Future-Proofing Procurement Against Market Volatility
Market volatility is no longer the exception—it is the rule. From geopolitical tensions to inflationary shocks and supply shortages, procurement leaders are navigating unprecedented uncertainty.
Our latest paper explores how executives across industries can strengthen procurement functions against these disruptions. It highlights strategies for resilience, the role of data and technology, and includes a case study on Toyota’s approach to managing the semiconductor shortage.
Introduction
In an era defined by rapid and often unpredictable changes, market volatility has become a constant backdrop for business. Events such as global pandemics, geopolitical conflicts, shifts in trade policy, and inflationary surges have disrupted long-stable trends and exposed vulnerabilities in supply chains. For procurement leaders – the executives responsible for securing the goods and services their organisations need – this volatility presents a dual challenge. On one hand, volatile markets drive up costs and complicate forecasting; on the other, they threaten the very continuity of supply. Traditional procurement models built around cost minimisation and just-in-time efficiency have struggled under these conditions. Many firms found themselves facing spiralling input prices, sudden shortages of critical materials, and logistics bottlenecks that jeopardised production schedules.
Future-proofing procurement is therefore an urgent priority for businesses across all industries. This paper provides a cross-sectoral perspective on how senior executives can strengthen their procurement operations to withstand and even thrive amid market volatility. We begin by defining market volatility in context and examining its impact on procurement performance. We then discuss strategies and frameworks for future-proofing procurement, including robust risk management practices, supply base diversification, and the deployment of advanced technology and data analytics. A detailed case study of Toyota’s procurement response during the recent global semiconductor shortage illustrates these principles in action. Finally, we distil clear, actionable insights and best practices that executives can apply to build resilient, agile procurement functions capable of weathering turbulence. All discussion is presented in British English with a formal tone, drawing on recent credible sources from industry and academia.
Understanding Market Volatility and Its Impact on Procurement
Market volatility refers to the frequent and unpredictable fluctuations in market conditions that can arise from economic shifts, political instability, sudden changes in supply and demand, and other disruptive events. In practical terms, volatility means that prices, material availability, and lead times can change rapidly, often with little warning. For procurement teams, such instability makes planning and execution of sourcing strategies exceedingly difficult. A contract secured at a favourable price today could be rendered uneconomic by a new tariff or a commodity price spike tomorrow. A reliable supplier might suddenly face a production outage due to a natural disaster or geopolitical crisis, causing unexpected shortages. In short, volatility injects uncertainty into the procurement process at every level.
The impact of market volatility on procurement has been profound in recent years. Supply disruptions and cost inflation have simultaneously hit companies worldwide. For example, during the COVID-19 pandemic and its aftermath, many firms experienced scarcities of critical supplies alongside surging prices – a double punch that eroded margins and halted production lines. An executive survey found that rising input prices and supply shortages quickly became top concerns for growth, overtaking even the pandemic itself. To illustrate, freight costs on key routes spiked by over 200% in some cases, while essential raw materials saw price jumps of 25–30%, and components like semiconductors experienced a severe shortage. This volatility exposed shortcomings in traditional procurement approaches: overreliance on single sources, lack of visibility beyond tier-1 suppliers, minimal buffers in inventory, and a focus on annual cost savings that proved untenable when input costs rose by double digits.
Procurement organisations that once succeeded through lean, just-in-time operations now face fundamental changes to their practices and capabilities. In a volatile environment, assuming that an annual tender will consistently yield 3% savings is no longer viable. Instead, companies must adapt by building resilience and flexibility into procurement. The upside is that volatility, while challenging, can also catalyse improvement. Many procurement teams have responded by deepening their understanding of supply chains and adopting new tools and strategies. Senior executives are realising that procurement can no longer be viewed merely as a cost-centre function; it must play a strategic role in navigating uncertainty and protecting the business’s continuity and margins. In the sections that follow, we explore how to achieve this transformation.
Strengthening Procurement Risk Management and Resilience
Future-proofing procurement begins with robust risk management frameworks that can anticipate and mitigate the impact of volatility. Traditional risk assessments must be expanded to address a broader array of scenarios – from commodity price swings and exchange-rate fluctuations to natural disasters and geopolitical upheavals.
Leading organisations are embedding risk management into procurement strategy in several ways:
Enterprise-wide Risk Mapping and Monitoring:
Companies are developing granular visibility into their supply chains, often extending beyond first-tier suppliers to sub-tier sources of risk. For instance, procurement and supply chain teams collaborate to achieve end-to-end traceability of key materials, sometimes down to tier-3 or tier-4 suppliers. This level of transparency enables early warning of disruptions – if a raw material supplier in a distant region faces trouble, the company can react before it cripples production. Tools such as real-time dashboards are being used to integrate internal procurement data with external risk indicators, giving a consolidated “single source of truth” on spend, supplier status, and emerging threats. Short- and long-term demand/supply forecasts are aligned in these dashboards to run constrained vs. unconstrained scenarios, improving preparedness.
Scenario Planning and Contingency Strategies: Future
Future-proof procurement organisations routinely perform what-if analysis and develop contingency plans for high-impact risk scenarios. This may involve identifying alternative suppliers, pre-negotiating backup contracts, or planning how to reallocate spend in the event of a supply shock. Some companies have institutionalised cross-functional “nerve centres” or control towers – agile teams empowered to respond rapidly to supply crises across all levers. For example, a nerve centre might simulate the impact of a disruption (like a port closure or raw material shortage) and coordinate actions such as switching logistics routes, sourcing from alternate regions, adjusting inventory policies, or even redesigning products to use more available inputs. The key is executive support for fast decision-making and innovation in these high-exposure moments.
Risk-Based Category Management:
Procurement leaders are updating their category strategies to account for risk exposure alongside cost. One classic tool is the Kraljic matrix, which segments purchases by supply risk and strategic importance. Categories with high supply risk (e.g. scarce or single-sourced materials) demand more proactive measures: dual sourcing, longer-term stockpiling, or hedging to buffer price volatility. As McKinsey notes, some companies are increasing their use of indexation, “should-cost” models, and hedging for volatile commodities, to create fact-based arguments in supplier negotiations and protect margins. For categories not easily tied to a market index (where futures or market data are opaque), techniques like cleansheet cost modelling and synthetic indices help quantify exposure. By understanding the cost drivers deeply, procurement can devise smarter contracts – for example, linking prices to specific input indices or including price-adjustment clauses – so that risk is shared and surprises are minimised. One industrial manufacturer documented every cost escalation request from suppliers in detail and improved its contracts by indexing them to appropriate commodity benchmarks, which helped it later renegotiate effectively when market prices stabilised.
Building Resilience vs. Efficiency:
A resilient procurement operation strikes a balance between lean efficiency and buffer capacity. While just-in-time practices still offer efficiency, companies are recognising the need to build in buffers or safety nets for critical items. This can include maintaining strategic stockpiles of high-risk components, or ensuring local warehouses hold a reserve inventory for essential materials. The lesson from recent disruptions is clear: over-optimising for cost can leave a supply chain brittle. As one analysis observed, Toyota – famed for just-in-time – adapted its approach by holding a few months’ buffer stock of semiconductors, having learned from past experience that purely lean inventories were vulnerable. This kind of nuanced risk strategy – essentially “just-in-time with a twist” – allowed Toyota to endure a shock that crippled many competitors (explored further in our case study below).
In implementing these risk management strategies, strong supplier relationships are an invaluable asset. Open communication and collaboration with suppliers enable early identification of issues and more flexibility in jointly finding solutions. Companies that treat suppliers as partners – sharing information, planning collaboratively, and even helping key suppliers improve their own resilience – tend to recover faster from disruptions. For example, firms are providing suppliers with training in risk management and forecasting, recognising that the supply chain is only as strong as its weakest link. In summary, a culture of risk awareness and continuous improvement (the Kaizen philosophy, as Toyota practises) should permeate the procurement function. Rather than reacting to each crisis in isolation, future-proof procurement uses every disruption as a learning opportunity to enhance long-term resilience.
Diversifying the Supplier Base for Stability
If there is one lesson volatility has underscored, it is “do not put all your eggs in one basket.” Supplier diversification is a cornerstone of future-proof procurement, aimed at reducing dependency on any single source or region. In volatile markets, relying on one primary supplier or a concentrated supply base can be risky – a disruption at that source could bring your operations to a halt.
Executives across industries are thus making supply networks more broad and flexible:
Multi-Sourcing and Dual Sourcing:
Instead of sole-sourcing critical materials, companies are qualifying multiple suppliers for each key input. By having at least a dual source (and ideally more) for high-risk items, procurement gains options if one supplier fails to deliver. This proved vital during the COVID-19 crisis when lockdowns or outbreaks shut down factories in certain regions. Organisations that had alternate suppliers in other geographies could pivot quickly, whereas those tied to a single source were left stranded. Diversifying the supplier base reduces the risk of disruption if one partner cannot meet needs. Even in steady times, multi-sourcing can foster healthy competition and innovation among suppliers while ensuring supply security.
Regional and Local Diversification:
Leading firms are also diversifying sourcing regions – a strategy sometimes framed as rebalancing offshoring vs. nearshoring. By sourcing from different geographic areas, companies spread geopolitical and environmental risks. For instance, a manufacturer that once sourced exclusively from Asia might add suppliers in Eastern Europe or Mexico, reducing exposure to any single country’s trade policies or port conditions. McKinsey reports that discovering new regions for sourcing has allowed companies to access suppliers with different cost structures and risk profiles; one electronics maker expanded production to the U.S. and Mexico to bypass transoceanic logistics logjams, while another chartered its own cargo flights from Asia to ensure deliveries. Regional diversification must be balanced with cost, but many firms found that nearby or alternate-region suppliers helped ensure continuity even if their prices were slightly higher. The COVID-era shipping crisis and the war in Ukraine, which sent energy and commodity markets into chaos, have further prompted companies to source closer to home or from politically stable countries, where possible.
Supplier Ecosystem and Consortium Buying:
Some organisations are diversifying by forming consortia or networks of suppliers. This involves engaging a broader ecosystem – including smaller or diverse suppliers – rather than a few big vendors. In certain cases, companies in the same industry have even banded together to do consortium buying, increasing their collective bargaining power and ensuring multiple supply options. Additionally, cultivating backup suppliers that can be called upon in emergencies is a wise practice. Supplier diversification is not only about having multiple suppliers on paper, but also maintaining relationships such that if one fails, another can ramp up swiftly.
Strategic Supplier Partnerships (with Flexibility):
Paradoxically, diversification goes hand in hand with deepening select strategic partnerships. Companies still consolidate spend with key suppliers for efficiency, but they do so while negotiating flexible terms. For instance, a firm might commit volume to a primary supplier but include clauses that allow switching a portion of volume to an alternate source if needed (or that oblige the supplier to have dual production sites). The goal is to avoid complete dependency. Strong partnerships can also yield preferential treatment in volatile times – as seen in the semiconductor shortage, where buyers that stuck with their suppliers “through good and bad times” were rewarded with priority allocation when other customers’ orders were cut. One packaging manufacturer, facing scarce materials, collaborated closely with its suppliers to ensure it was the first to be serviced during shortages. However, as a cautionary tale, those partnerships must also focus on cost innovation; simply securing supply without pursuing efficiency can lead to cost inflation over time.
Developing Alternative Suppliers:
Future-proofing may involve investing in new or smaller suppliers to build their capacity. This is especially relevant if an incumbent supplier holds a monopoly over a critical component. By qualifying and developing emerging suppliers, procurement can increase competition and create a fallback supply. Some companies actively support second-source suppliers with technical assistance or share demand forecasts to help them scale. This approach not only diversifies the base but can also drive supplier innovation. It aligns with Toyota’s philosophy of supplier development – Toyota has historically treated suppliers as extensions of its own enterprise, providing training and helping them improve processes, which in turn gives Toyota more reliable partners.
A diversified supply base inherently improves resilience. That said, managing more suppliers does require robust supplier relationship management and possibly higher administrative effort. Technology (discussed in the next section) is a key enabler in handling a wider network of suppliers efficiently. Moreover, diversification should be pursued intelligently – it’s not simply about quantity of suppliers, but quality and spread of risk. Executives should identify which supplies are most critical and ensure those have strong secondary options, while also avoiding unnecessary complexity for low-risk categories. Ultimately, supplier diversification acts as an insurance policy: it might slightly reduce short-term efficiency, but it provides a vital hedge against the unpredictable. As one procurement head succinctly noted, in a crisis “the key to being competitive is to be faster at finding alternative suppliers than everyone else”. Diversification prepares organisations to do exactly that.
Harnessing Technology and Data Analytics in Procurement
Modern technology and data analytics have emerged as powerful allies in future-proofing procurement. In volatile markets, the ability to sense, analyse, and respond to changes in real time can spell the difference between nimble adaptation and costly disruption. Senior executives are increasingly investing in digital procurement tools, AI, and advanced analytics to enhance visibility, speed, and decision-making accuracy in their supply management.
Several key roles of technology and data in resilient procurement are evident:
Real-Time Visibility and Predictive Insights:
Digital platforms now enable procurement teams to monitor global supply conditions and supplier performance in real time. For instance, cloud-based procurement dashboards can pull in data on inventory levels, supplier lead times, shipment statuses, and market price indices, giving a live picture of supply chain health. Leading companies are also embedding predictive analytics and risk sensing tools that flag potential disruptions ahead of time. By analysing patterns (such as a supplier’s financial reports, news of natural disasters, or political developments), AI systems can alert procurement of trouble on the horizon – providing precious lead time to secure alternate sources or adjust plans. As Deloitte observes, AI-driven predictive risk sensing allows organisations to anticipate disruptions and adjust sourcing decisions proactively, rather than reacting after the fact. In practice, this might mean detecting early signs of a supplier’s factory slowdown or a critical raw material price uptick weeks before it hits the company’s production line.
Supplier Discovery and Qualification with AI:
One of the most striking applications of procurement technology is using Artificial Intelligence to find new suppliers quickly. When a sudden need arises – for example, if a primary supplier fails or demand spikes – AI tools can scour vast amounts of data to identify viable alternative suppliers worldwide. A case in point is Unilever’s use of an AI platform by Scoutbee to source new suppliers on short notice. The software automatically scrapes data on potential suppliers’ financial stability, customer ratings, sustainability credentials, patents, and even monitors social media/news for relevant alerts. From this, it generates a list of vetted candidates that procurement can then engage. Such technology dramatically speeds up the sourcing process; what used to take weeks of manual research can now be done in hours. “When there is a supply-chain crisis, being faster at finding alternative suppliers than everyone else is the key,” explains Unilever’s head of procurement for prestige products. This agility, enabled by AI, gives companies a competitive edge in securing supply in tight markets.
Digital Procurement and Automation:
Routine procurement processes – from requisition to purchase order to invoice – can be streamlined with e-procurement systems and automation, freeing up human capacity to focus on strategic issues. In volatile periods, having a robust digital procurement system ensures better control and faster adjustments. For example, e-sourcing platforms allow companies to quickly run online bids or tenders when new sourcing needs arise. Contract management software can alert teams to contracts that need renegotiation (e.g. due to price index changes or force majeure events) and even suggest optimal timing for locking in prices. Robotic process automation (RPA) can automatically adjust order quantities or re-route orders based on pre-set triggers (like low inventory or a disruption event), implementing contingency actions at machine speed. The cumulative effect is a procurement function that is more responsive and less error-prone during market swings.
Data-Driven Decision Making and Cost Management:
Data analytics empower procurement to make decisions based on facts rather than gut instinct, which is crucial when conditions are volatile. Advanced analytics can crunch large datasets – from commodity market trends to supplier performance metrics – to guide strategy. For instance, should-cost modelling and “cleansheet” analysis help break down the true cost of a product or service, revealing opportunities to negotiate or re-engineer specifications for savings. Analytics also support dynamic pricing and hedging strategies. Some leading firms track customised indices for key cost drivers (raw materials, logistics, labour, etc.) and use algorithms to dynamically adjust supplier pricing or trigger hedging contracts. One manufacturer was able to mitigate 8–15% of inflation impact across components by adopting active index-linked pricing, ensuring that when certain input costs fell, supplier prices were adjusted downward accordingly. This level of sophistication in cost management is only possible with robust data infrastructure and analytical models.
Collaboration and Communication Tools:
Technology also enhances collaboration both internally and with suppliers. Supplier portals and communication platforms enable real-time information sharing (e.g. a supplier updating their delivery delay immediately so the buyer can react). During crises, companies have used collaboration tools to convene cross-functional teams (procurement, finance, operations) in virtual “war rooms,” ensuring everyone has the latest data and can coordinate a response seamlessly. Internally, improved data visibility across departments means procurement’s insights on supply risks or cost changes are quickly reflected in sales forecasts, pricing decisions, and financial plans. This tight alignment is critical – for example, if procurement foresees a 10% cost increase in a key component, having data-backed credibility helps the company decide whether to adjust product pricing or absorb the cost. It also helps when negotiating with customers; just as procurement expects suppliers to justify price increases, sales teams should be armed with data to explain any necessary price adjustments to their own customers.
Blockchain and IoT for Transparency:
Although emerging, technologies like blockchain and Internet of Things (IoT) sensors are worth mentioning as they can bolster procurement resilience. Blockchain can provide an immutable ledger of transactions and shipments, which improves trust and traceability in the supply chain (useful for verifying provenance or ensuring no counterfeit parts enter during volatile times). IoT sensors can give real-time status of shipments (location, condition) or monitor stock levels in warehouses, feeding data into AI systems that trigger restock orders or route optimisation. Toyota, for example, has piloted the use of IoT and tracking technologies to gain end-to-end visibility of components in transit, allowing faster rerouting when disruptions occur. These technologies, combined with AI, can automate much of the sensing and responding process in procurement.
In summary, technology and data act as force multipliers for procurement teams. They enhance the speed, accuracy, and proactivity of decision-making. It’s important to note that technology is most powerful when coupled with skilled procurement talent and sound processes. The best companies invest not only in tools but also in training their people to use data insights effectively and in updating processes (like supplier qualification or risk review workflows) to integrate those tools. Executives driving procurement transformation should ensure an openness to adopting new digital solutions – overcoming any “technology aversion” bias that might exist in the team. Embracing technologies from AI to predictive analytics is becoming essential for staying competitive in a volatile market. As one expert noted, the goal is not just to react to change but to anticipate it – and that is where data and technology give procurement a future-looking radar.
Case Study: Toyota – Adapting Procurement in a Volatile Market
To illustrate the above principles in practice, we examine how Toyota Motor Corporation adapted its procurement and supply chain strategy to weather a recent bout of extreme market volatility. The global semiconductor chip shortage of 2020–2021, triggered by a confluence of pandemic-related demand shifts and supply disruptions, hit the automotive industry particularly hard. Many major car manufacturers were forced to halt production for weeks due to lack of chips, leading to billions in lost sales. Toyota, however, proved to be an outlier in this crisis – initially largely unscathed by the shortage, Toyota continued production while competitors stumbled. This resilience was not luck, but the result of deliberate future-proofing measures rooted in lessons learned a decade earlier
Procurement Strategy During the Chip Shortage
Fast-forward to 2020 as the pandemic caused a surge in demand for electronics (and hence semiconductors) at the same time as supply chains were disrupted. By early 2021, many automakers faced an acute chip shortage and slashed production. Toyota, thanks to its BCP, had months’ worth of chips in reserve via its suppliers. When rivals like Volkswagen, Ford, and GM announced temporary plant closures, Toyota surprised industry observers by announcing it expected no major production impact from the shortages. In fact, Toyota increased its output targets and raised profit forecasts for the year, at a time when others were downgrading theirs. A source in the electronics industry remarked that “Toyota was the only automaker properly equipped to deal with chip shortages” – a testament to its proactive procurement strategy.
Several strategic moves enabled Toyota’s relative success during this volatile period:
Inventory Buffers and Supplier Guarantees:
Although emerging, technologies like blockchain and Internet of Things (IoT) sensors are worth mentioning as they can bolster procurement resilience. Blockchain can provide an immutable ledger of transactions and shipments, which improves trust and traceability in the supply chain (useful for verifying provenance or ensuring no counterfeit parts enter during volatile times). IoT sensors can give real-time status of shipments (location, condition) or monitor stock levels in warehouses, feeding data into AI systems that trigger restock orders or route optimisation. Toyota, for example, has piloted the use of IoT and tracking technologies to gain end-to-end visibility of components in transit, allowing faster rerouting when disruptions occur. These technologies, combined with AI, can automate much of the sensing and responding process in procurement.
Supplier Diversification and Localisation:
Toyota had also worked to diversify its supplier base after 2011. Instead of relying on single sources, it cultivated multiple suppliers for key components where possible, and maintained a regional balance. Toyota’s network includes many local suppliers in each major production region, reducing dependence on any one country or factory. During the semiconductor crisis, Toyota reportedly did not resort to panic-buying or hoarding chips; instead, it collaborated closely with its chip suppliers to allocate capacity and even help address bottlenecks. By treating suppliers as partners and sharing timely information, Toyota avoided antagonising its supply base and ensured a smoother flow once supply ramped up.
Flexible Manufacturing Priorities:
Another aspect of Toyota’s adaptability was flexible production planning. With certain chips in short supply, Toyota made strategic decisions on how to use the limited supply it had. Rather than a first-come, first-served approach to all models, Toyota prioritised production of vehicle lines that were most in demand or carried the highest margins. This agile allocation meant Toyota maximised profitability and customer satisfaction even while managing constraints. Such coordination required tight linkages between procurement, manufacturing, and sales teams – an example of cross-functional collaboration under stress.
Continuous Improvement and Kaizen:
True to its ethos, Toyota treated the shortage as an opportunity to further improve. For instance, Toyota and its suppliers engaged in collaborative forecasting, sharing data to adjust production schedules in real time and avoid overcommitment. They also explored technical solutions, such as redesigning some electronic modules to use more readily available chips or upgrading to newer chip technologies to avoid dependence on legacy semiconductors that were more scarce. This kind of design agility – modifying product designs or specifications to accommodate supply limitations – was another lever Toyota pulled (e.g. temporarily omitting certain features that required a lot of chips). Many automakers did similar tweaks (like dropping high-tech features from some models) to reduce chip usage, but Toyota’s proactive stance allowed it to plan such changes with less disruption.
Results and Lessons
While the global chip shortage eventually affected almost every automaker (Toyota included, as the shortage dragged on into late 2021–2022), Toyota’s initial resilience earned it a significant advantage. It gained market share and was one of the few automakers to increase vehicle output and profits during the early phase of the crisis. The company’s stockpiling strategy was vindicated; as one commentary put it, Toyota was “reaping the rewards” of having integrated long-term risk mitigation into its core strategy.
The Toyota case underscores several key points for executives looking to future-proof procurement:
1. Invest in resilience before a crisis hits:
Toyota’s edge in 2021 was years in the making, rooted in decisions after 2011. Organisations must proactively address known vulnerabilities (in Toyota’s case, long lead-time items like chips) well in advance. This may involve carrying extra inventory or incurring costs upfront, but as Toyota’s example shows, it can prevent far greater losses later.
2. Modify traditional models when necessary:
Just-in-time and lean processes drive efficiency, but rigidity can be perilous. Toyota adjusted its just-in-time model by incorporating strategic buffers – a pragmatic compromise between efficiency and resiliency. Similarly, companies should revisit any “sacred” operational principles and be willing to adapt them in the face of new risk realities.
3. Leverage supplier partnerships and share risk:
Toyota’s close supplier relationships meant it could enforce (and support) stockpiling and get priority in a crunch. By sharing both information and some financial burden with suppliers, Toyota created a win-win where suppliers stayed solvent and ready to deliver, and Toyota got security of supply. Trust and collaboration with suppliers are critical in volatile times.
4. Holistic risk planning:
Toyota systematically mapped out hundreds of parts that could jeopardise production and created contingency plans for each. This comprehensive approach is a model for robust procurement risk management. It wasn’t just about one part or one event – Toyota institutionalised a mindset of continuous risk assessment and improvement (the Kaizen approach) which serves it across crises.
In conclusion, the Toyota case study exemplifies how a large organisation can successfully adapt its procurement strategy to a volatile environment. By blending foresight, flexibility, and partnership, Toyota protected itself against a market-wide disruption. Executives in any industry can draw inspiration from this: whether you manufacture cars, consumer goods, or electronics, similar principles of buffering critical inputs, diversifying sources, cross-functional agility, and learning from disruptions apply. No company can entirely avoid volatility, but as Toyota proved, you can certainly prepare and respond better than the competition.
Actionable Insights and Best Practices for Senior Executives
Future-proofing procurement against market volatility is a multifaceted endeavour. However, a number of clear best practices have emerged that executives should consider implementing in their organisations.
Below, we summarise actionable insights drawn from the preceding analysis:
Embed Risk Management into Procurement Strategy:
Treat procurement as a strategic risk management function, not just a cost centre. Establish comprehensive risk identification processes (including supply chain mapping to lower tiers) and develop contingency plans for critical categories. Consider creating a dedicated cross-functional risk response team or “nerve centre” that monitors emerging risks and coordinates swift action. Update your procurement policies to require risk assessments in all major sourcing decisions.
Diversify Your Supply Base Intelligently:
Audit your supplier portfolio for over-concentration. Aim to have multiple suppliers (or at least backup arrangements) for key materials and components. Diversify geographically to spread geopolitical and natural-disaster risk. Where sole sourcing is unavoidable, invest in that supplier’s resilience (e.g. help them establish dual production sites or maintain safety stock for your orders). Regularly review supplier financial health and capacity to avoid unpleasant surprises.
Strengthen Supplier Relationships and Collaboration:
Build strong, long-term relationships with suppliers based on transparency and mutual benefits. Share forecasts and collaborate on demand planning so suppliers can adjust in advance to your needs. Involve suppliers in innovation and risk planning – for example, jointly develop risk mitigation measures or alternative designs. When crises hit, a partner-like relationship will ensure you are a priority for your suppliers. At the same time, maintain professional rigour: hold suppliers accountable through clear contracts that include flexibility for changing conditions (such as index-linked pricing or fallback options).
Leverage Technology for Visibility and Agility:
Invest in modern procurement technology that provides end-to-end visibility of your supply chain in real time. Implement data analytics and AI tools that can forecast trends and detect early warning signs of disruption. For example, use AI to scan market data and news for risks to your supplier base, or to rapidly identify new supplier options in a crunch. Establish real-time dashboards for key cost drivers and supply indicators, and review them with your team frequently. Technology adoption should go hand-in-hand with upskilling your procurement staff in digital competencies. An analytically enabled team will make far better decisions under volatility than one flying blind or stuck in spreadsheets.
Adopt Agile Procurement Processes:
Increase the agility of your procurement organisation. This may involve streamlining decision-making hierarchies so that during fast-moving situations, approvals and changes can happen quickly (with pre-defined triggers or executive empowerment). Use agile project methods for major sourcing initiatives – short sprints to evaluate options, frequent checkpoints to adjust strategy as new information comes in. Be willing to pivot procurement strategies on short notice – for example, reallocating spend to alternative suppliers, expediting shipments via different routes, or reordering contract priorities when market conditions change. Agility also means encouraging a mindset in the team that embraces change rather than resists it.
Focus on Total Cost of Ownership and Value:
In volatile times, narrow cost-cutting can backfire if it increases risk. Shift focus to total cost of ownership (TCO) and value delivered. This means considering costs of disruption in your decisions – sometimes paying a bit more to a reliable, local supplier is wiser than the absolute cheapest option that might fail in a crisis. Use techniques like should-cost models, value engineering, and design-to-value to find creative ways to reduce cost that also simplify your supply chain (e.g. using common components, standardising specifications). Many top performers during inflationary periods doubled down on productivity and efficiency improvements in their operations, which gave them more buffer to absorb external cost increases. Aim to eliminate waste and build flexibility, rather than just squeezing supplier prices unrealistically.
Integrate Procurement with Business Strategy:
Ensure your procurement strategy is closely aligned with overall business strategy, especially in areas of risk and resilience. Procurement should have a voice in corporate planning – for example, contributing to decisions on product design (to ensure materials chosen are not unduly risky) and to pricing strategy (feeding in supply cost forecasts). Senior executives can facilitate this by including the Chief Procurement Officer (CPO) in strategic discussions and by fostering cross-functional teamwork among procurement, supply chain, finance, and operations. A well-integrated approach means that when volatility strikes, the whole organisation moves in sync – adjusting production plans, budgets, and customer commitments with full knowledge of supply constraints and cost impacts.
Continuously Learn and Improve:
Finally, instill a culture of continuous improvement with regard to managing volatility. After any disruption or volatile period, conduct post-mortems: What worked well in our procurement response? What failed or was too slow? Use those insights to update risk models, supplier strategies, and contingency plans. Encourage procurement teams to stay informed about global events and to build market intelligence capabilities. The most resilient organisations treat volatility as a given and aim to adapt faster than the competition. By remaining flexible, proactive, and learning-oriented, senior executives can ensure their procurement operations not only survive volatility but find ways to thrive in uncertainty.
In conclusion, while market volatility is here to stay, procurement does not have to be at its mercy. With a combination of strategic risk management, diversification, technological enablement, and agile leadership, companies can future-proof their procurement functions to safeguard against shocks. The reward for doing so is significant: greater supply continuity, more stable costs, and even competitive advantage in the face of adversity. Senior executives who champion these approaches will position their organisations to emerge from turbulent times more resilient and efficient than ever.
References:
(The references below are cited in the text above to support facts and examples.)
- Basar, J., et al. “Full-potential procurement: Lessons amid inflation and volatility.” McKinsey & Co., April 2022.
- Basar, J., et al. (McKinsey). Ibid.
- Stansfield, K., et al. “Procurement’s Twin Challenge: Managing Inflation and Supply Shortages.” Bain & Co., June 2022.
- EOXS Industry Blog. “Procurement in a Volatile Market: How to Stay Agile and Resilient.” Dec 2023.
- EOXS Blog – Ibid.
- Van Hoek, R. & Lacity, M. “How Global Companies Use AI to Prevent Supply Chain Disruptions.” Harvard Business Review, Nov 2023 (via OnePak reprint).
- “Case study: How Toyota thrives when the chips are down.” Reuters, 9 Mar 2021
- Shirouzu, N. (Reuters) – Ibid
- Shirouzu, N. (Reuters) – Ibid
- Ineak Consulting. “Toyota’s Strategy for Supply Chain Resilience.” (Expert commentary), 2022.
- Ineak Consulting – Ibid.
- “Take strategic action – Commercial and technical levers.” McKinsey Article (ref. 1).
- “Create transparency and revamp sourcing.” Bain Article (ref. 3).
- Bain Article – Ibid.
- EOXS Blog – Ibid.
