and services that may go overlooked by larger institutions less willing to challenge established procedures and status quos.</li>
<li>Improving Messaging: Armed with valuable insight and ideas from a diverse pool of suppliers, you can adopt a more comprehensive representation of your customers and stakeholders. By understanding wider, more diverse perspectives, you can tailor your messaging and marketing to resonate with your business partners and consumers.</li>
<li>Enhancing Reputation: Today’s consumers are more socially conscious now than ever before. A survey by Top Design Firms, a company that sources design and development companies, revealed that 64% of consumers are more likely to purchase products or services from companies that advertise diversity and inclusion. Another study from Accenture highlighted that 51% of consumers aged 18-39 stopped doing business with companies that disappointed them on social issues. A diverse supply chain is not simply a luxury for a business: it’s a necessity.</li>
</ul>
How do I find diverse suppliers?
While the benefits of a diverse supplier base are clear, finding diverse suppliers remains challenging for many in the procurement space. However, there are several practices and resources you should use that make sourcing diverse suppliers seamless:
<ul>
<li>Search Supplier Directories: There are several publicly available search engines and directories with curated lists of certified diverse suppliers. Such resources include supplier.io’s Supplier Explorer and Thomasnet.com’s Supplier Diversity Tool.</li>
<li>Utilize E-Procurement Platforms: Many e-procurement platforms have standardized application templates that increase the accessibility and fairness of the bidding process for diverse suppliers, which may lack the capacity to provide highly complex paper bids. These platforms not only increase your bid reach but also provide a central channel of communication between your business and diverse suppliers.</li>
<li>Work with Third Parties: You should discuss sourcing options with governmental and third-party organizations as an additional resource when sourcing diverse suppliers. Organizations such as the Council for Supplier Diversity provide a wide variety of services, including verifying, sourcing, and connecting businesses with diverse suppliers.</li>
</ul>
How should you maintain supplier diversity programs?
Once you’ve sourced diverse suppliers, what next steps should you take to ensure your supplier diversity programs are resilient and working as intended?
<ul>
<li>Track Tier 1 Spend: Tier 1 spend refers to your total spend on suppliers. Programs that track Tier 1 diversity spend ensure the diversity status of suppliers is certified, updating the status of businesses that change ownership. When you’re working with hundreds of diverse suppliers, such software removes the headaches of continually verifying the diversity status of a given supplier.</li>
<li>Tracking Tier 2 Spend: Tier 2 spend refers to the amount your suppliers spend on their suppliers. Tier 2 diversity spend tracking affords you greater insight into your suppliers’ own diverse spending practices, regardless of their own status as a diverse business. Several certifications and businesses now include Tier 2 diversity spend as part of overall net spend towards diverse suppliers; this allows companies to partner with larger, non-diverse businesses while at the same time supporting their supplier diversity initiatives.</li>
<li>Highlight Efforts: When seeking to increase diversity and representation in your supplier base, you should prioritize highlighting your supplier diversity initiatives. By broadcasting your supplier diversity efforts through dedicated reports and web pages, you incentivize other diverse suppliers to take part in future bidding processes, enhancing your supplier diversity program as a result.</li>
<li>Implement Procedures: You should establish benchmarks for supplier diversity sourcing to establish precedents for future RFPs. Benchmarks may include ensuring at least 15% of considered vendors are diverse during the RFP process.</li>
<li>Establish Goals: Goals and milestones ensure supplier diversity programs are on track and working as intended. Goals may include increasing diversity spend as a percentage of total business spend.</li>
<li>Onboarding: When suppliers are onboarded, they should complete a business classification form and include any third-party certifications or self-classifications regarding their diversity status. These forms make it easier to keep track of relevant supplier diversity data going forward.</li>
<li>ProcurementIQ: Utilize ProcurementIQ’s Supply Chain &amp; Vendors section of our market reports for more information on a market’s diverse supplier percentage and opportunities, or contact our representatives for more information on how we can support your supplier diversity initiatives. </li>
</ul>

Having a supplier diversity program isn't just ethically right: it's necessary. Read more to learn how a supplier diversity program can help your procurement department!

Supplier Diversity: How an Inclusive Supplier Program Helps Procurement

<ul>
<li>The Inflation Reduction Act provides $369 billion in funding for sustainability, manufacturing, and clean technology production, which will impact total business costs and demand for a variety of different goods and services.</li>
<li>The bill will subsidize US production of clean energy technologies. This will lead to lower costs and reduced supply chain risk.</li>
<li>After so much uncertainty over the past few years, many businesses moved their supply chains closer to home. More products being made in the United States will lower supply chain risk.</li>
</ul>
The Inflation Reduction Act of 2022, which was signed into law on August 16, provides $369 billion in funding for programs that curb energy prices, combat climate change, and boost US energy security.
 
This funding will affect procurement professionals by increasing demand for manufacturing and construction services and materials in the short term, as well as reducing costs for energy, utilities, and transportation in the long term.
 
Although businesses have already taken steps to fight climate change and promote environmental sustainability, new funding will speed up this process. Even though the events of the past few years have already convinced many businesses to move their supply chains closer to home, this bill will subsidize US production of clean energy technologies. That should lead to lower costs and a reduction in supply chain risk.
How does the Inflation Reduction Act support sustainability?
The Inflation Reduction Act will directly affect buyers by providing funds for investment in clean energy technologies. Both businesses and governments may qualify for this funding. Some of the most interesting and impactful contributions toward sustainability include:
<ul>
<li>$30 billion in tax credits and loans for buyers of clean electricity and energy storage technologies: This provision will impact organizations in the electric power industry, and may increase demand for power purchase agreements (PPAs), <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=969" title="Solar Panel report" data-anchor="?entid=969">solar panel installation services</a>, and more.</li>
<li>$27 billion for a Greenhouse Gas Reduction Fund: This fund will provide competitive grants to national and local funds for investments in projects that will reduce greenhouse gas emissions.</li>
<li>$9 billion in funding for federal agencies to purchase clean technologies made in the United States: The government is supporting the transition to clean energy by using its procurement powers. This funding includes $3 billion for the US Postal Service to purchase zero-emission vehicles rather than gas-dependent vehicles, which could place upward pressure on the price of electric vehicles and <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=806" title="EV Charging Stations" data-anchor="?entid=806">EV charging stations</a>.</li>
<li>Tax credits for clean vehicles for the transportation sector: This funding includes a tax credit for small businesses purchasing clean commercial vehicles equal to roughly 30.0% of the vehicle’s purchase cost. Clean vehicles are already approaching cost competitiveness with conventional vehicles, but this tax credit will help even the playing field.</li>
</ul>
Key Takeaway: Businesses will have more opportunities to meet their company’s environmental, social, and governance (ESG) goals, and can benefit financially by doing so.
How does the bill encourage adoption of clean technologies?
The Biden administration wants cleaner renewable technology readily available and enticing for domestic businesses to make the switch. However, since producers are slow to make investments to change their product lines, this bill uses tax credits, subsidies, and low-income loans to speed up the production of cleaner technologies. This includes: 
<ul>
<li>$30 billion in production tax credits to encourage clean technology manufacturing and critical minerals processing: The government is offering production tax credits to manufacturers that build clean technologies such as <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx" title="Solar Panels report">solar panel installation</a>, wind turbines, and <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1104" title="Lithium Batteries report" data-anchor="?entid=1104">batteries</a> in the United States rather than abroad. Minerals such as lithium and rare earth metals are vital for these technologies, but the processing of these minerals is heavily concentrated in China. The government is offering tax credits to companies that process these minerals within the United States.</li>
<li>$20 billion in loans to encourage the construction of clean vehicle factories: The business tax credit provision will cause a surge in demand for electric vehicles, which most automakers don’t have the infrastructure to accommodate at a large scale. To fix this, the government is allocating $20 billion in low-interest loans to speed up the construction of these factories in the United States.</li>
<li>$10 billion in production tax credits to encourage the construction of clean technology factories: The production of wind turbines and solar panels is highly capital intensive. The government will provide $10 billion worth of tax credits for companies to build electric vehicle, wind turbine, and solar panel factories in the United States.</li>
<li>$2 billion in subsidies to encourage automakers to retool their factories and produce clean vehicles: Car manufacturers encounter heavy one-time costs to retool factories for producing electric cars. These subsidies will cover the cost of retooling American factories and speed up the transition to clean vehicles while cutting costs in the meantime. Some automakers have already made investments to overhaul their factories, such as Volkswagen, which plans to spend <a href="https://cleantechnica.com/2022/03/22/volkswagen-plans-7-billion-investment-to-build-electric-cars-in-north-america/" title="Volkswagen">$7.1 billion</a> in making electric cars in North America so it can offer 25 new EV models by 2030.</li>
<li>$500 million in subsidies to encourage heat pump manufacturing and critical minerals processing: The Biden administration invoked the Defense Production Act of 1950 this June to provide these subsidies. Heat pumps run on electricity instead of natural gas and serve as alternatives to furnaces and air conditioners. <a href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=458" title="Heat Pumps" data-anchor="?entid=458">Heat pumps</a> will help US energy security and the effort to combat climate change because a growing share of electric power generated in the United States comes from renewable sources such as wind and solar. Subsidies for US heat pump manufacturing and critical minerals processing will reduce supply chain risk</li>
</ul>
Key Takeaway: Once domestic production of clean vehicles and other equipment is ramped up, businesses will benefit by having a shorter supply chain, reducing risks and lead times for sourcing these products.
What can procurement do to maximize the impact for your business?
<ul>
<li>Decide which programs affect your purchasing patterns. Which of these programs might positively or negatively affect your purchasing power in key markets?</li>
<li>Meet with your stakeholders and build an actionable strategy. There’s no time like the present to meet with your decision makers and build a comprehensive strategy. This funding comes with strings attached, so making these commitments won’t be a good decision for every organization.</li>
<li>Review your company’s ESG commitments. Confirm that your new strategy meets or exceeds your company’s ESG pledges.</li>
<li>Ask your current suppliers about their plans and goals resulting from this legislation. Check in with your suppliers to see if they’re taking advantage of subsidies or funding allocated by the Inflation Reduction Act.</li>
<li>Leverage supplier cost savings in negotiations. Suppliers that receive funds from the government enjoy a lower cost of production. Leverage their cost savings to negotiate a better deal for your company.</li>
</ul>

The Inflation Reduction Act will affect procurement by changing demand and costs in many different markets. Read more to learn how you can take advantage of this new funding!

Trickle Down Savings: How the Inflation Reduction Act Can Help Procurement

E-procurement definition What is e-procurement and how can it benefit your business? E-procurement, or electronic procurement, includes using computer networks to purchase goods and services on behalf of an organization. E-procurement improves the procurement process by replacing traditional paper-based processes with modern digital technologies, especially making use of the Internet. However, unlike e-commerce, e-procurement is done by procurement professionals on behalf of a business or government organization. 
 
The benefits of e-procurement solutions Why does e-procurement matter? Many organizations benefit from the use of e-procurement services. In short, these benefits include:
<ul>
<li>Cost savings</li>
<li>Increased speed to market</li>
<li>Greater control over spending</li>
</ul>
 
Cost savings: An e-procurement system allows your organization to automate repetitive, low-value tasks that were previously done manually, freeing up your staff to work on more important, higher-value projects. E-procurement also enables a more competitive sourcing process, which can translate into lower prices. Your savings grow even more when taking advantage of monitoring tools that help capitalize on opportunities for cost avoidance. For example, these tools may show you areas where your company may be spending too much and areas where you can <a rel="noopener" href="https://www.procurementiq.com/blog/consolidate-suppliers-and-reduce-costs" target="_blank">consolidate your spending</a> under a single supplier to win volume or bundling discounts.
 Increased speed to market: The ability to automate routine tasks also makes e-procurement faster than paper-based processes, shortening the amount of time from purchase order creation to order fulfillment. Additionally, e-procurement tools can help you evaluate and <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles" target="_blank">select suppliers</a> by narrowing your list of potential suppliers down to those that best fit your organization’s needs. Finally, errors are less likely with e-procurement since software tools can catch errors automatically, shortening the procurement cycle.
 Greater control over spending: E-procurement programs often include reporting tools that give you a better view of spending across your organization. These reporting tools can detect and flag fraudulent orders, helping you minimize losses. They can also show you when and where non-compliant (maverick) spending is occurring that is outside the scope of existing contracts. Cutting down on off-contract spending may help you save money as contract terms often provide more favorable prices.
 The e-procurement process What does the e-procurement process look like? The e-procurement process generally consists of five steps:
 1. E-informing 2. E-sourcing 3. E-tendering 4. E-auctioning 5. E-ordering
 
 
<img src="https://content.ibisworld.com/media/wajfvxg1/e-procurement-process.png?width=720&amp;height=480" alt="" width="720" height="480">
 E-informing: E-informing, which is the use of digital technologies to gather and send information between the buyer and prospective suppliers, occurs during all stages of the e-procurement process. E-informing may occur via e-mail, chat, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/procurement-software" target="_blank">e-procurement software</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/erp-software" target="_blank">ERP software</a> or other means. E-procurement systems greatly speed up the process; whereas information was once exchanged via the postal system, today’s digital technology offers nearly instantaneous feedback. 
 
E-sourcing: E-sourcing involves gathering any requirements for the procured good or service and qualifying suppliers based on how well they fit the organization’s needs. The first step in this process includes communicating with end users within your organization to define these requirements. This step is done quickly and easily through electronic means, such as e-mail or software programs. Then, using e-procurement software or other e-sourcing tools, you can narrow down suppliers based on location, how many employees they have, what other goods and services they offer and whether or not they meet other selection criteria. 
 
E-tendering: The next step in the e-procurement process is e-tendering. E-tendering may take the form of a request for information (RFI), a <a rel="noopener" href="https://www.procurementiq.com/blog/5-ws-of-rfps" target="_blank">request for proposals (RFP)</a> or a request for quotations (RFQ). Again, the use of digital technologies also helps to expedite the e-procurement process. Internet-based e-procurement solutions can allow you to quickly create and send RFIs, RFPs and RFQs. Furthermore, buyers can now exchange tenders with suppliers electronically through e-procurement software, bypassing the postal system.
 E-auctioning: Once you have a list of proposals from qualified suppliers, the next step is to secure the best possible contract terms. This can be done through e-auctioning, which is also known as e-reverse auctioning. Unlike a traditional auction where many buyers compete to buy from a single supplier, a reverse auction involves multiple suppliers competing for the chance to sell to a single buyer. Many e-procurement solutions have e-auctioning or e-reverse auctioning capabilities.
 
E-ordering: E-ordering is the final stage in the e-procurement process. At this stage, a supplier or group of suppliers has won the contract and has agreed to sell goods or services at a prearranged price. Now, all you have to do is place the order for the first batch of goods or services that you need. As with the other stages of the e-procurement process, e-ordering can also be done within an e-procurement system. The e-procurement process ends once the purchased goods or services are received. 
 
Key takeaways
<ul>
<li>E-procurement systems offer three benefits for buyers: cost savings, increased speed to market and greater control over spending.</li>
<li>The e-procurement process includes e-informing, e-sourcing, e-tendering, e-auctioning and e-ordering.</li>
<li>Technology has improved the procurement process by reducing human error and increasing efficiency.</li>
</ul>
 
For more on the intersection of technology and procurement, take a look at ProcurementIQ’s analysis here: <a href="https://www.procurementiq.com/blog/technologies-shaping-the-future-of-procurement">Technologies Shaping the Future of Procurement</a>

An e-procurement system allows your organization to automate repetitive tasks, increasing speed to market and helping you get greater control over spend by cutting down on errors.

What is E-Procurement and How Can You Benefit?

Since 2013, Los Angeles-based company ProcurementIQ, a leading independent provider of procurement research and market intelligence, has offered procurement professionals a suite of products and services that make purchasing activities easier. Covering more than 1,000 categories, ProcurementIQ’s ecosystem of market intelligence tools and reports helps procurement teams increase speed to market, engage with stakeholders, improve vendor management, and achieve cost avoidance goals. 
 
As of March 31, 2022, ProcurementIQ now offers 200 additional market intelligence reports for the European market. Adding to the vast collection of US and Canadian reports, ProcurementIQ is now taking a more global approach to provide insights on the second-largest economy in the world.  
 
The new collection of <a href="https://www.procurementiq.com/market-intelligence-europe">European Procurement Reports</a> covers the top 200 categories by popularity and comes in response to an increasing trend toward globalization and managing spend globally. ProcurementIQ serves many international organizations and North American operators that source internationally. To support the challenges of interdependent supply chains and managing spend globally, category intelligence on key European markets is now available. 
 
With a subscription to the European collection, you can gain access to a range of features, including: 
 
Buyer Power Score 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="2" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">A classic feature in traditional ProcurementIQ reports, the buyer power scores in the European collection allow you to quickly assess your position in the market so you can strategically time your purchases using a five-year trend that spans past and present. </li>
<li data-leveltext="" data-font="Symbol" data-listid="2" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">When major events impact the buying process in your market, ProcurementIQ’s analysts assess the level of impact immediately and recalculate buyer power to reflect the current situation in Europe. </li>
</ul>
Market Pricing 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">ProcurementIQ’s unbiased pricing data helps you compare average prices across Europe against suppliers’ price quotes. Subscribers can view average prices at the pan-European level or drill down by country for more specific national pricing. </li>
</ul>
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="3" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">By bringing third-party data to the bargaining table, you can keep suppliers honest and get the price you deserve. </li>
</ul>
Price Drivers 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="4" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">Insight into the historical and forecast performance of key cost drivers and macroeconomic demand factors helps you understand what influences prices in the European market. </li>
<li data-leveltext="" data-font="Symbol" data-listid="4" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">When cost increase requests arise, you can use price driver data to justify or invalidate suppliers’ requests.  </li>
</ul>
Top Suppliers 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="5" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">ProcurementIQ identifies the top 10 operators in the market so you can build your list of preferred European suppliers. </li>
<li data-leveltext="" data-font="Symbol" data-listid="5" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">With insight into market share, revenue, risk, and other factors, you can choose the suppliers that best serve your sourcing goals. </li>
</ul>
ESG Trends 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">Understand how providers in the market approach environmental, social, and governance (ESG) factors. For each factor, we identify the current level of influence and the opportunity level to help you set more realistic, sustainable, and socially responsible sourcing goals. </li>
</ul>
Vendor Management Tools 
<ul>
<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1">Key contract clauses help protect your business against undue harm by outlining fair conditions for contracts and incorporating best practices for structuring contracts in the European marketplace. </li>
<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1">KPIs provide you with metrics to continually evaluate the performance of your suppliers to ensure you are receiving optimal product and service quality. </li>
<li data-leveltext="" data-font="Symbol" data-listid="6" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1">SLAs help you establish the most favorable contract conditions, even when there is little ability to negotiate on prices. </li>
</ul>
 
The European collection follows the same format of ProcurementIQ’s recently updated US collection, delivering actionable insights and data through concise and compelling data visuals, tables, and key takeaways. In growing beyond North America, ProcurementIQ brings a more holistic category intelligence solution to clients that operate internationally. 
 
If you’re interested in learning more about the European Procurement collection, contact your ProcurementIQ Client Relationship Manager or <a href="https://www.procurementiq.com/contact-us">submit an inquiry here</a>. 
 
About ProcurementIQ
Recognized as a trusted and independent source of procurement research, ProcurementIQ offers a comprehensive library of data and analysis on over 1,000 categories. With an extensive online portfolio valued for its depth and scope, ProcurementIQ equips procurement professionals with the insight necessary to make better, faster purchasing decisions. ProcurementIQ is a division of IBISWorld and serves a wide range of public and private organizations from its US headquarters in Los Angeles.

Our new European report collection covers the top 200 categories by popularity and comes in response to an increasing trend toward globalization and managing spend globally.

ProcurementIQ Launches European Market Intelligence Reports

ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
 
The Russian invasion of Ukraine has resulted in higher raw material prices. Russia, Ukraine and Belarus are major exporters of commodities such as precious and industrial metals, uranium, wheat, fertilizers and vegetable oil. The invasion has increased supply chain risk as the supply of these commodities may be cut off by three possible events.
 
First, production and transportation of commodities in these countries may be disrupted by war, choking off exports. Second, importing countries may ban the import of commodities from Russia and Belarus in retaliation for the invasion of Ukraine. Finally, Russia and Belarus may weaponize their positions as suppliers of these commodities in response to stiff economic sanctions that Western countries have placed on Russia and Belarus. A reduction in the supply of these commodities would force prices higher.
<ul>
<li>Russia is the world’s largest exporter of wheat while Ukraine is also a major exporter; as a result, wheat futures reached their highest price since April 2008 on March 1.</li>
<li>The supply of potash (a fertilizer) is at risk because Russia and Belarus are the second and third largest producers of potash in the world after Canada.</li>
<li>Russia is also one of the world’s top exporters of aluminum and nickel. Aluminum prices reached a record high at $3,590 per ton on March 2 while nickel hit an 11-year high at over $25,000 per ton.</li>
<li>Ukraine is a major exporter of sunflower oil; according to S&amp;P Global Platts, Ukrainian sunflower oil futures increased 32.0% in the days following the invasion while the price of palm oil (a substitute for sunflower oil) soared 18% in the first week according to Refinitiv.</li>
<li>The price of palladium is up 45.5% year-to-date while platinum prices have increased 12.5%. According to the <a rel="noopener" href="https://www.usgs.gov/" target="_blank">US Geological Survey</a>, Russia accounted for 42.9% of global palladium production and 13.9% of global platinum production in 2020.</li>
<li>Russia was the world’s second-largest exporter of copper in 2018; copper futures reached $4.78 per pound ($10,545 per ton) on March 3, near all-time highs.</li>
</ul>
 
Impacted Markets
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1111" target="_blank" data-anchor="?entid=1111">Landscape Maintenance</a>
<ul>
<li>Landscape maintenance will be affected by higher fertilizer prices because fertilizer is a major purchase cost for landscaping companies.</li>
</ul>
 <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=68" target="_blank" data-anchor="?entid=68">Cafeteria Management Services</a>
<ul>
<li>Increases in wheat and vegetable oil prices will mean higher service prices as food is the biggest purchase cost for service providers.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=167" target="_blank" data-anchor="?entid=167">Metal Cans</a>
<ul>
<li>Metal can prices will be affected by higher aluminum prices as purchases of aluminum account for 42.0% of supplier revenue.</li>
<li>Additionally, purchases of steel account for 16.3% of supplier revenue, so increases in steel prices will also raise prices of metal cans.</li>
</ul>
 <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1104" target="_blank" data-anchor="?entid=1104">Lithium-Ion Batteries</a>
<ul>
<li>Increases in nickel prices will translate into higher lithium-ion battery prices.</li>
<li>Suppliers of lithium-ion batteries spend on average 45.4% of their revenue on metals, with nickel being the most important metal used in production.</li>
</ul>
 <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=481" target="_blank" data-anchor="?entid=481">Copper Pipes &amp; Tubes</a>
<ul>
<li>Higher copper prices will contribute to increases in the price of copper pipes and tubes.</li>
</ul>

Ukraine and Belarus are major exporters of commodities (e.g. precious and industrial metals, uranium, wheat and more). Read up on how supply chains and prices are affected.

Russian Invasion of Ukraine: Raw Materials Sector Update

ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
 The Russian invasion of Ukraine is causing disruptions in neon gas exports from Ukraine, which is a critical gas used to manufacture semiconductors. Ukraine provides over 90% of the neon gas used in the United States for semiconductor manufacturing. If Russia gains military control of Ukraine, Western manufacturers may be cut off from Ukrainian neon gas supplies in retaliation for Western sanctions against Russia following the invasion.
 Global semiconductor supply chains have been strained by tariffs and the coronavirus pandemic in recent years, and rising neon gas costs would put further upward pressure on semiconductor prices. In response, downstream vendors are expected to raise prices for information technology products and services dependent on computers. However, many semiconductor manufacturers such as Intel and Micron intentionally reduced their reliance on Ukrainian neon gas following the 2014 invasion of Crimea, signaling that chip manufacturers may be more resistant to supply shocks than in the past.
 The invasion in Ukraine has raised the risk of cyberattacks from Russia directed toward various Western companies and critical infrastructure systems. Despite these concerns, most cybersecurity events following the crisis have been limited to entities operating in Ukraine. As of March 3rd, no major cyberattacks from Russia were targeted toward major global companies in response to the invasion.
 The risk for future cyberattacks remains, as many Western companies have cut Russian entities off from the global economy in compliance with Western sanctions. Visa, Mastercard, and American Express blocked Russian financial institutions from their global payment networks. Similarly, British companies Shell and BP canceled major oil production projects in Russia.
 
Impacted Markets
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=617" target="_blank" data-anchor="?entid=617">Laptop Computers</a>
<ul>
<li>Semiconductors are used to create microchips, which are essential for modern computers and adjacent products listed below. Laptop prices are expected to decline in the next three years, though semiconductor cost increases may slow these price decreases.</li>
<li>Laptops are the primary tool used to provide a wide variety of professional services. Semiconductor shortages resulting from the invasion are expected to have a muted impact on service markets because vendors can delay the purchase of new laptops until market conditions improve.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=621" target="_blank" data-anchor="?entid=621">Network Routers</a>
<ul>
<li>Network router prices are expected to increase modestly in the next three years, and disruptions in the supply of semiconductors may contribute to higher market price growth than currently projected.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/proqnow/opportunityassessment.aspx?entid=308" target="_blank" data-anchor="?entid=308">IT Consulting Services</a>
<ul>
<li>IT consulting companies are expected to experience increased demand for market services as US businesses seek to protect themselves from Russian cyberattacks. This trend is expected to put further upward pressure on rising market prices.</li>
<li>High competition between consulting vendors is expected to slow the rate of market price increases resulting from the invasion.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/proqnow/opportunityassessment.aspx?entid=27" target="_blank" data-anchor="?entid=27">Security Software</a>
<ul>
<li>Security software vendors are also expected to experience increased order volumes related to the invasion, especially from smaller US businesses that cannot afford comprehensive IT consulting services, which are typically more expensive than software solutions.</li>
<li>Rising demand for security software is expected to slow the rate of market price declines during the next three years.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=806" target="_blank" data-anchor="?entid=806">Electric Vehicle Charging Stations</a>
<ul>
<li>Electric vehicle charging stations depend on semiconductors to transfer electricity from the charging station to the vehicle.</li>
<li>US government and private investments in electric vehicle charging stations are expected to rise significantly over the next ten years, raising demand and prices for charging stations and putting additional pressure on semiconductor manufacturers to increase production despite supply chain issues.</li>
</ul>

Russia's invasion of Ukraine is causing disruptions in semiconductor supply chains and also threatening the IT space in other ways. Read on to learn about supply and cyber risks.

Russian Invasion of Ukraine: Information Technology & Security Sector Update

ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
 
The Russian invasion of Ukraine has disrupted air shipping routes and has resulted in higher freight prices. Major air routes have been cut off. The United States, Canada and the European Union have closed their airspace to Russian aircraft while Russia has closed its airspace to airlines from 36 countries in Europe. The closure of these air routes will increase Europe-to-Asia and Asia-to-Europe airfreight rates as these routes often transit through Russian airspace. Long-distance flights between the United States and India also may pass through Russian airspace and may also be affected.
 Ocean shipping has also been affected. Four of the world’s largest shipping lines (Maersk, MSC, Hapag-Lloyd and Ocean Network Express), accounting for 47% of global container shipping, have announced that they will suspend shipping both to and from Russia. CMA CGM also has suspended bookings to and from Russia. The invasion has also reduced shipping capacity because some countries (such as the United Kingdom) have banned Russian ships from using their ports while others (such as Belgium and the Netherlands) will inspect Russian cargo ships that stop at their ports. Finally, ocean shipping rates may increase because Western shippers may switch from rail to ocean shipping to avoid having their cargo pass through Russian territory.
 Additionally, fuel prices have increased. Although Russia is one of the world’s largest producers of oil and gas , buyers are now avoiding oil and gas imported from Russia. Cargo carriers will raise freight rates in response to increases in fuel prices.
 
Impacted Markets
International Air Cargo Transportation Services
<ul>
<li>Europe-to-Asia and Asia-to-Europe airfreight prices will increase as carriers often fly over Russia on these routes.</li>
<li>Transpacific and transatlantic routes generally avoid Russian airspace so the effect on these routes will not be as severe.</li>
</ul>
 
<a rel="noopener" href="/umbraco/ProcurementIQ%20is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information." target="_blank">Deep Sea Cargo Transportation Services</a>
<ul>
<li>Container shipping rates to and from Russia will increase sharply because the world’s largest shipping companies have suspended bookings to and from Russia.</li>
<li>A shipping expert told The New York Times that ocean rates could jump from $10,000 to $30,000 per 40-foot container as a result of the invasion.</li>
</ul>
 <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=46" target="_blank" data-anchor="?entid=46">National Trucking Services</a>
<ul>
<li>Increased crude oil prices have raised the price of diesel, forcing trucking companies to raise service prices.</li>
</ul>
 <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=297" target="_blank" data-anchor="?entid=297">Local Freight Trucking Services</a>
<ul>
<li>Local freight trucking is also diesel-intensive, so higher crude oil prices will increase trucking rates.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=290" target="_blank" data-anchor="?entid=290">Domestic Air Cargo Transportation Services</a>
<ul>
<li>Higher oil prices will mean higher aviation fuel prices; as a result, air cargo carriers will raise airfreight rates.</li>
</ul>

The Russian invasion of Ukraine has disrupted air shipping routes and has resulted in higher freight prices. Read to learn which markets are impacted and gauge the level of impact.

Russian Invasion of Ukraine: Transportation Sector Update

ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
 The Russian invasion of Ukraine is disrupting financial markets in Europe while major lenders from countries such as Italy and Austria scramble to unplug themselves from complex financial relationships with Russian banks to avoid violating new Western sanctions. In contrast, US bank executives expect that US financial institutions will face minimal disruptions as Russian entities are blocked from global financial systems.
 Following Russia’s 2014 invasion of the Crimean Peninsula, US financial institutions have been gradually distancing themselves from Russian companies and governments. The United States has placed increasingly aggressive economic sanctions on Russia in recent years, and the Biden administration gave public warning that the United States would expand Russian sanctions if Ukraine were invaded.
 With ample warning time and experience dealing with US sanctions on foreign entities, US banks have positioned themselves to mitigate damage resulting from the invasion. Downstream financial service markets are not expected to experience major price increases related to the invasion of Ukraine.
 The primary concern for US financial institutions regarding the invasion of Ukraine is the potential for retaliatory <a href="https://www.procurementiq.com/blog/russia-ukraine-it-security">cyberattacks</a>. As US financial institutions such as Visa, Mastercard, and American Express sever ties with Russian banks, US financial institutions are closely monitoring their systems for potential disruptions. As of March 3rd, no major cybersecurity events outside of Ukraine have been attributed to Russian actors.
 
Impacted Markets <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1341" target="_blank" data-anchor="?entid=1341">Investment Management Services</a>
<ul>
<li>One of the few US banks exposed to significant financial risk involving the Russian invasion of Ukraine is Citigroup Inc. Citigroup has an estimated $5.4 billion tied to the Russian economy. However, this figure comprises less than 5% of Citigroup’s balance sheet, so the investment bank’s exposure to Russian business is low compared to many European banks.</li>
</ul>
 
Global Financial Markets
<ul>
<li>While direct risks to US financial institutions are low, all sectors of the US economy are vulnerable to broader global disruptions stemming from potentially violent escalations from Russian or Western powers.</li>
<li>Instability in Russian and European financial markets may create broader global disruptions that are difficult to predict.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=35" target="_blank" data-anchor="?entid=35">Construction </a>
<ul>
<li>Fed chair Jerome Powell signaled an interest rate increase of 0.25% on March 2nd despite the economic disruption resulting from the Russian invasion of Ukraine.</li>
<li>Some market vendors are especially sensitive to rate increases because of their heavy reliance on financing to fund long projects, such as construction companies.</li>
<li>While the announced rate increase harms vendors that engage in frequent borrowing activities, US businesses across all sectors of the economy benefited from reduced uncertainty when the Fed announced it would move forward with its planned rate hike, and equity markets experienced a small rally accordingly.</li>
</ul>
 
Cryptocurrency Exchanges
<ul>
<li>Cryptocurrencies present risks to Western powers that sanctioned individuals and institutions will use the digital assets to work around Western efforts to freeze Russian assets.</li>
<li>The world’s largest cryptocurrency exchange, Binance, announced that it would not block Russian users from its platform unless those particular users faced sanctions or legal actions.</li>
<li>This announcement follows a request from Ukrainian politicians to block Russian users and prevent the circumvention of Western sanctions.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/proqnow/supplychainvendors.aspx?entid=1082" target="_blank" data-anchor="?entid=1082">Credit Card Payment Processing Services</a>
<ul>
<li>Credit card processing companies and other financial institutions are monitoring their systems in anticipation of potential retaliatory cyberattacks from Russia. As of March 3rd, these threats have not materialized, despite widespread expectations of cybersecurity events following the invasion.</li>
<li>A growing list of US cybersecurity companies is hosted on Github, with vendors offering free services, data, and other forms of assistance to those seeking protection against potential Russian cyberattacks.</li>
</ul>

Russia's invasion of Ukraine is disrupting financial markets in Europe while major lenders from Western countries such as Italy & Austria scramble to unplug themselves. Read more.

Russian Invasion of Ukraine: Finance Sector Update

ProcurementIQ is monitoring the ongoing situation in Ukraine and will provide updates and analysis on procurement impacts as information becomes available. See the Recent Developments section of our reports for more information.
 The Russian invasion of Ukraine has caused drastic fluctuations in the oil and gas market with Brent Crude Oil prices nearly reaching $120 per barrel. Russia is one of the leading producers of oil and natural gas. While sanctions on the Russian economy have been targeted away from energy companies, the trickle-down effects from supply chain disruptions within Russia have been significant. As Russia continues its invasion of Ukraine, the price of crude oil will likely continue to rise and may exceed $150 per barrel. However, the United States and their allies have announced that they will release 60 million barrels of oil from their current strategic reserves to lessen spiking oil prices.
 Still, the price of oil, natural gas, plastics, diesel fuel and gasoline will all likely rise as the Russian invasion persists. The United States national average for gasoline prices has risen to $3.61 with prices in major cities beginning to exceed $5.00 per gallon. This will cause the cost of shipping to increase, and suppliers may look to raise prices to maintain their margins. Furthermore, the supply chain for oil &amp; gas is expected to become more strained as companies such as BP, Shell, and Exxon divest from Russian oil and gas operations. While the long-term impact of these decisions remains to be seen, the short-term effect will be rising prices due to a lower supply of crude oil and natural gas.
 
Impacted Markets <a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=765" target="_blank" data-anchor="?entid=765">Gasoline</a>
<ul>
<li>Average gas prices have risen 24 cents since February and are projected to continue growing as the Russian invasion of Ukraine continues.</li>
<li>The United States expects the release of strategic oil reserves to place significant downward pressure on these prices.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=764" target="_blank" data-anchor="?entid=764">Diesel Fuel</a>
<ul>
<li>Average diesel fuel prices have risen 30 cents since February, reaching $4.10 per gallon.</li>
<li>Sharp growth in the price of diesel fuel will have a direct impact on the cost of shipping goods.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=1391" target="_blank" data-anchor="?entid=1391">Jet Fuel</a>
<ul>
<li>Average jet fuel prices have risen 4.1% since February reaching $2.70 per gallon.</li>
<li>This will pressure both commercial airlines and freight and cargo operators to increase their prices. </li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=407" target="_blank" data-anchor="?entid=407">Synthetic Resins</a>
<ul>
<li>Plastics News has speculated that the invasion of Ukraine could push the price of resins upward.</li>
<li>Because oil is an input used to manufacture plastics, synthetic resin manufacturers are already bracing for destabilization in their supply chain.</li>
</ul>
 
<a rel="noopener" href="https://client.procurementiq.com/procurement/reports/us/default.aspx?entid=46" target="_blank" data-anchor="?entid=46">National Trucking Services</a>
<ul>
<li>With the price of diesel fuel and gasoline rising sharply during February, the cost of national trucking services is projected to increase sharply.</li>
<li>Suppliers may offset these costs by increasing the price of shipping passed on to buyers or raising the price of the goods themselves.</li>
</ul>

The Russian invasion of Ukraine has caused drastic fluctuations in the oil and gas market with Brent Crude Oil prices spiking. Read more to understand the full impact.

Russian Invasion of Ukraine: Oil & Gas Sector Update

Lead Editor

Cross-functional collaboration is a challenging but worthy goal across organizations and departments of all types. If you work in procurement, you’re probably used to collaborating with finance staff and your main stakeholders. When you’re working on procurement strategies, you undoubtedly consider the goals of your business, at least as they relate to procurement. But what about the goals around supply chain transformation?
 To best align departmental goals with the wider business, it’s important for procurement and supply chain functions to break down the boundaries and drive toward business goals together.
 
Supply chain vs procurement When people hear procurement, chances are they interpret the role to be supply chain and purchasing focused. However, those in the role know there’s much more to it. Often, procurement and supply chain management are discussed as if they are the same task; some may even use the terms interchangeably. The truth is that, though related, they are comprised of different functions.
 The first step in understanding supply chain vs procurement is to look at how they differ. But in order to prepare your business for future growth, it’s also important to consider how these two functions fit together and how they can further converge to create a more efficient and resilient supply network.
 
What is procurement? Simply stated, procurement is the process of sourcing goods and services with the objective of meeting business needs. Procurement asks what is needed, at sometimes the most basic level, for the business to function and oversees both direct and indirect costs. Direct costs are what’s needed to manufacture or deliver the product or service your business provides. These costs directly affect the company’s business goals and bottom line. Indirect costs, on the other hand, do not necessarily impact the bottom line but are related to items that are necessary for the business to operate (e.g., <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/general-office-supplies" target="_blank">office supplies</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/business-card-printing" target="_blank">business cards</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/accounting-services" target="_blank">accounting services</a>, etc.).
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/32wn3rve/direct-vs-indirect-costs_graphic.png?width=540&amp;height=540" alt="" width="540" height="540">
 
 Basic elements of the procurement process include vendor selection, purchasing, receiving, and payment. Responsibilities that come with the role of procurement management also include cost containment, optimizing the buying process, and streamlining purchasing (e.g., eliminating waste and increasing efficiency by <a rel="noopener" href="https://www.procurementiq.com/blog/the-perfect-partnership-5-steps-for-successful-vendor-selection" target="_blank">reducing the number of vendors</a> a company works with).
 
What is supply chain management? A supply chain can be defined as the entire network of a company and the lifecycle of its processes, including those between vendors. From the sourcing of raw materials, to product development, to the delivery of the product to the end user—all of these can be viewed as links within a supply chain. In summary, the supply chain of a company varies depending on the product or service sold and includes the jobs and services that help move the product from point A to B to C.
 As such, supply chain management involves overseeing every stage of this process, from production to distribution to invoicing. It also includes quality control, strategic sourcing, contract negotiation, cost reduction, B2B collaboration, and risk mitigation, with the main goal of making sure the entire process runs as smoothly as possible from beginning to end.
 So, what is procurement in supply chain? How does the process of procurement relate to supply chain management?
 
Procurement’s role in supply chain resilience Taking these definitions into account, it may be helpful, for simplicity’s sake, to view procurement as more input focused and supply chain management as more output focused. With each function having a different focus, one supports the other. More specifically, procurement is needed to support the greater system of supply chain management, and both supply chain managers and procurement professionals rely upon one another for the business to not just operate but succeed.
 Recent disruptions such as COVID-19, supply shortages, global trade barriers, evolving consumer expectations, and inflation have all made the processes of supply chain management and procurement increasingly complex. As a result, businesses have undergone increased pressure to improve collaboration across functions and departments to create a more resilient supply network known as “supply chain convergence.”
 Gartner, a technology research and consulting company, explained the concept of supply chain convergence in a 2018 study, which focused on how “supply chain leaders can transform their operations by breaking down functional silos and designing business operations that span, optimize, and synchronize across traditional functional domains.”
 ProcurementIQ agrees that the convergence of procurement and supply chain management will be the next evolutionary stage on this journey toward more resilient supply chains. By implementing this type of cross-functional collaboration, companies can build the resilience to withstand disruptions, improve risk management, and accelerate innovation. However, to this end, it will require a fundamental shift in how organizations view their internal processes.
 
First steps and goals of supply chain convergence The first step toward convergence will require a mutual understanding of each department’s scope of work to determine how they can assist one another by sharking skills and information. Once that mutual understanding is achieved, there are many tools that can be implemented to further develop a cohesive system, including shared KPIs, the co-development of procedures and policies, and the use of technology and data sharing. Ultimately, the goal should be to create cross-functional teams that work in alignment with one another and their shared goals. From there, companies can seek to enable multi-enterprise collaboration with external suppliers, stakeholders, and partners across the entire supply network.
 This simple breakdown can help your business begin the long journey of reassessing procurement’s place in the greater scope of supply chain management and how the two can come together to construct a clear, more purposeful direction as well as sustainable results. Rather than cutting corners to achieve short-term value, it will ultimately take company-wide initiatives and a unified culture. In other words, get ready to play the long game.
 
 
Need more supply chain transparency? ProcurementIQ offers supply chain insights at the category level — or, dive deeper with a custom research project. 
 
Project Sample:<a href="https://www.procurementiq.com/blog/supply-chain-analysis"> US Manufacturer Seeks Supply Chain Transparency</a>

Supply chain vs procurement: Yes, they're different. But as cross-functional collaboration brings these roles closer, we answer the question: What is procurement in supply chain? 

Better Together: The Convergence of Procurement and Supply Chain Management

The market today, particularly since the onset of COVID-19, is constantly changing. Many businesses are searching not only to stay afloat, but to grow, evolve and thrive in new ways. Doing so requires companies to be highly adaptable. Becoming more automated, innovative and knowledgeable about the supply market helps keep organizations from falling behind. To keep up with market trends in today’s procurement landscape, making your procurement strategic should be a top priority.
 
A strategic procurement plan should be considered for companies that are looking to become more efficient, reduce their costs, enhance their risk management and speed up the purchasing process. But for a company to successfully transition to a more strategic procurement plan, procurement departments must be ready for a lot of hard work and consideration in the process.
 What is Strategic Procurement?
Strategic procurement is a long-term sourcing process that integrates supplier and market information, spend analysis and negotiation tactics to support organizations’ profitability.
 
Effectively approaching procurement strategically requires purchasing teams to agree on clear and specific goals. Rather than the general procurement goals of purchasing what is necessary within a budget, strategic sourcing dives a little deeper:
<ul>
<li>Focusing on specific savings goals</li>
<li>Determining where to allocate more or less purchasing effort</li>
<li>Mitigating risk</li>
<li>Establishing strong supplier relations</li>
<li>Increasing efficiency</li>
</ul>
Strategic sourcing and procurement should also focus on the <a href="https://procurementiq.com/rfp-templates/">RFP process</a> as well as negotiating with and evaluating potential suppliers. Thoroughly <a href="https://www.procurementiq.com/supplier-profiles/">assessing suppliers</a> can provide a multitude of benefits including cost savings and a clearer understanding of the deliverables to be expected. When negotiating with suppliers, the company’s procurement goals should be at the forefront of the negotiator’s mind, tailoring questions to ensure the costs and benefits of each supplier’s relationship push the company toward achieving its goals. By evaluating the cost-benefit structure of each supplier, procurement teams better position themselves to reach and even exceed their company’s procurement goals.
 
How to Implement a Strategic Procurement Plan
 Analyze spend To see how an organization can improve, data collection on the current spending culture needs to be done. This spend analysis should include information from both the organization and suppliers, as well as any other parties involved in the procurement process. This analysis should highlight areas of spend that can be more efficiently distributed by looking at <a href="https://www.procurementiq.com/blog/the-proof-is-in-the-payback-5-kpis-to-keep-procurement-departments-on-track/">KPIs</a> and other internal data.
 
Determine company goals and needs Determining the primary purchasing needs of the company is imperative to fully transition to a more strategic plan. This conversation should also identify the main areas of improvement, which could encompass savings realizations and current areas of procurement that may not be reaching their full potential. Specifying the particular goals the company seeks in its sourcing should help procurement teams zero in on how they can make it happen.
 Analyze the market Effective strategic sourcing requires companies to not only understand their internal sourcing needs but also the supply market. To analyze the market, seek out up-to-date <a href="https://www.procurementiq.com/supplier-profiles/">supplier information</a> and <a href="https://www.procurementiq.com/market-intelligence-united-states/">market intelligence</a> to assess shifting directions of the market as a whole. Learning how suppliers are faring and how the market is currently positioned can help target key areas of improvement.
 
Create a procurement plan To make this information actionable, use the data collected in spend analysis, market analysis and internal goals to draw out a procurement plan. This should include tactics and strategies to work toward in a set timeframe that can help achieve the overall company objectives. This may include specific suppliers or areas of spend to target, and it may include adding a <a href="https://www.procurementiq.com/market-intelligence-united-states/procurement-software/">procurement software</a> program.
 
Automation and Strategic Procurement
Taking on a more strategic procurement plan enhances efficiency and accountability. By automating some procurement processes, such as data entry and analysis as well as purchasing payments, companies free up their teams to find more strategic procurement solutions.
 
Sourcing manually leaves room for easily avoidable errors. Inputting data into spreadsheets manually provides the opportunity for human error and missing information. Payment deadlines are also subject to being missed, which may result in collecting late fees and damaging supplier relationships. When so much energy is devoted to the manual input of information, companies risk not being able to have enough time to actively communicate with suppliers and build positive relationships. In all, procurement patterns and potential savings go unrealized when teams don’t implement a sophisticated strategic procurement plan.
 
Today’s market is also increasingly focused on innovation. While not deviating from standard business practices may feel safer, it’s becoming obvious that companies that fail to transition to a more innovative sourcing practice risk falling behind. A strategic approach that embraces these changes will open the possibility of finding creative and sustainable ways to make their purchases more effective.
 
The Future of Strategic Procurement
Although many companies may feel at ease sticking with tried-and-true strategies, the world of procurement is rapidly changing. An emphasis on becoming more agile and capable of dealing with <a href="https://www.procurementiq.com/blog/procurementiq-recent-developments/">sudden changes in the market</a> is essential to an organization that wants to capitalize on current trends and enhance their profitability. Rather than reacting to unexpected disruptions, strategic procurement professionals will find ways to anticipate challenges before they wreak havoc.
 
Some procurement departments are already using sophisticated predictive analytics to help future proof supply chains. These tools are able to quantify the risk of extreme weather, potential shortages and several economic factors that could shake up supply and demand. Predictive analytics will become increasingly important as the world of procurement faces more uncertainty in the future.
 
In addition to forward-looking data and insights, procurement technologies will evolve to offer more transparency. Cutting-edge solutions are already able to provide granular information regarding port stockpiles and other details on inventory. With additional transparency, strategic procurement departments will be able to get ahead of potential delays.
 
And technology won’t stop there. The negotiation process will also become more digital to improve speed to market. When procurement teams can onboard suppliers quickly, they get ahead of shifts in the market that might otherwise tip <a href="https://www.procurementiq.com/blog/procurementiq-buyer-power-score/">negotiating power</a> in suppliers’ favor. Not to mention, speeding up negotiations frees up more time to strategize in other areas of the procurement process.
 
Transitioning to a more strategic procurement plan will ultimately help organizations remain better equipped to effectively handle any future crises. For information on forward-looking market insights and intelligence that support strategic procurement, <a href="https://www.procurementiq.com/contact-us/">book a demo</a> with ProcurementIQ today.

Strategic procurement is a sourcing process that combines supplier and market intelligence, spend analysis and negotiation tactics to support cost avoidance and other goals.

Strategic Procurement: What Is It and Why Does It Matter?

Vendor selection is one of the most challenging, yet integral, duties of a procurement professional. To satisfy internal business needs, procurement departments are tasked with outsourcing indirect services and securing critical inputs that keep production lines up and running.
 
Even with vertical integration—the truth is—businesses can’t do everything alone.
 
Partnering up with a vendor, in theory, should simplify business operations and allow more energy and resources to be focused on core functions. However, it can also be a source of great stress and strain if not approached strategically.
 
To help you navigate the vendor selection process, ProcurementIQ has outlined each phase, as well as a few dos and don’ts to consider. Without a clear idea or blueprint of how this process should unfold, complications and misunderstandings are sure to arise. The process is challenging enough as it is, so going into it prepared is essential.
 
1. Assemble an evaluation team and define business requirements First, you’ll want to form a team of people who are fit to execute the task of selecting a qualified vendor. Together, this team should have what it takes to define, in writing, what is needed from the product, material, or service for which you are selecting a vendor, as well as the technical and business requirements. Vendor requirements also need to be defined. Assembling a team ensures a system of support, one that can anticipate needs and offer diverse insight.
<ul>
<li>DO make sure everyone understands their roles within the team. A truly diverse team may include the buyer, as well as others with a vested interest, such as stakeholders and contract specialists. Once the team has drafted the abovementioned requirements, create a final, cohesive document. The document should include a clear understanding of stakeholder needs and priorities. It may also be helpful to map out a vendor selection process flowchart so that everyone understands next steps.</li>
</ul>
<ul>
<li>DON’T rush through this step. Take the time to be incredibly specific now, so you don’t create confusion down the road. It will also keep the team streamlined and focused on needs instead of wants.</li>
</ul>
2. Conduct market research and establish vendor selection criteria Now that your requirements are clearly defined, it’s time to search for possible vendors that can fulfill them. Once you’ve compiled a short list, it may be necessary to write and send a Request for Information (RFI) or begin a catalog of vendor profiles or <a rel="noopener" href="https://www.procurementiq.com/blog/company-reports-to-the-rescue-four-uses-for-supplier-data-in-procurement/" target="_blank">company reports</a>.
 
Then, evaluate the responses, refine your list, and establish your vendor selection criteria. This can be in the form of a vendor selection criteria checklist that you can use to refine your focus in the next phase. You and the rest of your evaluation team should leave step two with a better understanding of what your ideal vendor should look like.
<ul>
<li>DO seek outside help if needed. In some cases, it might be difficult to create that initial list of vendors. If so, specialized market research companies or an independent external consultant may be good options to consider. Additionally, a quick Google search can connect you with a vendor selection criteria template to help you get started. You may even be able to find <a rel="noopener" href="https://artofprocurement.com/buying-decision-scorecard-call-centers/" target="_blank">category-specific guides</a> that break down the most important criteria for a given market.</li>
</ul>
<ul>
<li>DON’T assume the major names in the market are the best fit. Instead, consider all your options, as well as your future needs, rather than just your current needs. Think about where you want your company to be in five to 10 years. Does your vendor selection criteria account for this growth? </li>
</ul>
Example 1: Costco SWOT analysis Leaning on best practice evaluation tools, like SWOT and PESTLE frameworks, can help you identify opportunities and red flags in each potential partnership. For example, a buyer who’s sourcing Personal Paper Products might find that Costco Wholesale Corporation offers unique strengths and weaknesses:
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/q4ff2uy4/costco-swot.png?width=492&amp;height=500" alt="" width="492" height="500">
 
Conducting a SWOT analysis on a different company? ProcurementIQ’s <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles/" target="_blank">Supplier Profiles</a> can help.
 
 
Example 2: Vendor selection matrix While the brand awareness of Costco and its high-ranking position in the market might be suitable for some buyers, a strategic buyer will consider the competition before making a decision.
 
Using a competitor matrix when selecting a vendor helps contextualize individual suppliers, showing you who its competitors are and how they stack up.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/05odiqpk/paper-products-matrix.png?width=387&amp;height=500" alt="" width="387" height="500">
 
 
ProcurementIQ subscribers have access to 5,000+ supplier profiles and unique vendor selection matrix tools. <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles/" target="_blank">Learn more</a> 
 
3. RFP vendor selection and building your vendor selection scorecard Based on the criteria set in step two, you’ll want to make a formal Request for Proposal (RFP) or Request for Quotation (RFQ) and create an official vendor selection scorecard, which will help you score the vendors based on their responses. Scoring allows your team to identify a potential supplier’s strengths and weaknesses.
 
There are a few different ways to approach scoring; one popular approach is to weigh the importance of each requirement. Weighted scoring allows you to prioritize the sections of the proposal that are most important to your business.
 
 Example 3: Vendor selection scorecard 
 Say you’re sourcing <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/janitorial-services/" target="_blank">Janitorial Services</a> and you’ve identified several strengths your vendor should possess. It may be difficult to find a vendor that fully satisfies your wish list, but weighting critical factors based on importance can help you determine the best course of action.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/w1nhqqvz/vendor-quals-janitorial.png?width=500&amp;height=406" alt="" width="500" height="406">
 
Market-specific scorecards for 1,000+ categories are available from <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/" target="_blank">ProcurementIQ</a>.
 
<ul>
<li>DO make sure the RFP is well structured and includes clear guidelines for how vendors should respond. In addition, RFP software offers an automated approach to scoring, thereby ensuring an apples-to-apples view of your options.</li>
<li>DON’T forget to ask for and check those references. A firsthand account of the vendor’s past performance is priceless information and can give you a clearer picture of what a partnership with them would look like. Also, to ensure an even playing field, make sure to refrain from giving a potential vendor information about competitors’ price offerings. This type of indiscretion has the potential to jeopardize the whole process.</li>
</ul>
 
 
4. Score the proposals and complete vendor selection process Before you begin scoring, it’s important to have a scoring strategy. For example, will your team know which company submitted which proposal, or will you be scoring blindly? Blind scoring has the benefit of preventing unintentional personal bias.
 
In either case, once scores have been set, the next step is to circle back to your project’s requirements. It’s unlikely that you’ll find a vendor that perfectly meets all of your criteria. As a result, your team may have to restructure some priorities to come to a final conclusion.
 
<ul>
<li>DO document this process thoroughly and make sure everyone is updated along the way. If further review or clarification is needed, you may need to advance the top two or three vendors to a finalists round. If so, consider providing feedback to the ones that didn’t make the cut. </li>
<li>DON’T judge a vendor solely on the proposal. Some vendors look good on paper but may not be the best fit depending on the type of partnership you’re looking for. General vendor impression should account for something, particularly when there are a couple vendors that score very similarly. </li>
</ul>
5. Develop a contract negotiation and management strategy Phew! You’ve come a long way. Once you’ve selected a vendor, the last step is to draft the contract. This step is not to be taken lightly, as there are various risks and liabilities that need to be considered.
 
Work collaboratively with your chosen vendor to ensure priorities are met and benchmarks are clearly defined. If the process needs to be lengthened to incorporate any suggested changes, so be it. Once a final draft is established, you can sign the contract. And celebrate!
 
<ul>
<li>DO have a backup plan. If, for whatever reason, a priority cannot be met, have a plan that includes alternatives. Lastly, ask for the best and final pricing and service level agreements (SLAs). At this stage, it never hurts to ask! Example 4: SLAs for Call Center Services Category-specific SLAs can help you set realistic benchmarks for suppliers to meet. A vendor’s performance, based on predefined SLAs, can help you determine their value and prepare to either renegotiate your contract at the end of the term or switch to a better-suited provider. <img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/5wbfobr5/call-ctr-sla.png?width=500&amp;height=325" alt="" width="500" height="325"></li>
<li>DON’T make a decision based on price alone. Make sure functionality and service expectations are prioritized as well. Also, make sure to thoroughly review the contract before signing. You’ve come this far; don’t miss something important because you were eager to cross the finish line.</li>
</ul>
 
The vendor selection process requires an incredible amount of effort, resources, time, and energy, as it should. Approaching each phase of the journey with intention and clear protocols will help ease the process and ensure your end result is a reliable one. After all, creating successful partnerships could be the difference between stagnancy and growth in your business.

Vendor selection can be challenging. Use this 5-step guide to build out your vendor selection criteria using expert tools like a vendor selection matrix, SWOT templates and more.

The Perfect Partnership: 5 Steps for Successful Vendor Selection

Marketing Associate & Analyst

Labor shortages have carried on for several months in the United States, prompting many operators to offer higher wages, better benefits — or even turn to automation. Read on to learn how labor trends are challenging five key markets.
 
Did you know that ProcurementIQ's dynamic reports quantify the impact of recent developments on buyer power across hundreds of markets? We not only cover labor trends but look for other changes that impact the external environment, like notable mergers and acquisitions, supply chain disruptions, regulatory changes and more. <a rel="noopener" href="https://www.procurementiq.com/blog/procurementiq-recent-developments/" target="_blank">See how it works</a>
 
 
1. National Trucking
Operators in this market are facing a severe driver shortage
<ul>
<li>The market for national trucking services is currently experiencing an ongoing driver shortage, which has exacerbated the current global supply chain crisis. This crisis is being fueled by growing retirement rates of drivers, with few prospects lining up behind them to take their place on the road.</li>
<li>Suppliers in the market are facing pressure to increase pay, add sign-on bonuses and strengthen benefit packages offered to drivers in order to attract new workers to their companies.</li>
<li>Market leaders are also expanding their search into demographics that have previously been underrepresented in the market, including women and inner-city residents. Suppliers have also recently begun lobbying the government to modify federal law to allow drivers under the age of 21 to cross state lines. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/national-trucking-services/" target="_blank">Learn more</a></li>
</ul>
 
2. Call Center Services
Workers in customer-facing roles are quitting at higher rates.
<ul>
<li>Data from the Labor Department has shown that workers in customer-facing roles, including customer service representatives and call center employees, are leaving their jobs at much higher rates than workers in other markets currently experiencing labor shortages.</li>
<li>Surveys from research firms across the country have shown that the reason for workers leaving these call centers is increasing customer disrespect. Workers in the industry also have cited being unprepared to deal with customer complaints due to supply chain issues. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/call-center-services/" target="_blank">Learn more</a></li>
</ul>
Watch our short video to review the impacts on cost structure benchmarks and buyer power with one of our analysts!
 
 
<div class="mceNonEditable embeditem" data-embed-url="https://youtu.be/Yf4zyHZ2hMg" data-embed-height="300" data-embed-width="625" data-embed-constrain="false"><iframe src="https://www.youtube.com/embed/Yf4zyHZ2hMg?feature=oembed" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" width="533" height="300" frameborder="0"></iframe></div>
 
3. Compensation &amp; Benefits Planning
Demand for market services increases as wages see record growth
<ul>
<li>Wages in the US economy have posted the largest three-month jump in 20 years in the quarter ending September 2021. Along with the increase in wages, benefit costs rose nearly a full percentage point, up by more than double from the previous quarter.</li>
<li>This data comes as a result of trends in the economy, with workers demanding better pay and benefits packages as a result of the coronavirus pandemic and its related impacts. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/compensation-benefits-planning-services/" target="_blank">Learn more</a></li>
</ul>
 4. Tanks &amp; Cylinders
Market leading Trinity Industries negatively impacted by labor shortages
<ul>
<li>Trinity Industries third quarter results were negatively impacted by labor shortages, high turnover and supply chain disruptions, according to the CEO and President Jean Savage. While financial metrics were disappointing, the company does not see this as a sign for concern as they project demand and profitability will both increase as supply chain issues continue to resolve themselves. <a href="https://www.procurementiq.com/market-intelligence-united-states/tanks-cylinders/">Learn more</a></li>
</ul>
 5. Cafeteria Management
The hospitality industry is suffering from labor shortages
<ul>
<li>Restaurants and cafeterias around the United States have said that labor shortages are hurting their operations.</li>
<li>Many restaurants and cafeterias got rid of workers in 2020 because they had closed or reduced their operations during the coronavirus pandemic, but now business is rebounding and more workers are needed.</li>
<li>6.8% of hospitality workers quit their jobs in August 2021 (versus 2.9% of workers in the overall economy). <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/cafeteria-management-services/" target="_blank">Learn more</a></li>
</ul>
 
Want to know how the labor shortage impacts a specific market? <a rel="noopener" href="https://www.procurementiq.com/contact-us/" target="_blank">Contact us</a> today to see if we're analyzing labor shortages in your market — or scope out a <a href="https://www.procurementiq.com/custom-research/">Custom Research</a> project on any category.

News of labor shortages is spreading across the economy, driving up salaries and inflating end prices for many goods and services. Identify five markets that are heavily impacted.

Labor Shortage News for 5 Key Markets

The coronavirus pandemic will result in remote learning for millions of students this fall. The way we educate is being transformed, and digital technologies are at the forefront of this change. With online learning and government funding for education on the rise, investment in educational technology (EdTech) is up. When it comes to EdTech, these five platforms are using artificial intelligence (AI) to rise to the occasion.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/eyxdituc/education_graphic-01.jpg?width=588&amp;height=353" alt="" width="588" height="353">
 
 Aida
Within the past year, Pearson has launched Aida, a mobile app that uses various AI forms to offer a deeply individualized educational experience. Marketed as the first educational app that doesn’t just point users to the answer, but also assists learners in discovering how to arrive there, Aida helps students tackle college-level calculus – typically one of the first courses college students must grapple with in order to pursue a career in STEM. Aida provides real-time feedback and targeted recommendations. As students increasingly interact with the app’s content, Aida’s tips and suggestions become more personalized to the user. Perhaps Aida’s most critical feature is its capacity to give targeted tips on users’ work. Aida can analyze photos of handwritten work or answers typed into the app. The app can give specific feedback on each line of work – informing students what they got right and offering resources to hone in on specific skills where students could use additional practice. Pearson is a publicly-traded company that earned $4,679.5 million in 2019.
 
Chatterbox
Chatterbox enables language learning for professionals through AI-backed self-teaching materials and consistent practice with algorithmically-chosen live coaches. The platform pairs users with native language tutors – all of whom are refugees with professional backgrounds. Tutors and students are matched based on common professional histories and interests. For example, Congolese medical doctors are paired to teach French to medical aid workers, and Syrian engineers are paired to teach Arabic to engineers. While Chatterbox’s users are learning new languages, their teachers are able to earn a living, support their professional images and augment their employability. Chatterbox has raised $0.3 million to date.
 
Cognii
Using proprietary natural language processing (NLP) technology, Cognii's Virtual Learning Assistant (VLA) is the sole electronic assistant (think Apple’s Siri, Amazon’s Alexa, etc.) that is geared toward educational dialogue. Educational dialogue, in this context, refers to the typical conversations a student would have with a teacher or tutor. The company's NLP technology allows the platform to assess the contextual semantics, syntax and conceptual hierarchy in students' written responses to open-answer assessments. In this way, Cognii can evaluate the correctness of responses, as well as identify the particular ideas in the response. Cognii then gives feedback to users much like a human teacher would. Cognii uses AI to support free-response assessments, smart tutoring, individualized deeper learning and robust analytics. In a regulated research study, Cognii was evaluated as 96% as accurate as humans in assessing concise essays. By employing machine learning and data mining, the accuracy of Cognii's evaluations increases over time. Cognii has raised $0.1 million to date.
 
Duolingo
A bonafide unicorn (i.e. a startup valued at over $1 billion), Duolingo is a language learning platform whose 300 million active users carry out billions of language-learning activities each month. Using machine learning and its vast data repository, Duolingo has engineered a statistical blueprint, known as "half-life regression" of how long users are able to recall the novel words they memorize before they begin forgetting and, therefore, require a reminder. Duolingo has developed the regression by assessing the errors of millions of users to forecast the "half-life" of each word in a human's long-term memory. Duolingo has raised $148.3 million to date.
 
Examity
Examity applies proprietary AI proctoring to online testing. The platform assesses test takers' identities and uses AI and machine learning to discover indications of cheating. The identity assessment is composed of three phases. First, the test-taker shows an official form of identification and submits a real-time image through the webcam. These images are evaluated against the ID on file. Next, test-takers respond to "challenge" questions. At last, the test-taker must provide a digital signature that assesses the "keystroke cadence" (i.e. the rhythm with which an individual types) of the test-taker and matches it against the test-taker's stored digital signature. Examity's automated proctoring technology is put into play when the identity assessment concludes. The proctoring technology oversees the exam from beginning to end through predictive analytics and video review. By "flagging" signs of cheating and suspicious behavior, Examity enables a faster human review process. Examity has raised $121 million to date.

The pandemic has resulted in remote learning for millions of students. As e-learning is transformed, these 5 EdTech platforms will meet education challenges face-to-face.

AI Brings Remote Learning Close to Home

Los Angeles-based company ProcurementIQ, a leading independent provider of procurement research and market intelligence, is rolling out a host of report enhancements on November 9, 2021.
 
Since the onset of the COVID-19 pandemic, businesses have faced increased challenges navigating and responding to rapidly changing economic conditions. The unprecedented events of the past 18 months have caused procurement teams to more urgently seek out real-time data and forward-looking insights to help pivot their sourcing strategies accordingly.
 
To help procurement teams react quickly to disruptions in any market, ProcurementIQ now offers dynamic reports that update when the news cycle updates. Subscribers will also find new tools for vendor management to help ensure their suppliers deliver timely, quality goods and services no matter the circumstances.
 
As a subscriber, you’ll have access to a range of report enhancements beyond those described above:
 
Buyer Power Score (BPS)
<ul>
<li>Buyer power timeseries data scores your negotiation leverage in the current year while also showing historical and forward-looking scores. Use this context to understand how negotiation conditions are changing.</li>
<li>A ‘buy now’ vs. ‘buy later’ indicator guides the timing of your purchase based on changes in negotiation conditions.</li>
<li>A more dynamic BPS methodology now factors the impacts of recent developments into the score. <a rel="noopener" href="https://www.procurementiq.com/blog/procurementiq-buyer-power-score/" target="_blank">Learn more</a></li>
</ul>
Recent Developments
<ul>
<li>Near-real-time updates based on changes in the external market will provide you the timely insights you need. <a rel="noopener" href="https://www.procurementiq.com/blog/procurementiq-recent-developments/" target="_blank">Learn more</a></li>
</ul>
At a Glance Sections &amp; Key Takeaways
<ul>
<li>Summaries of key data points from each chapter are easy additions to your presentations and guide important conversations with internal stakeholders.</li>
</ul>
Environmental, Social and Governance (ESG) Trends
<ul>
<li>Market-level ESG scores and analysis show you how current suppliers in the market measure up on standards like energy efficiency, waste management, pay equality, anti-corruption, lobbying practices and more.</li>
</ul>
Vendor Management Tools
<ul>
<li>Key contract clauses help protect your business against undue harm by outlining fair conditions for contracts and incorporating best practices for structuring contracts in any market.</li>
<li>KPIs provide you with metrics to continually evaluate the performance of your suppliers to ensure you are receiving optimal product and service quality.</li>
<li>SLAs help you establish the most favorable contract conditions, even when there is little ability to negotiate on prices. <a rel="noopener" href="https://www.procurementiq.com/blog/procurementiq-vendor-management-tools/" target="_blank">Learn more</a></li>
</ul>
With the addition of this new content ProcurementIQ now covers all 4 key components to market intelligence for procurement: Price, Market, Supplier and Contract.
 
Not yet a subscriber? <a rel="noopener" href="https://www.procurementiq.com/free-report/" target="_blank">Download a sample report</a> to see if our information is right for you or <a rel="noopener" href="https://www.procurementiq.com/contact-us/" target="_blank">book a demo</a> to experience the full range of features.

New market intelligence reports with a user-friendly web format will deliver actionable insights fast. Stay up on  procurement news, access vendor management tools and more.

ProcurementIQ Unveils Major Enhancements to Report Collection

ProcurementIQ is dedicated to providing the highest quality data and intelligence so you can make the best and most efficient decisions. With that in mind, we have redesigned our website and report layout to push actionable and immediate content to you. This article will highlight some of the key changes and additions.
 
Report Chapters
We are moving away from the 7-step sourcing process to reduce the redundancy of information that is repeated across several sections. Instead, we are organizing everything into 5 key chapters and adding depth and specificity to the content so that it is more actionable for you.
<ul>
<li style="list-style-type: none;">
<ul>
<li>Chapter 1: Opportunity Assessment</li>
<li>Chapter 2: Buyer Power Score</li>
<li>Chapter 3: Price Environment</li>
<li>Chapter 4: Supply Chain &amp; Vendors</li>
<li>Chapter 5: Business Requirements</li>
</ul>
</li>
</ul>
We're also adding, updating and enhancing data and analysis to help you find immediate and actionable information. Read on to learn more ...
 
Buyer Power Score
Buyer Power is now being measured on a scale from negative 5 to positive 5, and is tracked over the past 3 years. By looking at how buyer power has changed over time, you can assess how your position in the market today compares to the last time that you went out to bid for this category.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/mv2gut2s/bps-1.png?width=500&amp;height=228" alt="" width="500" height="228">
 
 
We’re also adding a forward-looking component to the buyer power score to help you plan for future purchases, as well as a “buy now vs. buy later” indicator. For example, the analyst has marked Janitorial Services as “Buy Later” which doesn’t necessarily mean you should hold off on buying janitorial services. However, it DOES tell you that market dynamics are expected to improve in the next year, and that you might do better to extend a current contract in the short term instead of going out to RFP. Even if that’s not an option, this Buyer Power Score shows you right away that there are factors working against you today that you should be fully aware of before negotiating a long-term contract.
 
With this more robust Buyer Power Score, you can utilize your spend analytics with our data develop strategies for the upcoming year and identify those unforeseen opportunities for buying now.
 
<a href="https://www.procurementiq.com/blog/procurementiq-buyer-power-score/">Watch a video to learn more!</a>
 
Recent Developments
Probably the biggest change throughout our entire reports will be the addition of Recent Developments section. We are completely overhauling how our analysts refresh reports, so that instead of each report getting updated 1 to 4 times per year, analysts will now be adding near-real-time updates based on external market impacts.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/cd1ntand/recent-developments.png?width=500&amp;height=295" alt="" width="500" height="295">
 
Now, when something like the Suez Canal Blockage happens, or a merger or acquisition is announced, our analysts will understand the impacts on each market that is affected, and will feed this information into the relevant reports. Major changes will be reflected within a couple of days of the event, rather than waiting until the report’s next scheduled update. This means that you will be able to log into a ProcurementIQ report and know that the information here is up-to-date. We will also hyperlink directly to the report sections impacted, so that you know the data in those sections is also up to date with the most current market information.
 
The Recent Developments section will help you to keep track of changes in high-spend categories, share relevant information with your stakeholders as you work through a project, and have valuable insights to regularly update category strategies or playbooks.
 
<a href="https://www.procurementiq.com/blog/procurementiq-recent-developments/">Watch a video to learn more!</a>
 
SWOT
Another new section that we are adding is SWOT Analysis - strengths, weaknesses, opportunities and threats - for the market as a whole. This can further help to build out your initial opportunity assessment when purchasing a product or service.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/t2ohra04/swot.png?width=500&amp;height=261" alt="" width="500" height="261">
 
Key Takeaways and At a Glance
Another new feature that we are adding is the Key Takeaways and At a Glance section at the top of each major chapter. This section calls out major impacts on buyer power, and quickly summarize key data points from the chapter. These takeaways can be pulled and put into a presentation or used to drive conversation with internal stakeholders.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/1doppsso/key-takeaways.png?width=500&amp;height=179" alt="" width="500" height="179">
 
The At a Glance section also lets you quickly get a handle on tier 2 spend where in-depth information is not yet required.
 
Cost Structure Benchmarks
The cost structure is another part of our reports that clients have found valuable for cost benchmarking and negotiating activities. Similar to the Buyer Power Score, we are now going to show the cost structure across a 3-year period, including a forward-looking perspective.
 
There are multiple ways to apply this section, but for example, here you can see that from 2020 to 2021, wages did not change much as a percentage of suppliers’ revenue.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/nv2jlyks/csb.png?width=500&amp;height=326" alt="" width="500" height="326">
 
But in 2022, our analysts are expecting that wages will increase as a share of revenue by quite a bit. This can help you identify where to focus when scrutinizing price quotes, or where you should be wary of tying prices to an index or to specific supplier costs.
 
ESG
The biggest change to the Supply Chain chapter is that we are adding a section on ESG, or Environment, Social and Governance. This section will discuss how current suppliers in the market measure up on standards like energy efficiency, waste management, pay equity, anti-corruption, lobbying practices and more. In addition to the current level, we are evaluating the what kinds of commitments suppliers have made toward improving their corporate social responsibility, to provide an Opportunity Level for each factor as well.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/jshbznnx/esg.png?width=500&amp;height=335" alt="" width="500" height="335">
 
 
This will help companies to set more realistic sustainable and socially responsible sourcing goals, and to help buyers recognize where they can focus their efforts when evaluating suppliers or pushing for terms that will encourage both companies to improve on their ESG goals.
 
Business Requirements
Lastly, the Business Requirements tab is meant to help build out all of the end-stage sourcing process and the ongoing supplier performance management requirements that are increasingly impactful in procurement processes.
 
Planning Process
For example, the buying lead time section is being expanded to map out how much time should be expected at each key stage of the purchasing process based on the size of you as the buyer. This is still a market average, but can help buyers plan ahead appropriately.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/ylinhydj/planning-process.png?width=500&amp;height=304" alt="" width="500" height="304">
 
Vendor Qualifications
We’re also building out a more detailed list of vendor qualifications, which is replacing the shorter Buying-Decision Scorecard, with the importance of each factor ranked as 1 through 5. This will allow you to choose the qualifications that best match your needs and assign weightings accordingly.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/15ypwzgz/vendor-qual.png?width=500&amp;height=333" alt="" width="500" height="333">
 
 
Vendor Management
Finally, we’ve added 3 new sections under vendor management: Contract Clauses, Key Performance Indicators, and Service Level Agreements.
 
Key Contract Clauses will allow you to protect yourselves against undue harm by reviewing fair conditions for contracts and incorporating best practices for structuring contacts in this market.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/kbinw4mz/vendor-mgt.png?width=500&amp;height=341" alt="" width="500" height="341">
 
 
Additionally, KPIs and SLAs will assist clients with establishing the most favorable contract conditions, even when there is little ability to negotiate on prices, and to provide best practices that can be referenced once a contract has been executed and vendor performance management is the key metric for success.
 
With the addition of KPIs and SLAs, ProcurementIQ now covers all 4 key components to market intelligence for procurement: Price, Market, Supplier and Contract
 
<a href="https://www.procurementiq.com/blog/procurementiq-vendor-management-tools/">Watch a video to learn more!</a>

Learn about our redesigned website and reports that provide the highest quality data and market intelligence. With ProcurementIQ you can make the best and most efficient decisions.

ProcurementIQ Report Enhancements

Commodities markets have been put through the ringer since the onset of the pandemic. As demand for inputs plummeted amid shutdowns, production of many commodities also fell. Alongside the reopening of the economy, demand is rebounding for many commodities, such as <a rel="noopener" href="https://www.procurementiq.com/blog/to-build-or-not-to-build-steel-and-lumber-prices-soar-in-the-rebounding-economy/" target="_blank">lumber and steel</a>, more quickly than producers can keep up with. As a result, shortages and price spikes have plagued many buyers. To simplify commodities purchases and help businesses navigate commodity contracts and trends, ProcurementIQ has put together a list of commodity purchasing best practices.
 
1. Metrics should be carefully defined It is important to carefully define metrics and use risk-proof language when drafting a contract in order to avoid potential loopholes that could be open to interpretation. Below are things to be aware of when drafting:
<ul>
<li>Avoid vague citations of commodity price metrics and ambiguous references to dates and terms. Make sure the metrics in the SLA align with the buyer’s stakeholders’ needs and wants.</li>
<li>Ensure that the commodity price index used for benchmarking is explicit and robust.</li>
<li>Include provisions for a successor price index should the designated index be dropped.</li>
</ul>
Contract clause example – Price Escalation: “During the term of this agreement, additional fees shall be subject to price escalation on DATE of each contract year during the Term of this Agreement, in accordance with the increase in the PRICE INDEX as published by PUBLISHER. The price will be determined based on the percentage increase in the INDEX for the twelve (12) month period ending three (3) months prior to January 1st of each contract year during the Term of this Agreement.”
 
2. Quality is more important than quantity Covering all of your bases in a contract means you have a clear picture of your business objectives and goals and have identified your company’s risk appetite. This helps set appropriate expectations for both parties. However, while terms should be detailed and thorough, quality is always more important than quantity. In other words, having more metrics is not necessarily better. Too many metrics may result in an overload of information that will take too long to analyze, thereby reducing operational efficiency and the overall value of the service-level agreement (SLA).
 
3. Choose metrics that are within the supplier’s control Procurement professionals know how important it is to protect their company when contracting with suppliers. Covering each base and putting your business’ needs first is crucial for ensuring business longevity. However, it is also important to prioritize supplier relationships by working together as a team to create mutually beneficial terms. This means understanding what is in the supplier’s control. For example, if a supplier fails to meet a metric due to circumstances such as a force majeure event or a mistake, a missed deadline, or another oversight on the buyer’s end, the supplier should not be penalized. Additionally, what constitutes force majeure events and failures on the buyer’s end should be clearly defined.
 
Contract clause example – Force Majeure: “No Party shall be liable for any failure in the fulfillment of any of its obligations under this Agreement (other than the obligation to pay the purchase price of Products sold and delivered) to the extent that such failure is due to any prevention, delay, interruption, loss or damage occasioned by Force Majeure; provided that reasonable steps are taken to mitigate the consequences of such Force Majeure and to bring it to an end as soon as reasonably possible; and provided, further, that such Party has given notice of such Force Majeure to the other Party pursuant to Section 18.2.”
 
4. Strategize the scope and timing of the contract Thinking long term and investing in the future are never bad ideas and can often be the difference between a good deal now and a great deal that keeps on giving. Applying these same principles to a contract, buyers can purchase materials in advance or for several projects at once. Buyers can also try to get the owner to pay for the storage of materials in a bonded warehouse, which would eliminate future price escalations. These strategies help to reduce overhead costs in the long run. They also create beneficial terms for the supplier by securing them more business, but not at the buyer’s expense. Rather, it further prioritizes the buyer as a client.
 
5. Add a meet-or-release clause A meet-or-release clause requires the seller to meet a lower price if one can be found. The benefits of this addition are obvious; it allows the buyer an open door in case they find a lower price in the market that was previously undiscovered. However, release clauses can potentially run into issues with competition laws because they can prevent competing suppliers from having the opportunity to earn customers’ business.
 
Contract clause example – Meet or Release: “If at any time during the period of this Agreement Buyer can purchase commodity of like quality at a price which will result in a delivered cost to Buyer that is lower than the delivered cost of the material purchased hereunder, Buyer may notify Seller of such delivered cost and Seller shall have an opportunity of pricing material hereunder, within a reasonable time, but not more than 90 days, on such a basis as to result in the same delivered cost to Buyer. If Seller fails to do so or cannot legally do so, Buyer may purchase from the supplier of the lower delivered cost material, and any purchase made shall be held to apply on this Agreement, and the obligation of Buyer and Seller shall be reduced accordingly.”
 
6. Ensure supply consistency Add a stipulation stating that commodity quantity requirements will not drastically change over the course of the contract or that the supplier may not drastically change the quantity supplied. Such inclusions result in long-term commodity contracts that guarantee stable future supply at low prices. They also take the supplier into consideration by ensuring that the buyer will not suddenly adjust expectations and demands.

ProcurementIQ introduces commodity purchasing best practices to help businesses navigate commodity contracts and trends.

6 Best Practices for Commodities Contracts

Consumer sectors typically lead the recovery from economic downturns, followed closely by the information technology sector. The coronavirus recession, though dissimilar to previous recessions in many ways, appears to be trending similarly. The leisure and hospitality, public and private education, and professional and business services sectors are driving labor market improvements and providing the strongest indication that the economy is finally turning around.
 
 
<img src="https://content.ibisworld.com/media/32gbph1d/services_graphic1.jpg?width=600&amp;height=384" alt="" width="600" height="384">
 
According to the Bureau of Labor Statistics' (BLS) June jobs report, the US economy added 850,000 jobs in June, far surpassing the forecast 706,000 and representing the most substantial monthly job creation in the past 10 months. Additionally, average hourly earnings (i.e., wages) rose 0.3% during the same period and 3.6% year over year, displaying similarly strong improvements that exceeded economist expectations.
 
 
<img src="https://content.ibisworld.com/media/oabcmvfv/services_graphic2.jpg?width=599&amp;height=424" alt="" width="599" height="424">
 
Leisure and Hospitality Job additions in the leisure and hospitality sector totaled 343,000 in June. Standout employers within the sector include food services and drinking places, which added 194,000 jobs; accommodation, which added 75,000 jobs; and arts, entertainment and recreation, which added 74,000 jobs. "Pandemic-related restrictions continued to ease in some parts of the country," said the BLS, driving the growth trend.
 
Public and Private Education The public and private education sector created 269,000 jobs in June, nearly rivaling the leisure and hospitality sector growth. This sector includes local government education, which was responsible for 155,000 additional jobs; state government education, which added 75,000 jobs; and private education, with 39,000 jobs. The BLS cited "staffing fluctuations due to the pandemic [and] the return to in-person learning" as primary contributors to the expansion, which strays from historical seasonal trends.
 
Professional and Business Services The professional and business services sector claimed the third-highest number of new jobs in June at 72,000. Of these, temporary help services accounted for 33,000 jobs; advertising and related services accounted for 8,000 jobs; scientific research and development services accounted for 7,000 jobs; and legal services established an additional 6,000 jobs. These increases are reflective of improving economic sentiment and strengthening business activity.
 
Key Takeaways:
<ul>
<li>Supply constraints in labor markets are finally easing as more workers respond to higher pay; after increasing by 20 cents in April and 13 cents in May, average hourly earnings increased another 10 cents in June, bringing the benchmark to $30.40 per hour. With wage increases fueling higher employment, labor shortages are becoming less of a threat.</li>
<li>Low-wage service sectors are steadily rebounding, allowing the manufacturing, transportation and <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/general-warehousing-storage/" target="_blank">warehousing</a> sectors to take a backseat in the economic recovery amidst extended material shortages. Service prices are more dependent on trends in employment and labor rates than product prices; as supply chain disruptions maintain elevated and unstable product prices, buyers may find more favorable conditions in service markets.</li>
</ul>

Consumer sectors often lead the recovery from economic downturns. The COVID-19 recession, though dissimilar to previous recessions in many ways, appears to be trending similarly.

Service Sectors Lead the Way out of Recession

One rare area of agreement between the Trump and Biden administrations is their posture toward manufacturers of surveillance cameras and telecom gear based in China. Buyers who are researching surveillance cameras or cellular base stations should be aware of certain companies, such as Hikvision and Huawei, which have come under fire in the United States. The federal government cracking down on these firms due to fears that Hikvision surveillance cameras and Huawei telecom gear could be used by the Chinese government to spy on the United States. These restrictions are impacting buyers, particularly government buyers and government contractors, and procurement professionals should consider increasing risks when making purchasing decisions.
 
Hikvision Risk Overview Hikvision Digital Technology Company Ltd. is one of the world’s largest manufacturers of surveillance cameras. Surveillance cameras are often used to secure sensitive sites such as government facilities and military installations. Modern surveillance cameras transmit information over the internet, so the United States government is worried that sensitive footage and intelligence might make its way back to China.
 
The United States government has also stated that Hikvision has helped the Chinese government engage in a campaign of repression against Muslim minority groups such as Uyghurs and Kazakhs in China’s Xinjiang territory. As a result, the US government has placed restrictions on this company.
 
Markets Affected: <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/closed-circuit-television-systems/" target="_blank">Closed-Circuit Television Systems</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/surveillance-cameras/" target="_blank">Surveillance Cameras</a>
 
Huawei Risk Overview Huawei Technologies Co. Ltd. is one of the largest technology companies in China and is the world’s biggest manufacturer of telecom equipment. However, the company does not have much of a presence in the United States, where it is mostly used by rural carriers; the Rural Wireless Association said in December 2018 that 25% of its members use Huawei equipment. Huawei’s market share in the United States will likely decline further in the coming years as the federal government takes further action.
Huawei faces controversy over its alleged links to the Chinese government, which the company hotly disputes; Huawei has even filed libel lawsuits against people making these statements. The US government worries that Huawei telecom equipment might send sensitive national security information back to China. The US government has also accused Huawei of violating US trade sanctions on Iran.
 
Markets Affected: <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/phone-video-conference-equipment/" target="_blank">Phone &amp; Video Conference Equipment</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/network-switches/" target="_blank">Network Switches</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/network-routers/" target="_blank">Network Routers</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/pbx-phone-systems/" target="_blank">PBX Phone Systems</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/smoke-detectors/" target="_blank">Smoke Detectors</a>
 
Other Companies Three other major telecom companies face restrictions in the United States. Buyers should keep a close eye on the following companies and markets to mitigate risk:
<ul>
<li>Zhejiang Dahua Technology Co.: <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/closed-circuit-television-systems/" target="_blank">Closed-Circuit Television Systems</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/surveillance-cameras/" target="_blank">Surveillance Cameras</a></li>
<li>ZTE Corporation: <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/phone-video-conference-equipment/" target="_blank">Phone &amp; Video Conference Equipment</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/network-switches/" target="_blank">Network Switches</a>, <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/network-routers/" target="_blank">Network Routers</a></li>
<li>Hytera Communications Corporation: <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/two-way-radios/" target="_blank">Two-Way Radios</a></li>
</ul>
 
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/j0rlo0io/chinese-telecom_timeline.jpg?width=536&amp;height=643" alt="" width="536" height="643">
 
<ul>
<li>August 2018: President Trump signs the National Defense Authorization Act for 2019, which bans government use of Huawei, ZTE, Hikvision, Dahua and Hytera products.</li>
<li>May 2019: The US Department of Commerce adds Huawei to the Entity List, prohibiting the company from buying components from US companies.</li>
<li>August 2019: The ban on US government buyers using Huawei, ZTE, Hikvision, Dahua and Hytera products signed in August 2018 takes effect.</li>
<li>October 2019: The US Department of Commerce adds Hikvision and Dahua to the Entity List, barring them from buying components from US companies.</li>
<li>June 2020: The Federal Communications Commission (FCC) designates Huawei and ZTE as threats to national security. As a result, US telecom companies cannot use FCC money to purchase Huawei and ZTE equipment.</li>
<li>August 2020: The ban on US government contractors using equipment from Hikvision, Dahua, ZTE, Huawei and Hytera signed in August 2018 takes effect.</li>
<li>November 2020: President Trump signs an executive order prohibiting US citizens from investing in Hikvision, Huawei and 30 other companies.</li>
<li>March 2021: The FCC designates Hytera, Hikvision and Dahua as threats to national security.</li>
<li>June 2021: President Biden signs another executive order banning US citizens from 59 companies (including Hikvision and Huawei)</li>
<li>July 13, 2021: FCC votes to fund a $1.9 billion program to “rip and replace” Huawei and ZTE gear from US telecoms.</li>
</ul>
 
Regulatory Uncertainty Remains Buyers should also consider the risks involved with doing business with firms in China’s Xinjiang territory. On July 13, the US Secretary of State warned that companies with even indirect trade and investment ties to Xinjiang could be violating the law. On July 15, the US Senate passed a bill banning imports from China’s Xinjiang territory. Further regulations may be enacted as the situation evolves.
 
Additionally, the Chinese government is cracking down on some of China’s largest technology companies, including the e-commerce giant Alibaba and the ride-hailing platform Didi. Buyers that are sourcing from firms in China should assess whether their partners face similar political risks which could affect their businesses.
 
Key Takeaways
<ul>
<li>Government buyers and government contractors should immediately determine whether they are in compliance with federal regulations regarding these affected companies.
<ul>
<li>Have they purchased products directly from these firms?</li>
<li>Have they purchased products from affected firms indirectly from a third-party distributor or contractor?</li>
</ul>
</li>
<li>Other buyers should assess the risks of continuing to operate with products from these companies.
<ul>
<li>Could the FCC decertify these products, forcing even private companies to remove them?</li>
<li>The FCC regulates telecom equipment and modern surveillance cameras that connect to the internet need to be certified by the FCC. The FCC has the power to force people to remove surveillance cameras that have caused interference with radio waves.</li>
</ul>
</li>
<li>Buyers that are currently using equipment from these firms should assess the cost of removing and replacing this equipment and explore alternative suppliers.</li>
<li>Buyers who are seeking these products should avoid products from affected companies to mitigate reputational damage.</li>
</ul>

Procurement professionals should examine the increasing risks when sourcing telecom equipment and services from Chinese companies, including regulatory compliance risks and more.

Chinese Telecom Equipment Vendors Face Trouble in the United States

The coronavirus pandemic exacerbated long-standing threats to food supply chains, including those related to supply chain continuity, food fraud and theft, and food safety and security. Farmers, producers, distributors, and retailers have, nonetheless, prevailed and worked to maintain the integrity of the global food supply. However, additional steps can be taken to mitigate threats to food supply chains.
 
Supply Chain Continuity Stockpiling, panic buying and food insecurity were rampant in 2020 in response to the sudden onset of the pandemic and are continuing to some extent in 2021 amidst drawn-out economic uncertainty. These trends, coupled with illness-related food plant closures and growth in unemployment among food sector workers, have been causing food shortages. Companies can implement the following practices to bolster operations as the pandemic wanes:
<ul>
<li>Seek out agricultural subsidies – To stay operational, small farmers and producers should work with the Farm Service Agency (FSA) and local FSA offices to secure funds when possible.</li>
<li>Maintain a sufficient workforce to keep distribution channels alive – Large producers and distributors can hire and board out-of-state drivers and use staffing agencies and other middlemen as a way to mitigate the effects of the nationwide worker and driver shortage.</li>
<li>Optimize capacity in accordance with shifting demand – To avoid product shortages, producers, distributors and retailers can increase operating hours, hire more employees, reduce product variety to focus on the most popular stock-keeping units (SKUs) and simplify inventory management.</li>
<li>Strengthen international sourcing practices – Large producers can also avoid product shortages by exploring alternative and international supply sources. In doing so, producers can tap into new supplies when existing resources are depleted or compromised by transport and logistics disruptions.</li>
<li>Promote cyber awareness – Finally, all food suppliers should keep their industrial control system (ICS) up to date, use cybersecurity staff (instead of manufacturing and processing personnel) to manage the ICS, conduct end-to-end cybersecurity assessments and update incident response plans to protect against data breaches, shutdowns and the increasing frequency of ransomware attacks on food processing operations.</li>
</ul>
Food Fraud &amp; Theft Food fraud, in which substandard food products are produced and distributed to consumers, also remains a primary concern. As authorities focus their attention and funding on coronavirus relief, gaps in regulatory enforcement are contributing to an increased likelihood of food fraud, particularly through the amendment of food labels or expiration dates and the use of substandard alternative ingredients.
 
Furthermore, as inventory levels have fallen, essential goods such as food products have been subject to spikes in demand and prices during the past pandemic year. These characteristics expose food products to a greater likelihood of theft, which has been on the rise since the pandemic began. Due to the influence of bad actors, stolen food products are at a higher risk of food safety violations. As a result, it’s important to protect against such threats by considering the following measures:
<ul>
<li>Implement food fraud prevention systems – To hedge against fraud and maintain control measures, producers, distributors and retailers can conduct evaluations aimed at characterizing food fraud vulnerabilities. Then, these stakeholders can design and implement mitigation strategies based on those vulnerabilities that allow them to keep track of input materials, risks and vendor relationships.</li>
<li>Ensure suppliers’ compliance with food integrity practices – Buyers should only work with suppliers that have documented anti-fraud processes in place. To determine such processes, buyers can ask if any ingredients have been substituted with less expensive alternatives. Buyers should also ask about the geographical and biological source of the ingredients to avoid the recycling of animal byproducts back into the supply chain and the purchasing of products with unknown origins or past “use by” dates.</li>
<li>Promote increased regulatory compliance – To demonstrate social responsibility, distributors, retailers, and buyers can lobby for bans on illicit trading, profiteering and hoarding.</li>
<li>Take measures to prevent internal theft – Distributors and retailers can deter employees from internal theft by tracking all sales and inventory; keeping alcohol and other high-value products under lock and key; installing security cameras, verified alarm systems and managed access control systems; offering staff free or discounted products and examining storage areas for food that may have been stashed away for later removal.</li>
</ul>
Food Safety &amp; Security Due in part to rampant food fraud and theft during the pandemic, food safety and security have become even more important. That said, federal agencies have had limited capacity, in terms of both funding and time, with which to enforce food safety regulations and manage potential violations. Moreover, supply chain factors including limited container, warehouse and other storage space make for an increased risk of distribution challenges that elevate consumers’ risk of facing food insecurity. To increase food safety and security, those along the food supply chain can:
<ul>
<li>Overhaul processes to improve quality at every stage – From raw ingredients to finished products, it’s important to ensure that safety and security standards, including those related to food preparation, testing, labeling, packaging, storage and distribution, are consistently reached. Food controls should be based on a sound scientific foundation, and hazard analyses should be carefully conducted (e.g., inspection personnel should be properly trained).</li>
<li>Target efforts toward vulnerable groups – Another way to increase food safety and security is for producers, retailers, and buyers to contribute to food safety nets, including the direct provision of food to vulnerable communities through donations and the indirect provision of food through food stamps, coupons, and local funds. Also, linking farmers and restaurants to food banks is a way to increase such efforts. The biggest risk for food security is not with food availability but with consumers’ access to food.</li>
<li>Expand the use of new purchase and delivery methods – To be more efficient and reduce strain on essential operations, retailers and buyers can employ local sourcing (i.e., a tighter, shorter supply chain), use click-and-collect models and services and offer nonconventional food items (i.e., grocery products in restaurants). Farmers can also use digital solutions to sell directly to consumers.</li>
<li>Keep emergency solutions in mind – If a food supplier is having trouble distributing products, the supplier should contact the Federal Emergency Management Agency’s (FEMA’s) National Business Emergency Operations center to secure emergency funds and resources.</li>
</ul>
The pandemic exposed vulnerabilities for many industries, but food supply chains particularly so. As food supply chains recover from the effects of the pandemic, it’s important to reflect on what can be done better. In other words, moving forward, those along food supply chains have a chance to rescale and reimagine the future of food. For all its challenges, the past pandemic year has triggered a variety of creative innovations; let’s not stop now.

Farmers, producers, distributors, and retailers have, nonetheless, prevailed and worked to maintain the integrity of the global food supply.

Uprooting Food Supply Chains Post COVID-19

On May 30, cyber attackers targeted JBS, the largest meat producer in the world. The attack prompted JBS to halt meat processing at all of its U.S. beef processing plants on June 1. Hackers facilitated the attack only weeks after a similar ransomware operation on Colonial Pipeline, which operates the largest pipeline system for refined oil products in the United States, caused a two-week fuel supply disruption on the East Coast and subsequent panic buying of gasoline.
 
Cyber hackers are increasingly engaging in attacks that hone in on the basics of daily life in the United States and around the world. By targeting food, gas, transportation, hospitals and water, ransomware attacks are spelling a crisis.
 
Ransomware Beware Ransomware, one of the most prevalent and harmful types of malware (i.e., weaponized software), is a class of hostile computer code that restricts the victim’s access to its network’s files. Using ransomware, attackers pressure victims into paying for the release of the information, demanding payment in the form of digital currencies, such as bitcoin. More recently, hackers have been stealing information and threatening to release or sell it, thus intensifying the coercion victims face to pay a ransom. However, the damage does not stop there. There are myriad risks organizations face when dealing with ransomware attacks:
<ul>
<li>Loss of data</li>
<li>Payments made to hackers</li>
<li>Expensive insurance premiums and payouts</li>
<li>System repair or damage control</li>
<li>Disruptions to business operations</li>
<li>Harm to organizational reputation</li>
<li>Hiring of cyberforensics firms to launch an investigation</li>
<li>Cost of training employees post attack</li>
</ul>
 
A Mounting Threat Those at the forefront of cybersecurity and the security intelligence community have been warning the public and private sectors about the increasing threat of cyberattacks for years. In 2013, the U.S. intelligence community revealed that hostile intelligence agencies in China, Russia, and potentially Iran possess the capabilities necessary to interfere with the U.S. electric grid and distribution of crucial goods and services. In an open memo issued from the White House in early June, the National Security Council’s highest-ranking cybersecurity executive, Anne Neuberger, said, “No company is safe from being targeted by ransomware, regardless of size or location.”
 
As predicted, ransomware attacks have increased three-fold in the past year. Moreover, Cybersecurity Ventures, a prominent publisher and researcher covering the worldwide cyber environment, approximates that the financial costs of ransomware attacks will be 57 times higher in 2021 than they were in 2015. There are several factors contributing to the proliferation of ransomware attacks:
<ul>
<li>High profit margins among companies</li>
<li>Limited criminal ramifications for cyber attackers</li>
<li>Convenience of payments via digital currencies</li>
<li>An expanding supply of targets as organizational systems are becoming more connected, thus enabling remote access</li>
</ul>
 
Action and Inaction When it comes to the priorities of the U.S. Department of Justice (DOJ), the agency has categorized ransomware attacks at the same level as terrorism. The FBI, moreover, is currently investigating around 100 types of ransomware, but there is a collective responsibility to act. The U.S. government has not passed significant cybersecurity legislation in two decades. Recent attacks are primarily targeting the private sector, which operates with minimal federal oversight. At times, corporate executives are not well versed in cybersecurity language and processes, reducing the chance that executives will act on the threats on their own accord.
 
The prevailing viewpoint is that the technology to combat cyberattacks, including ransomware, does exist. What is not always available is the determination and understanding to implement it. However, the public and private sectors cannot protect themselves by simply patching up issues. There must be a major system overhaul to neutralize the attacks.

On May 30, cyber attackers targeted JBS, the largest meat producer in the world. The attack prompted JBS to halt meat processing at all of its US beef processing plants. Read more.

Ransomware Attacks on the Rise

As the Biden Administration outlines its infrastructure plan in greater detail, procurement professionals should stay up-to-date because the plan will create immense opportunities and new risks for procurement managers. Although the final form of Biden’s "Build Back Better” agenda is certain to change if the administration pursues bipartisan negotiations or the Democrats pass the plan without Republican support via budget reconciliation, a monumental overhaul of federal spending and procurement is inevitable.
 
Procurement practices and standards will be directly and indirectly impacted in several key areas, including transportation services, labor costs, construction material sourcing and corporate tax rates.
 
Transportation Sector Massive government spending on transportation and infrastructure will create the most significant investment and support for domestic manufacturing capabilities since World War II:
 
The proposed infrastructure plan will direct about $600 billion dollars toward transportation infrastructure, including highways, roads, bridges, public transit, ports, airports, waterways, the electrical grid, broadband connection and electric vehicle charging stations. Biden’s use of federal procurement and large government contracts will create a significant and overnight surge in demand for domestic manufacturing output, thereby creating market incentives for new suppliers to emerge and new opportunities for local sourcing.
 
The infrastructure plan will also support significant investment in renewable energy technologies in the transportation sector, including solar and wind. To achieve these transportation and domestic manufacturing investments, Biden will update procurement standards through tightened trade loopholes, reduced use of waivers and stringent enforcement of domestic content rules.
 
Rising Labor Costs and Inflation President Biden’s executive order raised the minimum wage to $15 per hour for federal contractors effective January 2022, thus elevating labor costs:
 
Biden also plans to broaden the application and compliance standards for the Davis Beacon Act, which requires employers performing construction for federal contracts to pay laborers a prevailing wage and fringe benefits established by the Department of Labor. The impact of these new wage and benefits standards by the Department of Labor will likely to spill over into the private sector because small, medium and large firms will raise wages to win federal contracts or to compete to attract talent, thereby increasing labor costs for procurement departments.
 
Each trillion dollars invested in infrastructure has the opportunity to create 11 million jobs in our economy over the next decade, according to Georgetown University’s Center of Education and the Workforce. The infrastructure plan will also create a range of new jobs, including building, rehabilitating, and retrofitting housing, commercial buildings, schools, federal buildings and child care facilities.
 
Domestic Construction and Building Materials There will be a surge in demand and flood of investment in American-made steel, cement aggregates, concrete, timber, iron, recycled plastics, copper and other building materials:
 
The Biden administration will leverage billions in federal spending to purchase American steel and other made-in-America products, including $10 billion toward the modernization of federal buildings. However, these lucrative federal contracts will only be awarded to firms that purchase American-made low carbon materials for construction and clean power for federal hospitals and buildings.
 
As demand for American-made construction material increases, prices for key building material inputs will expand. For instance, the American Iron and Steel Institute (AISI), an association of North American steel producers, has signaled that each one billion in funding would require about 50,000 net tons of <a rel="noopener" href="https://www.procurementiq.com/blog/to-build-or-not-to-build-steel-and-lumber-prices-soar-in-the-rebounding-economy/" target="_blank">American-made steel</a>. An overnight surge in demand for American-made products will drive building materials prices higher and create new opportunities for domestic manufacturing investments.
 
Corporate Taxes and New Incentives Procurement departments will need to closely observe changes to the tax code to ensure compliance, mitigate risk and increase value for their firms:
 
Changes to the corporate tax rate and the creation of a global minimum tax will raise the capital to pay for the infrastructure bill while new tax credits will create new incentives to mobilize private capital investment. For instance, the Biden administration is reportedly aiming for a corporate tax rate between 25% and 28%; a tax rate on the lower end of the range would represent substantial compromise to appease Republicans in order to secure funding for the infrastructure bill. Moreover, Biden’s American Jobs Plan introduced a 15% minimum tax on book income and profits of multinational corporations. Procurement professionals will need to adapt to changing tax law by openly disclosing overviews of the various functions performed across the supply chain, thus creating increased visibility for tax authorities into the procurement functions.
 
Corporations and procurement departments will have a range of new opportunities and tax incentives to offset the amount of taxes owed by a taxpayer via new tax credits. For instance, there are proposed investment tax credits to buildout high-voltage capacity power lines, create hydrogen production facilities, retrofit buildings, develop clean energy manufacturing facilities, onshore jobs and close foreign tax credits for fossil fuel companies.
 
Key Takeaways
<ul>
<li>Procurement managers should proactively leverage strong supplier relationships to lock in cost escalation terms for building materials during contract negations before demand and prices rise.</li>
<li>Although the knock-on effect of increasing labor costs by raising federal contractor wages to $15 per hour will pressure labor costs and inflation upward, the creation of new higher paying jobs will take place gradually over the next decade.</li>
<li>The changes to domestic tax rates are aimed at raising revenue to pay for the proposed investments in domestic infrastructure while the global minimum tax is aimed at preventing corporations from offshoring operations to tax havens around the world.</li>
<li>The establishment of a global minimum tax will significantly increase the compliance and financial burden of procurement departments in multinational corporations in the form of value added tax (VAT) registrations, transfer pricing reports, country-by-country reports (CbCR) and social security obligations for business travelers.</li>
</ul>

Biden's proposed American Jobs Plan will utilize federal spending and procurement to reimagine infrastructure and rebuild a new economy, thereby transforming procurement standards.

Biden's Infrastructure Plan Aims to Transform Procurement

Shortages of everything from steel and lumber to tanker truck drivers and computer chips are afflicting the United States as the domestic economy reopens. In the cases of steel and lumber, rebounds in demand since mid-2020 have caught both industries off guard.
 
Steel In May 2021, the price of US benchmark hot-rolled coil steel hit an unprecedented high of $1,519 per ton, up from a low of $447 per ton in 2020.
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/nsrgb4r0/steel_graphic-01.jpg?width=663&amp;height=398" alt="" width="663" height="398">
 
 
Demand for steel is on fire as the economy reopens and vaccination efforts are in full swing. It is demand for steel, rather than tariffs, that has been underpinning soaring steel prices in 2021, says Cleveland-Cliffs CEO, Lourenco Goncalves. Cleveland-Cliffs is the biggest flat-rolled steel company and the largest iron ore pellet manufacturer in North America. As a domestic producer, Goncalves has a lot to gain if the Biden administration upholds tariffs on steel coming from China despite shortages.
 
The Coalition of American Metal Manufacturers and Users has requested that President Biden eliminate these metal tariffs. The coalition argues that if the US government chooses to roll back tariffs, it could eliminate supply limitations to some degree and cause a reduction in steel prices. It is unclear, however, whether new environmental regulations in China will curb China’s steel supply. The country has committed to limiting crude steel production in 2021 to cut emissions. According to Goncalves, investing in US production of steel through Biden’s infrastructure bill is the most effective way to remedy steel shortages.
 
Lumber Random-length lumber futures reached a high of $1,711 per 1,000 board feet (MBF) in May 2021, up from a low of about $252 per MBF in April 2020. Lumber prices have increased by a factor of nearly seven in just over a year.
 
 
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/i15kamyj/sawmill-lumber_graphic-01.jpg?width=698&amp;height=418" alt="" width="698" height="418">
 
 
Sawmills halted lumber production at the onset of the pandemic last spring to prepare for a residential real estate slump. That slump never manifested and now there simply is not adequate lumber to sustain the frenzied housing market. An uptick in existing home renovations and enlargements is also elevating demand for lumber. The origins of this lumber shortage can be traced back to the bursting of the housing bubble in 2008, which resulted in a large number of sawmills going out of business. At the onset of the coronavirus pandemic, sawmills reduced output as they dealt with restrictive health regulations and the possibility of another downturn. When purchases of homes skyrocketed later in 2020, sawmills were unable to adequately reopen capacity. In addition to the low number of sawmills, tariffs on lumber from Canada, a low number of truck drivers to transport lumber and a particularly severe winter in the southern United States restricted production.
 
The lumber shortage is obstructing construction of new homes, impeding renovations and causing dismay for buyers as they discover sky-high housing prices. According to the National Association of Home Builders, rising lumber prices have boosted the average cost of a newly-built single-family house by nearly $36,000. Builders are passing down these additional costs to consumers. In March 2021, the median selling price of existing homes increased by 17.2% to reach the highest price recorded since 1999, when the National Association of Realtors started recording prices. The lumber shortage and price increases are so severe that home builders are reporting that lumber is being stolen from their work sites.
 
Bubble Trouble The US steel production capacity that was idled in the pandemic has since been restored, so some analysts believe that the shortage will resolve and steel prices will correct themselves shortly. However, steel demand could be elevated by a long-lasting economic boom, keeping prices high and necessitating either greater domestic capacity or greater import penetration. When it comes to lumber, industry leaders are anticipating market corrections in the next year and a half as sawmill capacity increases.
 
The rising costs of steel and lumber are creating winners and losers. As the United States looks to fortify infrastructure, it will likely discover that its budget affords the country far less than it did a year ago. Railways, electricity grids and buildings, which are all on the list for Biden’s infrastructure bill, are going to require a lot of raw materials, including steel and lumber. Many believe that current prices are unsustainable, and they’re waiting to see what is going to give.

In May 2021, the price of hot-rolled coil steel hit an unprecedented high. On top of this, lumber prices increased by a factor of nearly 7 in just over a year. What happens next?

To Build or Not to Build: Steel and Lumber Prices Soar in the Rebounding Economy

As baby boomers’ and Gen Xers’ professional influence fades, millennials and Gen Zers are establishing themselves in the workplace and altering procurement processes every step of the way, especially in interactions with vendors.
 Need Recognition Younger generations are both praised and criticized for their tendency to shun the status quo, embracing self-education and independently seeking greater transparency and innovation; such behavior is now making its way into the corporate sphere.
<ul>
<li>Younger procurement professionals are more comfortable defining business needs on their own without the input of sales representatives, disrupting conventional sales discovery processes and forcing sales representatives to creatively demonstrate personalized value.</li>
<li>For millennials and Gen Zers, a modern customer experience defined by vendors’ digital presence and technological savvy is not simply appreciated but expected.</li>
<li>Younger generations care deeply about social and environmental issues, have a soft spot for ethical sourcing and prefer to do business with socially responsible brands.</li>
</ul>
 Vendor Selection Accustomed to being able to swiftly compare goods, services and suppliers online, younger procurement professionals are leveraging technology to streamline the vendor selection process.
<ul>
<li>In response to mounting brand distrust, millennials and Gen Zers first turn to Instagram, Pinterest and Facebook (in that order) when researching vendors, rather than referencing vendor-provided resources.</li>
<li>Younger staff prefer to source from manufacturers over distributors, owing to manufacturers’ increased control over the customer experience and consequent ability to cultivate stronger reputations of excellence.</li>
<li>Younger generations prefer to source from vendors that allow them to spread purchases over a variety of technology channels (e.g., mobile apps, dedicated online portals, emails), whichever is more convenient, contrasting with older generations’ tendency to primarily purchase from company websites.</li>
</ul>
 Negotiation Younger generations’ inclination toward on-demand, efficient communication means they approach vendor negotiations differently than their predecessors.
<ul>
<li>Younger generations are more comfortable than baby boomers and Gen Xers using deals found online as negotiation leverage, whereas older generations are more reliant on insight from company sales reps to determine whether they are getting a good deal.</li>
<li>Due to the widening skills gap between older and younger procurement professionals, the latter group is more likely to require approval for purchases, making them less nimble in negotiations than their predecessors.</li>
<li>The availability of post-purchase support, such as hands-on training and sustainable disposal guidance, can make or break younger professionals’ decisions to work with certain vendors.</li>
<li>Younger staff are unafraid to terminate business relationships after negative interactions and are more likely to switch vendors to obtain more favorable pricing, whereas older generations value brand loyalty and hesitate to end long standing business relationships.</li>
<li>Younger procurement specialists are much more likely to source internationally using expedited shipping, encouraging domestic vendors to be more competitive with foreign providers in terms of price and shipping flexibility.</li>
</ul>
 Generational differences are clearly a driving factor in changing business environments, but many professionals may be wondering exactly how their business strategies should evolve to support younger generations’ procurement and broader business preferences. The following strategies should be key methods of cultivating perceptions of excellence and retaining business from younger buyers:
 
<ol>
<li>Prioritize online reputation management: Social media is at the forefront of younger generations’ purchasing considerations in their personal and professional lives. Scrutinizing your company’s social media channels and establishing a pattern of responsive social media engagement will help curry favor with younger sourcing professionals.</li>
<li>Facilitate online and mobile purchases: Modern professionals rely heavily on industry intelligence and data insights to quickly process information and make informed online purchases. Increasing your company’s investment in data analytics and cloud-based procurement platforms can help close the buyer-seller gap with younger generations.</li>
<li>Reinforce compatibility with ethical sourcing: Corporate social responsibility (CSR) is a priority for younger generations that demonstrate renewed interest in correcting social and environmental shortfalls. Be honest about your company’s social and environmental impacts and provide relevant CSR metrics to help younger buyers quantify where your company resides on the social responsibility spectrum.</li>
</ol>
For those still wondering what to make of evolving generational trends in procurement, keep in mind that satisfying the new generations of procurement professionals will require a new approach.

Younger generations' individual purchasing patterns are unfolding in the procurement space. As baby boomers' and Gen Xers' professional influence fades, a new cohort is emerging.

Generational Purchasing Patterns are Spearheading Procurement’s Evolution

Category managers and procurement professionals are leaving no stone unturned in their search for new category management strategies. Inaccurate data, opaque risk determinations, limited indirect spend visibility and expensive technology solutions are complicating the development of procurement strategy. Procurement professionals should consider using this list of best practices when conducting category management and developing category strategies.
 
Best Practices Checklist Reexamine category definitions and streamline internal spend categories
<ul>
<li>Managers should use standard classification systems to reorganize broad areas of spend into a specific spend taxonomy, including consolidating existing categories and category definitions to streamline the total number of <a rel="noopener" href="https://www.procurementiq.com/category-list/" target="_blank">categories under management</a>.</li>
<li>Common standard coding systems managers can use to establish procurement taxonomies include National Institute of Governmental Purchasing (NIGP) Commodity/Services Code, North American Industry Classification System (NAICS) and Harmonized System (HS).</li>
</ul>
 Increase data and analytics visibility across key spend categories
<ul>
<li>Procurement managers should engage internal stakeholders and create analytics dashboards with <a rel="noopener" href="https://www.procurementiq.com/blog/company-reports-to-the-rescue-four-uses-for-supplier-data-in-procurement/" target="_blank">data collected from suppliers</a> and across the firm. Managers can leverage data generated from accounts payable, contracts registers, annual budgets, general ledgers, procurement cards (P-Cards), enterprise resource planning (ERP) software and invoices. Managers should track category-specific benchmarks and <a rel="noopener" href="https://www.procurementiq.com/blog/the-proof-is-in-the-payback-5-kpis-to-keep-procurement-departments-on-track/" target="_blank">key performance indicators (KPIs)</a> at regular intervals, including: the total value of spend per category, the number of suppliers in each category, procurement cost savings, procurement return on investment (ROI), average payment terms per category, supplier quality rating and the rate of emergency purchases.</li>
<li>Managers should build out data analytics dashboards in high-spend categories with few analytical metrics to improve category-specific monitoring. Additional data analytics and monitoring will help managers mitigate maverick spending (i.e. spending that breaks internal procedures and purchasing terms).</li>
</ul>
 Allocate indirect spend category management to one manager
<ul>
<li>Indirect spend is the procurement of goods and services not directly related to manufacturing.</li>
<li>Procurement managers should streamline their purchase order systems to drive better purchasing processes, improve controls on small one-off purchases and prevent maverick spending.</li>
<li>Common categories of indirect spending that should be placed under management include travel, facilities, office supplies, marketing, professional services and IT.</li>
</ul>
 Consider contract renegotiation in high-spend categories
<ul>
<li>Leverage relationships with key suppliers that account for high spend in order to <a rel="noopener" href="https://www.procurementiq.com/blog/negotiating-a-win-in-difficult-markets/" target="_blank">negotiate more favorable terms</a> and avoid costs. Managers should aim to renegotiate where buyer power is strongest. (Managers should reference ProcurementIQ’s Buyer Power Score.)
<ul>
<li>A high level of spend in one category (e.g. IT) does not always cleanly translate into greater savings potential in that category. Other market realities, such as rising input costs and high market concentration, may inhibit the firm from negotiating lower costs in that category.</li>
</ul>
</li>
<li>Successful contract renegotiation requires rapid access to contract terms, contract renewal dates and spend analytics. Moreover, renegotiation calls for solid relationships with key budget owners that are ready to reduce spend and support savings goals.</li>
</ul>
 
Category managers with high exposure to tariff risks should conduct an HS code audit
<ul>
<li>Category managers with high exposure to tariffs and international trade risks should audit their product codes to mitigate non-compliance penalties and unnecessary tariff duties.</li>
<li>Managers should aim to strike a balance between using a select few HS codes across a larger number of stock-keeping units (SKUs) and using granular, item-specific codes.
<ul>
<li>Firms that rely on a few broad HS codes typically face higher tariff rates because those goods are more likely to fall under a code that triggers a duty collection.</li>
<li>Firms that rely on many granular HS codes for each item expose the firm to higher annual maintenance costs because trade consulting services are expensive and it is time-consuming to cross-check internal codes against new international standards and tariffs.</li>
</ul>
</li>
</ul>
 
<img src="https://content.ibisworld.com/media/ccmlfpig/category-family-procurementiq.png?width=691&amp;height=188" alt="" width="691" height="188">
 
 Incorporate risk assessments and market intelligence into category management
<ul>
<li>Procurement managers should engage <a rel="noopener" href="https://www.procurementiq.com/blog/boost-procurement-value-proposition-with-market-intelligence/" target="_blank">market intelligence</a> in early stages of category planning to proactively identify potential bottlenecks in category strategy implementation.</li>
<li>Procurement managers should use digital tools to maximize visibility throughout the supply chain and leverage market intelligence data from internal and external sources.</li>
<li>Managers should create scalable scorecards to track the following sources of risk across each spend category: supply risk, market risk, delivery risk, compliance risk, vendor risk, contract risk and financial risk.</li>
</ul>
Key Takeaways
<ul>
<li>Category management is a continuous process that requires the participation of different firm stakeholders across business units throughout the procurement lifecycle, from early strategy development to the final supplier management.</li>
<li>Category management can create a host of benefits for a firm, including cost savings, better supplier relationships, improved client satisfaction, shorter lead times and faster strategy implementation.</li>
<li>The growing number of <a rel="noopener" href="https://www.procurementiq.com/blog/technologies-shaping-the-future-of-procurement/" target="_blank">technology solutions</a> in the procurement space, such as Source-to-Contract and Procure-to-Pay software, has created immense opportunity to automate and capture important information across the entire supply chain.</li>
<li>Technology in the market does not always equate to streamlined processes; therefore, managers should take their time evaluating potential technologies or be prepared to face the risk of high software license costs, onerous implementation processes and IT issues that take away resources from procurement rather than adding to procurement.</li>
</ul>

Procurement professionals should consider using this list of best practices when conducting category management and developing category strategies.

Procurement and Category Management Best Practices in 2021

Many offices are welcoming employees back to in-person settings, but not without challenges. To facilitate a smooth shift from remote work to in-office work, ProcurementIQ has put together this forward-looking <a href="https://content.ibisworld.com/media/gplpgzxc/back-to-work-guide-the-office-of-the-future.pdf">guide</a> that highlights the following concerns:
 
<ul>
<li>The office no longer meets stakeholder’s needs</li>
<li>Employees do not feel safe or comfortable coming back</li>
<li>Our company culture has changed</li>
<li>COVID-19 cases are rising outside the United States</li>
</ul>
 
We offer data-driven responses to each of these issues and point out the furniture, health and safety, equipment and security solutions offices should consider in their post-COVID-19 work plans.
 
<a href="https://content.ibisworld.com/media/gplpgzxc/back-to-work-guide-the-office-of-the-future.pdf">Read the full report</a>

Office operations have changed immensely since the start of the pandemic and a sudden return to the old ways seems unlikely. Reimagine your work environment to support your staff.

Back to Work Guide: The Office of the Future

Fear surrounding rising inflation is all everyone can talk about, and they have a point: If inflation continues to place upward pressure on wages, how does our organization strategically navigate this environment of increasing costs?
 
Wage costs are increasing as a share of revenue (due to a multitude of reasons discussed below), thus hurting profit margins and driving product and service prices higher. Furthermore, wage increases are sticky, meaning wages can easily increase, but wage decreases are less likely; this is having a direct impact on employee expectations because employees assume bigger raises are right around the corner. Buyers and investors alike are focused on whether rising wages and other costs are squeezing profitability, thereby suggesting a build-up of inflation in the economy. However, the impact is uneven and depends on the labor market, the size of an organization and the type of relationship with a supplier.
 
Here is what organizations should be thinking about when navigating potential wage increases and rising supplier costs:
 
The buyer should determine what is driving their supplier’s wage increases
Strong demand for new hires: Demand for service workers is recovering faster than supply, and employers are having to pay more to lure workers. For instance, non-managerial wages grew 1.5% in February and March of 2021, respectively—the single-largest jump in wages for leisure and hospitality workers since 1981. In addition, the Institute of Supply Management’s index of national factory activity reached a 37-year high in March of 2021. Because employers are all hiring at once and some of the labor market has been displaced during the pandemic, strong demand for labor is driving an uptick in wages.
 
Minimum wage increases: About 20 states raised their minimum wage as of January 2021, thus increasing the stickiness of wages as policy changes reaffirm employee expectations of future wage increases. These minimum wage increases are also spilling over into higher product and service prices. For instance, economists have found that a minimum wage increase of 10.0% between 2016 and 2020 at McDonald’s franchise locations resulted in an approximate 1.4% increase in the price of a Big Mac. Renewed focus on a nationwide $15 minimum wage and looming changes to state wages will continue to increase the stickiness of wages as employees come to expect additional wage increases in the near future.
 
Private sector wage bumps: In 2020 during the COVID-19 (coronavirus) pandemic, about 40 of the nation’s top employers across almost every industry raised employee wages or offered cash bonuses, including Kroger, CVS Health, Walmart, Bank of America, Comcast, Target, JP Morgan, Yum! Brands, Campbell Soup Company, Facebook and Amazon. These wage bumps are noteworthy because salary increases at one large employment facility directly impacts the wages of other workers in that area. For Instance, researchers at University of California Berkley determined that a 20% increase in Amazon wages resulted in a 4.7% spike in average hourly wages for other local employers due to strong competition for talent. Therefore, wage increases during the pandemic may accelerate momentum around additional price hikes as the economy heats up, vaccines are rolled out and demand for labor rises.
 
Tight supply of labor: Pent-up hiring during the pandemic and labor shortages in key industries will lead to significant wage inflation for skilled labor and workers with niche skills. Although unemployment remains high compared to 2019, the labor market is relatively constrained because some employees lack the right skills for new positions, while others do not want to change occupations. Additionally, some may not be looking for work because of child care responsibilities and are discouraged about their job prospects or prefer collecting unemployment insurance over earning wages. Industries most impacted by labor shortages that are already showing signs of wage inflation include agriculture, forestry, healthcare, mining, professional business services, manufacturing, computer systems design, construction, electrical engineering, software publishing, industrial equipment repair and maintenance, education and office administrative services.
 
Interest rates: There is an indirect link between changes in interest rates and wages because interest rates impact the pace of economic growth and corporate profit. Higher interest rates increase the cost of borrowing, which spurs businesses to decrease spending in favor of saving and spending in the future when interest payments are lower. Consumers also cut back on spending as credit card payments rise, further slowing economic activity. Elevated interest expenses and weak economic activity also result in lower corporate profitability. Therefore, organizations are generally less willing to raise nominal wages (i.e., pay rates adjusted for inflation) in low-profit environments.
 
Trade risks and expanding commodity prices: Pandemic-related logistics disruptions (i.e., higher shipping rates) and strong demand for commodities (i.e., higher raw material costs) are also driving up supplier costs and contributing to inflation in 2021. For instance, imported petroleum prices rose 6.7% in March of 2021 after jumping 11.7% in February, while the cost of imported food shot up 2.0%. Rising raw material prices are hurting supplier profit margins, which is further pressuring organizations to raise prices.
 
Key Takeaway:
<ul>
<li>There is no single dominant factor driving inflation. Inflation is running well above the Federal Reserve’s target rate of 2.0% due to confluence of a strong snapback in demand for labor, soaring commodity prices, a red-hot stock market, economic stimulus and changes to the tax code.</li>
</ul>
 
Buyers should ask themselves: What kind of relationship do I have with this supplier? Buyers must utilize their best judgment when selecting the classification for the supplier relationship because there may be an overlap between the quadrants (shown below). A buyer should make this decision based on the value of the product or service being procured. A buyer must then determine their relative risk when purchasing the product or service. Overall, if a factor (e.g., market share concentration, supply chain risk, vendor financial risk, regulation and other key risk factors) reduces buyer leverage, then the risk level increases.
 
Key Takeaway:
<ul>
<li>Defining the type of buyer-supplier relationship is an important starting point to creating a successful negotiation strategy because each relationship type requires buyers to utilize a different style of communication and approach in supplier relationship management. For instance, applying hardball tactics in collaborative buyer-supplier relationships typically undermines the supplier’s trust and complicates negotiations.</li>
</ul>
 
 
<img src="https://content.ibisworld.com/media/gjmlavzb/buyer-relationship-matrix.jpg?width=583&amp;height=293" alt="" width="583" height="293">
 
Buyers should examine price-specific leverage points. Price elasticity matters! When dealing with rising supplier costs, it is important to look at the product or service’s price elasticity:
Elastic products are easily substitutable (e.g., low-value, low-risk products or services). The buyer and the supplier aim to execute the sale at the lowest cost and with minimal time commitment. Buyers’ typical response to price increases of elastic products is to say no and to leverage a cheaper alternative to bring down prices. Suppliers typically do not have the pricing power to raise prices due to the large number of substitutes; suppliers usually absorb the price increase or risk losing business. Examples of elastic products and services include consumer durables or packaging, paper bags, carpet installation, window cleaning services and janitorial services.
 
Key Takeaway:
<ul>
<li>Buyers should prioritize cost savings and leverage substitutes to negotiate lower prices when negotiating elastic products.</li>
</ul>
 
Inelastic products are difficult to substitute (e.g., high-value, high-risk products or services). Buyers are challenged by high-value products and services due to the limited availability of substitutes, moderate level of specialization, high market share concentration and a limited number of suppliers. In this instance, suppliers typically pass the price increase on to buyers at the risk of suffering a lower volume of sales. Buyers’ typical response to price increases of inelastic products is to pay higher prices as there are no alternatives. Example of inelastic products and services include drilling fluids, engineering services, construction, maintenance and repair operations and demolition services.
 
Key Takeaway:
<ul>
<li>Buyers must prioritize negotiating better contract terms over cost reduction because they have fewer substitutes to leverage for lower prices. Buyers should negotiate additional key performance indicators (KPIs) and service level agreements (SLAs) directly into the contracts (e.g., customer service agreements, price escalations, quality metrics, additional service add-ons, future system upgrades, warranties, renegotiation breakpoints, payment terms, etc.). Buyers may consider pooling internal spend categories or forming a purchasing consortium to gain negotiation leverage in collaborative relationships.</li>
</ul>
 
Buyers must decide whether to take a supplier-centric approach, play hardball or deploy a little bit of both.
Whatever strategy the buyer deploys is likely to have lasting effects on the buyer-supplier relationship. Therefore, buyers should outline their ideal negotiation points and potential concessions in order to establish a clear strategy and tone of the negotiation. It is important that buyers do not switch between tactics without an underlying strategy. Buyers should determine their procurement strategy by assessing the type of relationship with the supplier, the negotiation power relative to price elasticity, the size of spend and other market-specific trends impacting negations.
 
Taking a supplier-centric approach: Strategies to foster innovative thinking with suppliers Buyers typically want to take a supplier-centric approach to negotiations in negotiated and collaborative supplier relationships, when the product or service is inelastic (i.e., difficult to substitute) and the size of internal spend is high. In addition, buyers and suppliers must work hand in hand to ensure a mutually beneficial relationship. Buyers should be willing to compromise on cost to minimize supply disruptions for the product or service and gain contract concessions elsewhere. Any deviation from a buyer’s standard contract or negotiation process should be thoroughly explained to the supplier in writing, over the phone or in-person. Otherwise, a supplier will likely lose trust and is unlikely to understand strategic objectives when buyer processes unexpectedly change, which further complicates negotiations and can inhibit buyer leverage.
<ul>
<li>Propose new value to your supplier: Buyers should identify new market opportunities for that supplier in order to gain price concessions (i.e., find emerging markets and offer to help that supplier get a foot hold in a new market.) A buyer might leverage the introduction of the supplier’s products or services into a new market in exchange for a price reduction.</li>
<li>Consolidate or bundle purchase orders: Buyers should consider consolidating internal spend categories to leverage the total amount of spend and negotiate price cuts, service level agreements or other contract terms. Buyers may also consider consolidating purchases with a single supplier to increase negotiation leverage. Offer to reduce supplier risks: Engage in a constructive conversation with the supplier about supplier risk (i.e., volatile commodity prices, regulatory compliance and financial risk). Buyers should collaborate with the supplier to mitigate risk and create more predictable revenue streams via locking in rates through a long-term contract or agreeing to contract price escalations. Often, suppliers are willing to give a discount today to lock in revenue down the line.</li>
<li>Increase purchase visibility and trust with suppliers: A company should break down what inputs are core to their business and also have a high-risk exposure to price hikes. In negotiations with a trusted supplier, buyers should increase transparency with the supplier to highlight the negative impact of blindly assuming a price increase in a key area of spend. Honest explanations and clear market rationales behind the impact of a price increase often open a new door for the supplier to split price increases or renegotiate other contract terms.</li>
<li>Bargain in good faith: Buyers should avoid dominating negotiations and instead aim to reach mutually acceptable collective agreements. In addition, buyers should avoid unjustified delays, respect agreements and provide ample time to discuss and settle collective disputes. In instances where a dispute is unresolved, dispute settlement procedures are deployed, ranging from conciliation through mediation to arbitration.</li>
<li>Increase competition via technology e-Auctions: A buyer may consider leveraging technology investments and access to online e-procurement (i.e., e-auction) marketplaces to pressure existing suppliers to compete with new suppliers on things like price, quality, environmental impact and plans for innovation and new products. Additional competition in the form of e-auctions may pressure existing suppliers to compete against smaller niche suppliers and offer additional concessions.</li>
</ul>
 
Key Takeaway:
<ul>
<li>Engaging in a collaborative process and bargaining in good faith ensures that the outcomes of the negotiation are perceived as fair and are more equitable than those reached through individual bargaining or unilateral contracting. This has positive benefits for enterprises in terms of supplier engagement, worker commitment, stability and productivity.</li>
</ul>
 
Playing Hardball: Strategies to foster innovative thinking with suppliers Buyers typically want to play hardball in transactional and leveraged supplier relationships, when the product or service is elastic (i.e., easy to substitute) and the size of spend is high. Buyers should aggressively leverage their power in the marketplace during negotiations with suppliers to secure the best deal possible. In addition, buyers should execute these purchases at the lowest cost and with the least time commitment or go to another provider.
 
<ul>
<li>Reduce spend and purchase volume with the supplier: The threat of shifting spend volume away from a large supplier by switching to a lower-cost substitute can pressure suppliers to reduce prices.</li>
<li>Create a new supplier: Buyers may consider creating an entirely new supply source and investing in a supplier in an adjacent industry to elevate market competition and avoid the dominant suppliers in the market. For instance, a large buyer may try to entice a European supplier to expand into the US market to avoid powerful domestic suppliers.</li>
<li>Vertically integrate: Buyers may consider making themselves the new supplier by investing in new strategic partnerships and assets to bring the product or service in-house and eliminate the reliance on less predictable suppliers.</li>
<li>Tighten deadlines and raise penalties: Consider using the “stick,” or punishing suppliers for not meeting the KPIs and SLAs established in the contracts, and pressure the supplier to improve quality, adopt technology and reduce costs.</li>
<li>Cancel all existing and future orders: Buyers may consider contacting the supplier’s CEO to suspend all projects and eliminate access to the buyer’s payment system, leveraging the loss of existing and upcoming projects to cut costs.</li>
<li>Threaten litigation with the supplier: Buyers negotiating against very powerful suppliers may consider teaming up with other buyers in the market and threaten to bring the matter to the national authorities responsible for regulating monopolies.</li>
</ul>
 
Key Takeaway:
<ul>
<li>Companies that play “hardball” utilize every legitimate resource and strategy available to them to gain an advantage over their competitors and bring about fundamental change to an industry, put competitors into a reactive position, cause suppliers to make adjustments and deliver expanding value to customers. However, hardball tactics can fundamentally undermine trust in a supplier relationship, result in the loss or a partnership and establish a public reputation for cutthroat business tactics</li>
</ul>

ProcurementIQ does a deep dive into what organizations should be thinking about when navigating potential wage increases and rising supplier costs.

Philosophies of Supplier Partnerships: What To Do With Rising Supplier Costs

Consumers are increasingly embracing sustainability as a value, often looking beyond product quality to determine the extent to which a brand’s environmental and social values align with their own. This is good news for businesses that not only advocate sustainability, but follow through.
 
Implementing sustainability initiatives at scale does come with significant initial costs. However, the costs of not going through with such transitions may be even greater; <a rel="noopener" href="https://www.cdp.net/en/info/about-us" target="_blank">CDP</a> estimates that environmental risks, impacts and consequent regulatory changes will cost companies up to $120 billion during the next five years.
 
The largest environmental risks and cost savings opportunities stem from the supply chain, not the value chain, though both are important. To retain market share, businesses need to create more sustainable practices across the board, from sourcing to production to point of sale to point of disposal and beyond.
 
Given procurement’s role in informing and validating an organization’s competitive strategy, the bulk of the challenge when developing sustainable initiatives falls on procurement leaders. Keeping in mind that procurement departments are historically underfunded and underutilized, an unsurprising 35% of businesses have yet to enact formal sustainability goals and initiatives.
 
Here’s how procurement leaders can take action:
 1. Outline sustainable and ethical sourcing criteria Prepare a list of requirements that upstream suppliers must meet in order for your organization to fulfill its own sustainability goals. Metrics should be standardized, specific and actionable; the <a rel="noopener" href="https://www.globalreporting.org/standards/" target="_blank">Global Reporting Initiative’s (GRI) Standards</a> are a good place to start.
 
2. Enforce sustainability reporting for upstream suppliers Referencing your organization’s sourcing criteria, ask new and existing suppliers to disclose the required sustainability data. Consider embedding sustainability data into the procurement process, as Unilever, a multinational consumer goods company, does by collecting carbon declarations for each incoming invoice.
 
3. Categorize upstream suppliers by impact or risk levels Although spend analysis is a foundational form of procurement analytics, segmenting suppliers by spend shifts the focus away from sustainability and can obscure the worst environmental offenders. Instead, try prioritizing suppliers based on their environmental impact or the level of environmental risk they pose to your operations.
 
4. Encourage upstream suppliers to be more sustainable Remind upstream suppliers of your organization’s sustainability goals and urge them to minimize their own environmental impact. Consider allocating resources to help them develop these capabilities, if needed, and track suppliers’ performance to evaluate their ongoing compatibility with the defined sourcing criteria. For example, Adidas monitors its suppliers’ monthly emissions and issues individual emissions reduction plans based on each supplier’s energy sources and average energy efficiency.
 
5. Suspend relationships with suppliers that perform poorly Depending on the urgency and priority level of your organization’s sustainability initiatives, consider temporarily or permanently suspending relationships with suppliers that fail to meet baseline environmental performance metrics. Target, for instance, regularly verifies that its suppliers are actively minimizing their carbon footprint and ceases working with those that aren’t.
 
6. Invest in self-sustaining supply chains Reduce, reuse, recycle: The three tenets of environmentally responsible behavior apply not just to consumers but to businesses as well. The three R’s are taking on new meaning as closed-loop supply chains that minimize and reuse waste whenever possible become the new norm. It doesn’t hurt that source reduction is considered the most likely environmental initiative to have an immediate and pronounced financial payoff.
 
7. Take restorative and regenerative action Whereas financial benefits are an obvious target when investing in sustainable supply chains, business value can be created through sustainable investment further down the value chain. For example, Walmart diverts unsold products and packaging from landfills and incineration facilities; Amazon maintains a multibillion-dollar fund to innovate against climate change; and L’Oréal drops vendors linked to deforestation. Because value chain investments often solicit greater consumer awareness, such efforts can contribute to a sustainable competitive advantage in lieu of providing direct financial benefits.
 
8. Collaborate with third-party environmental groups No path toward sustainable operations is free of hidden obstacles and costs. To maximize impact and resource efficiency, consider collaborating with environmental NGOs, membership organizations, category-focused responsible sourcing groups, technology vendors and other like-minded organizations. The <a rel="noopener" href="https://smeclimatehub.org/about-us/" target="_blank">SME Climate Hub</a>, for instance, provides tools and resources to support small and midsize businesses in halving greenhouse emissions before 2030.
 
Ultimately, the long-term cost advantages and public favor gained by committing to sustainability are driving businesses to invest. The most successful sustainability initiatives, though, require all parties to have a vested interest in preserving and improving the health of the environment. Consumers are on board and soliciting business owners’ attention; the next phase of the sustainability wave requires businesses to adopt responsible sourcing and ensure that upstream suppliers are just as committed to disclosing, measuring and acting on their environmental obligations. Some motivation, on behalf of Unilever CEO Alan Jope: Sustainable practices save money.

Supply chain professionals must prioritize sustainability initiatives to retain market share in the long term. Find out which steps you can take toward responsible sourcing.

8 Action Steps for Sustainable Supply Chain Investment

As the unemployment rate slowly stabilizes through 2021 alongside the COVID-19 (coronavirus) vaccine rollout, several major problems will remain in the labor market. Whether your organization relies on temporary, contracted, part-time or full-time labor, disruption in the labor market will continue to drive the cost of hiring upward and negatively impact your organization’s bottom-line. Companies that start reevaluating their hiring practices while keeping labor market issues at the top of mind will be better equipped to tackle disruptions in the labor market.
 
Temporary labor is expanding More organizations are adopting contingent workers—those who do not have an explicit contract for ongoing employment—because organizations can realize cost savings by employing temporary workers. Although contingent workers are often leased through temporary staffing agencies that charge markup fees of 25.0% to 100.0%, employers can avoid the high costs associated with employee benefits when employing temporary workers, including health insurance, social security, unemployment contributions, vacations and holidays. However, the growing use of temporary, contracted or gig workers has some downsides. For instance, temporary workers are susceptible to attrition and high turnover due to the lack of long-term benefits offered by the employer, which has the potential to create inefficiencies and knowledge gaps and can also increase an employer’s training costs.
 
In 2021, demand for temporary labor from healthcare, e-commerce, information technology, food processing and logistics will continue to expand. However, demand for workers in hospitality, catering and other service-related work will be tempered by limited travel, occupancy restrictions and temporary closures. Notably, the pandemic has increased the talent pool of remote workers via online marketplaces, such as Freelancer.com. Procurement departments should prioritize negotiating favorable terms in the temporary labor market over reducing staffing agency fees. For instance, organizations should consider negotiating more rigorous tenure limits for part time workers, emphasize temporary-to-permanent worker conversion in critical roles, update remote on-boarding processes and implement risk mitigation safeguards around intellectual property and sensitive employee data.
 
Attrition is accelerating The attrition rate in the labor market represents the share of jobs that were lost to voluntary employee resignations and were not replaced by the employer. Voluntary turnover has plagued organizations as access to new job opportunities via social media has proliferated. Attrition has significant costs for an organization, including the loss of high-skilled workers, increased training costs for remaining workers, loss of staff morale and potentially new recruiting costs. In other words, employee retention is critical in an economic downturn because as organizations freeze hiring efforts, those that retain quality employees are able to mitigate the direct and indirect costs of attrition.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/0mlpvhxi/labor-market-bar-chart.jpg?width=599&amp;height=361" alt="" width="599" height="361">
 
<ul>
<li>The average annual attrition rate is the ratio of job “quits” to the average number of employees in the five-year period between January 2016 and January 2021.</li>
<li>Quits are defined by the BLS as employees who left their job voluntarily. This excludes transfers to other locations, layoffs and discharges.</li>
</ul>
In addition, baby boomer labor market participants are leaving the labor market at an accelerated pace as many workers have struggled to find work or have opted for early retirement during the pandemic. Among workers aged 40 to 65 who said they lost a job in 2020, 74.0% reported being out of work for more than six months. As a result, skilled baby boomer workers are dropping out of the labor market at an increasing rate. The Bureau of Labor Statistics has also reported that 4 million people have stopped working completely during the pandemic. Although these job losses are not reflected in monthly unemployment data, attrition of the high-skilled baby boomer workforce directly impacts organizations in the form of widening skills gaps, rising educational costs for employees and a vacuum of senior stakeholders.
 
Labor shortages are occurring in some markets Companies that employ blue-collar workers are more affected by labor shortages compared to those that mostly employ white-collar workers. Although there are skilled labor shortages in information technology (IT) and in higher education, growing shortages of blue-collar workers is creating significant headaches for hiring managers. There is a mounting <a rel="noopener" href="https://www.procurementiq.com/blog/coming-up-short-managing-skilled-labor-shortages/" target="_blank">shortage of labor</a> in several markets, including construction, unskilled tradesmen, agricultural, nurses, electricians, food and beverage distribution and shipping and transportation. As the Baby Boomer generation continues to retire at an accelerating pace, an estimated 62.0% of maintenance and repair firms in 2021 are currently struggling to replace the vacated skilled trade positions. In another example, an estimated 10,000 electricians are retiring annually while only 7,000 new electricians join the field, according to the Bureau of Labor Statistics (BLS) and the National Electrical Contractors Association (NECA).
 
Beyond the exit of the baby boomer generation from the labor market, rising educational costs and changing cultural sentiment that negatively perceives blue-collar factory work pose significant hurdles to expanding the availability of trained laborers. In addition, declines in community college enrollment and trade school membership has dampened the labor market outlook through 2024. The widening shortage of workers is expected to exert upward pressure on average wages as employers are pressured to attract new workers. Organizations that rely on skilled tradespeople and low-skilled labor should look to forge community partnerships with local chambers of commerce, universities, trade colleges, high schools and vocational schools to raise awareness of employment and salary-growth opportunities.
 
Labor market inequality is widening Lower-wage, older, young, female and minority workers are disproportionately displaced in the labor market in 2021. These demographics tend to hold a greater share of blue collar and service-industry positions, which have been heavily impacted by pandemic-related shutdowns. Amid the dramatic job losses since the start of the pandemic, laborers employed in hospitality, construction, manufacturing, other personal services or self-employed are subject to higher unemployment rates compared to other occupations. For instance, women's labor force participation rate hit a 33-year low in January 2021.
 
Although the unemployment rate is on track to continue to stabilize through 2021, minority groups are expected to suffer disproportionately higher rates and extended periods of unemployment. Inequality in the labor market creates a host of challenges for the broader economy because long-term unemployment lowers employability, reduces the likelihood a worker can find a job in the future and elevates the probability the worker becomes ill or isolated, exacerbating worker shortages. Many organizations are emphasizing diversity, equity and inclusion at the corporate level in the context of ongoing civil rights discussions. Businesses can implement new equitable standards during initial hiring and throughout all other stages of employee management and development, folding the spirit of <a rel="noopener" href="https://www.procurementiq.com/blog/workplace-diversity-spotlight-building-supporting-a-diverse-workforce/" target="_blank">diversity and inclusion</a> into the core values of the organization. Procurement managers that engage diversity, equity and inclusion practices at the earliest stages of procurement efforts are more likely to reach their diversity and inclusion goals and even financially outperform their less diverse competitors.
 
<ul>
<li>Key Takeaways: Organizations that develop reward structures, such as using cost reduction discoveries towards employee bonuses, can avoid the high costs associated with labor market attrition.</li>
<li>Labor unions are on the rise as worker benefits have been reduced alongside the growing share of temporary workers employed in the labor market. For example, union membership rate was up to 10.8% in 2020 from 10.3% the prior year.</li>
<li>Procurement professionals should seek to shift their contracting approach, with an emphasis on renegotiating temporary labor contracts to lock in favorable terms rather than focus on cutting staffing agency markup rates.</li>
<li>A shortage of skilled tradespeople and unskilled labor will make it more difficult to find labor, which will drive up average wages as enrollment in community colleges, trade schools and other vocational training programs continues to decline.</li>
<li>Worsening inequality in the labor market for women, minorities and older generations must be combatted in the form of proactive diversity standards. Organizations that achieve diversity goals, such as diverse hiring and promotion rates, benefit from additional competitive advantages, including high levels of innovation and a better understanding of customer demographics.</li>
</ul>

In 2021, demand for temporary labor from healthcare, e-commerce, information technology, food processing and logistics will continue to expand.

Procurement and the Labor Market in 2021

Last week, the Ever Given, one of the world’s largest container ships, was freed after becoming lodged in Egypt’s Suez Canal for six days. Around 12% of global trade flows through the Suez Canal, including about 7% of the world’s oil, making it one of the busiest waterways for international trade. In fact, according to the longstanding shipping journal Lloyd’s List, more than $9 billion worth of goods pass through the 120-mile waterway each day, equaling about $400 million per hour. Ships like the Ever Given can hold up to 20,000 containers, carrying everything from consumer products to cars and oil.
 
In the age of efficiency and low-cost goods, ships have become increasingly large in order to increase economies of scale and minimize the cost of distribution. However, not all ports can support 1,300-foot vessels like the Ever Given. Thus, our trade systems and routes are becoming more and more concentrated. During its six-day obstruction, the Ever Given blocked more than 350 vessels from passing through the canal, causing overcrowding at ports and delayed shipping schedules. In other words, this event has further undermined supply chains, which have already been struggling due to the COVID-19 (coronavirus) pandemic.
 
Shortages &amp; Delays: What to Expect The pandemic gave global supply chains a shock last year when commerce was disrupted amidst coronavirus outbreaks in China, which is known as the world’s factory. The Suez Canal disruption is less dramatic and unlikely to disturb the economic growth that is projected for this year. However, according to William Lee, chief economist at the <a rel="noopener" href="https://milkeninstitute.org/" target="_blank">Milken Institute</a>, the blockage is another wake-up call for companies that have designed their business to rely heavily on global supply chains with little room for error.
 
“This is a warning about how vulnerable our supply chains are and how the just-in-time inventory techniques that have been so popular have to be rethought,” Lee said.
 
In other words, the world runs a tight ship when it comes to trade. As a result, there are bound to be repercussions when a delay of this size occurs. For instance, when containers arrive late at their destinations, shipping costs are likely to surge, resulting in price increases that ultimately filter down to buyers. To avoid the Suez Canal pileup, some shipping companies, including the global German shipper Hapag-Lloyd, decided to reroute around the Cape of Good Hope in South Africa. The solution is less than ideal, however, because it increases sailing time by at least a week, which leads to higher fuel costs.
 
The incident also strains the shortage of shipping containers in Asia, which means retailers may be late getting certain goods such as TVs, furniture, clothes, auto parts and other popular items shipped by containers. The semiconductor industry, Lee points out, is also shortage prone, making it particularly susceptible to shipping delays.
 
Experts Disagree on US Resiliency Despite the unarguable ramifications on global trade, experts disagree on the extent to which the blockage will affect U.S. consumers. Stephen Flynn, a professor of political science at Northeastern University, stated, “The disruption . . . is going to continue to have cascading effects . . . it’s got to be at least 60 days before things get sorted out and appear to be back to normal.”
 
Flynn, who is also founding director at the <a rel="noopener" href="https://globalresilience.northeastern.edu/" target="_blank">Global Resilience Institute</a>, agrees that this is one of the challenges of a just-in-time system. “It’s never been stressed this badly before, and it’s going to take a really long time, and they’re just beginning the process of sorting it out . . . you’ve essentially created this traffic jam that doesn’t allow you just to reset and restart—you have to restack and reset the system, and that’s something that’s going to take a lot of choreography,” Flynn said.
 
Conversely, Jeffrey Bergstrand, professor of finance at the University of Notre Dame’s Mendoza College of Business, says that the incident “will have only a minor and transitory effect on prices of imported goods. Since most of the imports blocked over the last week are heading to Europe, U.S. consumers will likely see little effect on prices of U.S. imports, except to the extent that intermediate products of U.S. final goods are made in Europe.”
 
Flynn, on the other hand, said that prices in the U.S. will “almost certainly” rise due to the world’s interconnected supply chains.
 
One thing is certain: It’s been a year of supply chain lessons. The pandemic revealed a lot of weaknesses that are still being straightened out, and the incident at the Suez Canal is yet another string unraveled. It’s clear that companies need to continue prioritizing resilience, even if that comes at the expense of efficiency.
 
To learn more about creating resilient supply chains, check out the following article in ProcurementIQ’s archive:
<a rel="noopener" href="https://www.procurementiq.com/blog/supply-chain-lessons-learned-from-the-coronavirus/" target="_blank">Supply Chain Lessons Learned from the Coronavirus</a>

The Ever Given, one of the world's largest container ships, was freed after being lodged in Egypt's Suez Canal for six days. The blockage posed serious challenges to supply chains.

Suez Canal Crash Further Destabilizes Global Supply Chains

Almost every key automaker is ramping down production and furloughing employees amid a global semiconductor (chip) shortage, which is causing a bottleneck in the automotive supply chain. Ford, General Motors, Mazda, Nissan, Subaru, Toyota and Volkswagen have announced that they are reducing vehicle output in Q1 of 2021 due to the current difficulty of obtaining chips.
 The Backstory The automobile industry faced widespread factory closures in the spring of 2020 due to the spread of COVID-19 (coronavirus). While production was on pause, automotive companies required fewer semiconductors, which are necessary inputs of any computer system. Semiconductors are instrumental in automotive manufacturing to enable driver assistance capabilities, power windows, navigation, engine control and safety features, such as tire pressure alerts and collision warnings.
 
When automobile manufacturers paused production, upstream semiconductor manufacturers limited their output of chips. Vehicle manufacturing picked up again at the end of 2020, and upstream chip providers boosted production as well, but not enough to satisfy the automotive industry’s unexpected uptick in demand. Shortages are primarily impacting the supply of microcontrollers, which are a type of semiconductor consisting of a processor and other modules. Taiwan Semiconductor Manufacturing Company (TSMC) manufactures about 70% of the global supply of microcontrollers. TSMC’s control of the market has made it difficult for auto manufacturers to diversify their risk levels when sourcing microcontrollers.
 
At the same time, demand for chips from the tech industry has been rising sharply in recent years due to the shift in consumer and business preferences toward electronics reliant on semiconductors (e.g. smartphones, game consoles, televisions, laptops and digital cameras). The coronavirus pandemic has exacerbated this trend tremendously by preventing individuals and organizations from carrying out processes in person. For example, socializing, shopping and working have all been increasingly carried out online due to widespread stay-at-home provisions and health-conscious sentiment. Stay-at-home provisions have also spurred an uptick in tech services and, subsequently, have strained data centers that power these services. The tech industry’s rising need for semiconductors has made it even more difficult for automotive manufacturers to obtain semiconductors and has caused prices to skyrocket. Upgrades in automobile technology have also meant that each car requires many more semiconductors than before, especially among electric vehicles.
 
The Consequences Ford is one of the most recent automotive providers to announce reduced production at the hands of the semiconductor shortage. Ford CFO, John Lawler, said that based on estimates from upstream chip providers, Ford could see a 10% to 20% decline in Q1 2021 output relative to planned output levels. This reduction means that Ford could lose profits of $1 billion to $2.5 billion in 2021. Declines in vehicle output can harm automotive manufacturers’ financial standing right away, since revenue is logged right when manufacturers send vehicles to dealerships from the factory. Major car manufacturers have been attempting to curb production of less in-demand vehicle models in order to maintain production of their most critical car models. For example, General Motors announced in early February that it is pausing operations at three factories in North America that produce vehicles such as the Chevrolet Malibu, the Cadillac XT4, the Chevrolet Equinox, the Chevrolet Trax and GMC Terrain SUVs. General Motors is limiting production of these vehicles to keep up the manufacture of other SUVs and trucks, which are key producers of profit for the company.
 
Leading global chip manufacturers, including TSMC and United Microelectronics Corporation (UMC), have disclosed that they are currently allocating funding toward boosting chip output levels, but this expanded output will require some time to come to fruition. Presently, lead times for chips are reaching lengths of more than 40 weeks in some cases, whereas lead times in the automotive sector generally span about 26 weeks.
 
Supply Chain Takeaways The chip shortage and subsequent decline in automotive manufacturing stand to introduce a host of other problems. As automotive vendors reduce output, their upstream providers will do the same, causing a ripple effect throughout the supply chain. Currently, the automotive industry relies on a just-in-time supply chain model, which necessitates daily distribution of components to minimize inventory levels. Many auto manufacturers are considering doing away with this system and boosting stockpiles of semiconductors along the supply chain to mitigate the risk of shortages. Reinhard Ploss, the CEO of Infineon Technologies, which is among the leading semiconductor producers worldwide, said that despite room for improvement in the auto sector’s supply chain, there is a finite amount of time that semiconductors can be stored. Ploss mentioned that eventually stored chips cannot be used due to the deterioration of their condition. Revamping the auto supply chain is going to be a significant challenge. It’s time for all stakeholders to start chipping in.

A worldwide semiconductor shortage is plaguing the automotive industry. Almost every key automaker is ramping down production and furloughing employees amid a global chip shortage.

When the Chips are Down: A Shortage of Semiconductors in the Auto Industry

Procurement functions are historically paperbound processes saddled with sizable administrative costs, risks and inefficiencies. For this reason, process automation has been widely embraced; now, there is a shift toward intelligent automation well underway. Procurement departments will need to clear a few hurdles — namely, reducing their reliance on manual input and sourcing accurate, reliable data — to find success with intelligent automation, but emerging technologies are already helping to ease the transition. And as companies continue prioritizing investments in time-saving and risk-minimizing procurement technologies, particularly in the wake of the economic distress brought on by COVID-19, they will continue to evolve; here are some solutions to keep an eye on.
 
Granular supplier databases Imperceptible supply chain risks are a top concern for procurement leaders, more so post-coronavirus. Fortunately, more comprehensive <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles/" target="_blank">supplier databases</a> are helping companies improve visibility into their first, second and third-tier suppliers, fostering a more holistic understanding of supplier relationships and laying the foundation for further development of supplier risk profiles.
 
Dynamic supply chain simulations Analytical supply chain simulations that describe operations in certain scenarios have been widely-adopted. Now, dynamic supply chain simulations are taking center stage for their ability to adapt operations to random real-world events, helping procurement teams uncover hidden vulnerabilities in the supply chain and predict risk events.
 
Supply chain collaboration tools <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/supply-chain-management-software/" target="_blank">Supply chain management software</a> is evolving to automate purchase order (PO) management through collaboration, in turn bridging the gaps in communication between procurement teams and supplier networks. Supply chain collaboration tools can communicate real-time order changes on buyers’ end directly to suppliers, eventually confirming that the supplier both knows and approves of any revisions, in turn streamlining PO change requests and making it easier to execute supply chain operations.
 
AI-based invoice automation Among the most promising iterations of <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/procurement-software/" target="_blank">procurement software</a> is AI-based invoice automation software. First up, chatbots that help buyers determine when and what products to order are expected to proliferate in the coming years. Then, predictive analytics and, later, artificial intelligence will inform buyers of and execute orders independently, based on learned information like consumption and weather patterns, thus alleviating some of the challenges associated with inventory management.
 
E-auctions E-auctions, or reverse auctions, are an increasingly popular alternative to the conventional request for proposal (RFP) process. In e-auctions, buyers issue requests for quotation while suppliers bid electronically to win contracts based on pricing and performance features. Robotic process automation (RPA) can even be used to prompt suppliers’ participation independently of buyers’ input, facilitating a fully automated negotiation process that helps buyers and suppliers save time while arriving at a true market price.
 
Smart contracts As environmental concerns continue translating into higher demand for digital (versus paper) contracts, the digital tools that enable users to more easily interact with such contracts will grow more capable. <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/contract-management-software/" target="_blank">Contract management software</a> increasingly contains machine learning tools that scrape contracts for content, mostly searching for specific clauses and conditions to include or improve, thereby automating contract proofing and interpretation.
 
Smart factories Companies that invest in smart factories have been found to experience asset efficiency improvements upwards of 20% and product quality improvements upwards of 30%, according to <a rel="noopener" href="https://www.supplychaindive.com/news/why-smart-factories-are-the-future-of-supply-chain-resilience/591752/" target="_blank">Supply Chain Dive</a>. As such, smart factories will be a key competitive differentiator among suppliers moving forward. Smart factories, which supplement human work through machine learning in <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/industrial-robots/" target="_blank">industrial robots</a>, also help reduce maintenance costs through the use of robotics sensors and <a rel="noopener" href="https://www.procurementiq.com/market-intelligence-united-states/asset-tracking-software/" target="_blank">asset tracking software</a> that track wear and tear. As smart factory investments continue and suppliers become more agile, they will respond more effectively to shifting sourcing needs, in turn improving resilience across procurement functions.

Heading into 2021, procurement professionals will need to embrace emerging technologies to overcome modern risks. Procurement functions are shifting toward intelligent automation.

Technologies Shaping the Future of Procurement

Los Angeles-based company ProcurementIQ, a trusted and independent source of procurement research, is launching a new collection of company-specific reports. SupplierIQ is the latest addition to the ProcurementIQ ecosystem that includes category, RFP and custom research solutions. The new supplier information tool includes 5,000+ interactive company reports that provide financial data and analysis on supplier performance.
 
SupplierIQ is designed to help procurement professionals save time identifying, qualifying and benchmarking suppliers. This robust tool brings a wealth of supplier information into one easy-to-navigate report.
 
SupplierIQ Company Profile Highlights:
<ul>
<li>An unbiased competitor matrix that benchmarks suppliers against their competition within a given market. Switch from market to market to assess a suppliers’ performance across their various business units.</li>
<li>Hard-to-find financial benchmarks for private companies, including ranges for key line items on the income statement, balance sheet and statement of cash flows. Use SupplierIQ’s benchmarks to quickly determine whether a supplier meets the thresholds required to move forward in the sourcing process.</li>
<li>Comprehensive financial data for public companies, including a company’s income statement, balance sheet and statement of cash flows. Find up-to-date financial data in one centrally located place with graphs and tables that help contextualize the data.</li>
<li>General and operational information, including ownership type, revenue figures and trends, financial health scores and NAICS codes. Let ProcurementIQ do the research so you can get back to high-value activities.</li>
<li>List of additional product and service markets the company operates in. SupplierIQ’s market-specific approach lets you compare a company’s market share, profitability, average risk and other factors from market to market. Jump into procurement research reports to learn more about each market.</li>
<li>SWOT analysis helps you assess how a company’s market share trend, inventory turnover, specialization and other factors present as strengths, weaknesses, opportunities or threats. Build out your buying-decision scorecard or negotiation questions using SupplierIQ’s ready-made SWOT analyses.</li>
</ul>
The time is right to launch this powerful supplier information tool. With 2020 bringing on unexpected supply chain disruptions, ProcurementIQ knows it’s more important than ever to tidy up supplier lists. Leverage SupplierIQ reports when searching for new suppliers or re-evaluating contracts with existing suppliers.
 
Want to learn more about ProcurementIQ and its <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles/" target="_blank">SupplierIQ</a> collection? <a rel="noopener" href="https://www.procurementiq.com/contact-us/" target="_blank">Request a demo</a> today.

Los Angeles-based company ProcurementIQ, a trusted and independent source of procurement research, is launching a new collection of company-specific reports called SupplierIQ.

ProcurementIQ Launches New Supplier Information Collection

All procurement professionals, across different organizations, job functions, categories and sourcing stages, require trustworthy, accurate and up-to-date information to help identify, qualify and benchmark suppliers. While search engines may work as a starting point for data collection, the process of gathering supplier information in-house can be resource-intensive. Fortunately, there are tools procurement departments can use to collect company information more efficiently.
 
Company-specific reports, also called supplier profiles or vendor assessments, contain valuable supplier information that supports vendor management and guides decision making. This information will vary depending on the provider you work with, but almost always includes the following:
<ul>
<li>An overview of the supplier’s operations</li>
<li>The supplier’s registered name</li>
<li>Year founded or incorporated</li>
<li>Number of employees</li>
<li>Headquarters location</li>
</ul>
In addition to this basic information, advanced company reports may cover:
<ul>
<li>Comprehensive financial data</li>
<li>Revenue trends</li>
<li>Risk factors and ratings</li>
<li>Top competitors</li>
<li>Strengths and weaknesses</li>
<li>Market position</li>
</ul>
 Are company reports right for you? Maybe your organization already has its own processes for evaluating suppliers, or maybe your procurement department is just getting started. Company-specific reports are not meant to replace established vendor qualification programs, RFIs or RFPs. However, these reports make supplier identification and qualification more efficient and can help procurement departments establish sturdy scoring criteria.
 
If you’re tired of issuing RFIs and RFPs to unqualified suppliers, pre-qualifying suppliers with company reports can help you connect with the right suppliers fast.
 
Here are four areas where company reports come in handy:
 1. Supplier Identification
Search engine marketing has changed the way we audit Google results and those of other popular search platforms. Say you’re looking for a top provider of project management software. Your search engine returns a host of conflicting top 10 lists, peppered with paid ads for software solutions. But are these actually the top players? Determining the most prominent suppliers in the market can be frustrating as you slog through several pages of search results and dozens of supplier websites.
Fortunately, company reports can show you the who’s who in the market, listing out top players and their worthy competitors. Carefully curated reports will help you drown out the noise of search engine results and focus your time and energy on the most qualified providers in the market.
 
2. Supplier Benchmarking
Not sure how one prospective supplier stacks up to the next? Want to see if your supplier is still top of the game? Insight into a company’s competitive position can help you determine the pros and cons of working with one supplier versus another. Company reports that score suppliers and their competitors will help you better understand a company’s competitive position in the markets they operate.
 
Already using company data to benchmark suppliers? A good company report does more than just score companies or showcase numerical data—it should also include detailed analysis and key takeaways. These types of actionable insights will help you make meaning of suppliers’ financials with ease. Using reports that do the heavy lifting when it comes to company financials and other metrics will help you accurately benchmark suppliers without doing all the leg work. Choosing company reports that base their analysis on industry-standard key ratios will help you reduce the time spent crunching numbers.
 
By getting the scoop on suppliers in the early stages of your selection process, you can cut down on the number of RFPs and RFIs you issue to prospects. Stop waiting for replies from companies that miss the mark and spend more time and energy on pre-qualified suppliers.
 
3. Supply Chain Management
Supply chain risk mitigation has become more important than ever in light of the global pandemic and geopolitical risks brought on by the US-China trade war and Brexit. Maybe these events have exposed weak points in your supply chain, or maybe it’s business as usual for your organization. Whatever the case may be, your approach to mitigating supply chain risk likely involves a thorough vetting process, especially when it comes to critical tier-one suppliers.
 
To ensure prospective suppliers are trustworthy, procurement departments must gather as much information as possible. Is the supplier registered? Are they likely to go bankrupt in the near future? What are the potential risks? Company reports help answer these questions and more to paint a fuller picture of each prospective supplier.
 
Part of knowing your supplier is knowing the full scope of its operations. Can the supplier support your core business functions? Reports that list out markets in which the supplier operates can help you determine a supplier’s capabilities. Learning what other products and services the supplier offers is a great way to spot bundling opportunities and score healthy volume-based discounts. Giving repeat and additional business to well-performing vendors can boost your negotiation power and lead to faster delivery of goods and services.
 
4. Stakeholder Engagement
Many decision makers rely on previous experience and instincts to inform their thinking and planning. But this approach has its blind spots. Objective supplier data and analysis helps shed light on key details that could otherwise be missed, giving stakeholders the full picture.
 
Data and analysis that is presented in a clean, intuitive format will help put your stakeholders at ease. Easy access to the facts and figures supports a data-driven approach to decision making that can be applied across all spend categories within your organization. Backing up decisions with data helps you win on two fronts: it not only helps with stakeholder engagement, it also reduces the likelihood of your organization entering risky relationships with suppliers.
 
When procurement professionals are equipped with trustworthy, accurate and timely supplier information, they can make effective decisions and recommendations that mitigate risks and reduce costs for their organizations. We understand that finding the information you need can be overwhelming. That’s why ProcurementIQ will soon launch a brand new collection of company reports called SupplierIQ. With SupplierIQ, we take our existing supplier information to the next level and provide more granular details on public and private companies, including hard-to-find financial benchmarks.
 
Need quality supplier information in your toolbox? <a href="https://www.procurementiq.com/contact-us/">Get in touch</a> to learn more about <a href="https://www.procurementiq.com/supplier-profiles/">SupplierIQ</a>.

During vendor selection, procurement professionals need trustworthy, accurate and up-to-date information to help identify, qualify and benchmark suppliers. 

Company Reports to the Rescue: Four Uses for Supplier Data in Procurement

Companies’ financial statements are packed with numbers and figures that may seem confusing at first glance. While taking a templated approach to analyzing financial statements is an easy way to help procurement staff evaluate such dense documents a one-size-fits-all approach could cause procurement staff to misinterpret outliers.
 
By taking stock of the most influential line items on balance sheets and other financial statements, procurement staff can begin to recognize patterns and make their own conclusions about suppliers’ financial health.
 
Not sure where to start? Read on for ProcurementIQ’s rundown on the top line items to consider and what they mean.
 
Income Statement A company’s income statement is often the subject of press releases and news articles. The point of a press release is often to attract investors, which is why revenue and profit are top of mind when drafting the announcement. A company’s earnings, or profit, have long been used as a quick measure of success and determinant of share prices.
 
The income statement shows how a company’s revenue (top line) nets down to a profit (bottom line) over a period of time. But not all profit figures tell the same story, so it’s important to make distinctions between gross profit, operating income and income (loss) before income taxes, all of which can be used when evaluating profit.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/wethizdz/coupa-chart.png?width=600&amp;height=246" alt="" width="600" height="246">
 
Gross profit is total revenue minus cost of revenue, or cost of goods sold. But what does gross profit mean for a business? Gross profit is basically the money available to pay the company’s expenses.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/ykmn3poh/income-statement.png?width=500&amp;height=274" alt="" width="500" height="274">
 
As the old saying goes, you have to spend money to make money, which brings us to cost of revenue. Also called cost of sales, cost of services or cost of goods sold, cost of revenue represents the direct costs of producing the goods or services sold by a company.
 
Meanwhile, operating expenses cut into gross profit, too. Operating expenses are also known as sales, general and administrative expenses (SG&amp;A). These expenses are accounted for in operating income. A company’s operating income is its profit after deducting operating expenses.
 
This leads us to Income (Loss) Before Income Taxes, which is operating income minus income taxes. Subtracting income taxes from operating income helps analysts and procurement professionals better compare profitability across different geographies. Because income taxes are not universal, looking at income before income taxes can be helpful when assessing companies that operate in different states or countries.
 
Balance Sheet A company’s balance sheet provides a snapshot of a company’s assets, liabilities and shareholders’ equity at the end of the reporting period.
 
Analyzing variances to determine how much each item changes from one period to the next (month to month, quarter to quarter or year to year) can help procurement departments identify risks and get a better idea of how a company manages their assets and liabilities.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/chxnn0xr/coupa-chart-2.png?width=599&amp;height=247" alt="" width="599" height="247">
 
Total current assets represent all the assets of a company that are expected to be sold or used during standard business operations throughout the year. Included in current assets are:
<ul>
<li>cash</li>
<li>cash equivalents</li>
<li>accounts receivable</li>
<li>stock inventory</li>
<li>marketable securities</li>
<li>pre-paid liabilities</li>
<li>other liquid assets</li>
</ul>
Current assets tell procurement departments what resources are available to fund day-to-day business operations and to pay for the ongoing operating expenses.
 
In addition to current assets, the total assets calculation includes non-current assets or long-term assets. While current assets are those that can be liquidated within a year, long-term assets are liquidated in more than a year. Examples of long-term assets include fixed assets such as a company's property, plant and equipment, but can also include other assets such as long-term investments or patents.
 
PRO TIP: Noteworthy declines in long-term assets may signal financial distress, indicating that a company lacks the cash to cover operating expenses and must liquidate long-term assets to stay afloat. Meanwhile, a noteworthy increase in long-term assets tells a different story. Though investments into long-term assets may drain revenue, the company’s investments can pay off in the long run.
 
Current Liabilities are a company's short-term financial obligations that are due within the year. Examples of current liabilities include:
<ul>
<li>accounts payable</li>
<li>short-term debt</li>
<li>dividends</li>
<li>notes payable</li>
<li>income taxes owed</li>
</ul>
Unpaid supplier invoices, referred to as accounts payable, are often one of the largest liability accounts on a company's balance sheet.
 
Total liabilities are the combined debts and obligations a company owes to outside parties. These liabilities include:
<ul>
<li>monthly lease payments</li>
<li>utility bills</li>
<li>bonds issued to investors</li>
<li>corporate credit card debt</li>
</ul>
Unearned revenue, which represents any payment received for a service or product that has yet to be provided, is also recorded as a liability.
 
PRO TIP: When evaluating liabilities, procurement departments weigh assets against liabilities to determine whether there is enough cash on hand to take care of bills. Companies that lack the assets necessary to offset liabilities are at higher risk of insolvency.
 
Liabilities and assets become even more entwined as you reach the equity portion at the bottom of a company’s balance sheet. Equity represents the value that would be returned to a company’s shareholders if the company liquidated all assets and paid off all debts. Equity is calculated by subtracting liabilities from assets.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/r2rjli33/balance-sheet.png?width=500&amp;height=274" alt="" width="500" height="274">
 
When looking at equity, procurement departments should consider the total equity attributable to the parent, which excludes temporary equity. As the name implies, total equity attributable to the parent represents the amount of stockholders' equity that is allocable to the ownership interest, excluding any subsidiary equity (noncontrolling interest, minority interest).
 
PRO TIP: Why exclude subsidiary equity? Ownership of a subsidiary is typically denoted as an asset on the parent company's balance sheet. To eliminate overlaps, procurement departments should consider only the equity that is allocable to the parent.
 
Cash Flows A company’s cash flow statement covers all cash inflows the company receives from ongoing operations and external investments.
 
The cash flow statement is often considered the most intuitive of the three main financial statements. That’s because it integrates information from the balance sheet and income statement to help interested parties track the success of a company’s transactions.
 
PRO TIP: Analyzing a company’s cash flow statement is one way of determining its life cycle stage and liquidity position.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/qksdkhau/coupa-chart-3.png?width=601&amp;height=249" alt="" width="601" height="249">
 
Net cash from operating activities represents the amount of cash a company generates or consumes through its operating activities during a specific period of time. To arrive at this line item, net income is adjusted through additions and subtractions. More specifically, changes in the account balances of current assets and current liabilities, as well as non-cash accounts, are added or subtracted.
 
While growing companies may have a negative cash flow from operating activities, mature firms often have a positive cash flow here.
 
PRO TIP: Generally speaking, companies that consistently generate most of their cash from operating activities are healthier than those that do not.
 
The next portion of a company’s cash flow statement shows the net cash from investing activities. This line item represents long-term uses of cash. For example, if a company buys or sells a fixed asset, they are engaging in an investment activity. Similarly, the sale of a business unit or division is considered an investing activity.
 
While companies in all stages may have positive cash flows from investing activities, growing companies almost always have a positive number for this line item because they make significant investments to get operations up and running. Looking at a growing company’s investment activity can give procurement departments an idea of how much cash will be left to make future investments.
 
Meanwhile, mature companies may have easier access to financing, meaning their investments hold less weight. A mature company with growing investments may still generate positive cash flows from operating activities and generate plenty of cash to keep their operations running smoothly.
 
Next up is net cash from financing activities, which shows the net cash flows used to fund a company’s operations. This line items gives procurement departments an idea of how well a company’s capital structure is managed. Examples of financing activities include dividend payments, stock repurchases or bond offerings.
 
When looking at net cash from financing activities, a positive number means the company has more money coming in than flowing out. Meanwhile, a negative number means the company is paying off debts, or is making dividend payments and/or stock buybacks. Companies in the decline stage of the life cycle often display negative cash flows from financing activities as they use money from their businesses to pay back investors.
 
The change in cash and cash equivalents, sometimes called net change in cash, sums the three line items above to give procurement departments an idea of a company’s ability to fund its operations without securing loans or other outside funds. This line item also accounts for the exchange rate, when applicable.
 
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://content.ibisworld.com/media/vyvnya1v/cash-flows.png?width=500&amp;height=328" alt="" width="500" height="328">
 
PRO TIP: While this line item provides a quick look at a company’s liquidity, analyzing each of the three parts can give procurement departments more insight into how a company manages its resources.
 
Finding Financial Statements Company financial statements can be found in a variety of places, including the SEC’s database. The SEC publishes companies’ 10-k filings, which include a wealth of information on a company’s performance. Though financial statements are a key part of a 10-k form, they often get buried within pages of corporate information that may not be relevant to procurement. That’s because 10-k forms are more geared toward shareholders.
 
But what about procurement departments?
 
Fortunately, financial statements also have a place in market research reports and vendor assessments. To give procurement teams the financial data they need in a digestible format, ProcurementIQ will soon launch a collection of interactive company reports called SupplierIQ. By providing comprehensive financial statements alongside each company’s operational information, competitor matrix, SWOT analysis and other key insights, SupplierIQ helps you analyze current or potential suppliers without the headache.
 
Ready to save time on supplier research? <a rel="noopener" href="https://www.procurementiq.com/contact-us/" target="_blank">Get in touch</a> to learn more about <a rel="noopener" href="https://www.procurementiq.com/supplier-profiles/" target="_blank">SupplierIQ</a>.

A rundown on the top line items to consider and what they mean. Noting the most influential line items on balance sheets and other financial statements can reveal patterns.

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