Impacts of Geopolitics on Procurement Strategy Interview w/Khalid DIB

Geopolitics has a huge impact on procurement strategy. What can be some of the ways to handle these situations, effectively? What can be the best strategies that nations can embrace to reduce their risks of geopolitical impacts? In this episode of our Procurement Game Changers podcast, Khalid Dib answers all these questions, based on his experience of handling similar challenges involving clients and vendors across the world.

Listen to our previous Procurement Game Changers podcast “Why Is Indirect Procurement Such A Complex Job?

Key Takeaways

More than ever geopolitics plays a very high let’s say impact on how we buy, how we select suppliers, how we even set up our supply chain but it has always been the case in fact.

We need to be agile, we need to react quickly, and the way we will set up our supply chain or procurement organization needs to be flexible enough to be able to react when there is an event that we could not foresee, that we could not anticipate.

We need to really think differently the way we work with our partners, whether they are internal stakeholders, suppliers, customers because at the end of the day, we want to have a robust and sustainable business that will help and be a source of revenue for all partners for the coming years.

We need to develop alternatives and we need to be agile enough to be able to address the whole market and we need to diversify the sources that we use when we procure our raw materials.

We should really think the same way when we handle a category or commodity and wherever it is in the indirect material, or the direct material is exactly the same way.

Transcript

Hélène: 

So welcome to procurement game changers, the podcast for procurement leaders that make a difference today.

We’ll be talking about the impacts of geopolitics on procurement strategy and to discuss this topic I’m delighted to welcome ha deep, good procurement category director at dense fleet. ER, the world’s largest manufacturer of professional dental products.

Khalid is an experienced procurement leader who has worked in various countries, dealing with worldwide vendors. I’m very excited having on the show to share his insights with us. Welcome to the show Khalid.

Khalid: 

Thank you. Happy to be here.

Hélène:    

So, could you tell us what led you to procurement?

Khalid:  

Well actually, you know, when I started my studies, I was willing initially to be an engineer, a mechanical engineer.

So that’s where I’ve been starting with my studies and my journey, and then very quickly, you know, I was like: “I’m missing something.” I like, I like the contact with the machines and the shop floors, but I, wanted to use this experience as well to be able to discuss with stakeholders, external suppliers and so on.

And that’s when I decided to undertake a master’s in procurement, in industrial procurement and supply chain. I studied abroad in the UK in Wales, exactly. And then, you know, I discovered the world in supply chain and procurement.

That was very interesting. It was, I would say 15 years, 16 years ago.

So, it was really the beginning of all global procurement activity, the strategic thinking that we had behind. And it was really fascinating to me.

And then I decided to keep going in this journey. And for me, I mean, at least at this time the best school was the automotive industry. That’s the reason why I moved to this industry not only to learn, but also to be able to have the best added value.

And yeah, I mean I was young. I wanted to start working abroad and had this nice opportunity of work in Japan, which was a dreamland for me as well.

We know well that a number of the best supply chain and production methods have been deployed in Japan and even created and invented in Japan.

So, for me, it was just like the best opportunity to start my career, because I always have been fascinated by all these concepts of Ishikawa and so on. So that’s the reason why I moved to Asia worked in procurement for several years.

And then I decided to move back to Europe. And that’s where I am now in Germany. Many people would say that Germany is the Japan of Europe in some extent it’s right on some others it’s a bit different that’s where I am now. Yeah.

And in the meantime, I changed the industry moving from the automotive to the medical industry. So yeah.

Hélène: 

Yeah. That’s probably quite a change actually. So, we all know the major events that are occurring throughout the globe. Of course, we have COVID, we had the Suez Canal.

We had the war between Russia and Ukraine. We had tariff wars earlier between the US and China, for instance, and between the US and EU. We have Brexit.

So, a lot of things are happening, and some countries even change their regulations and impose restrictions that impact international trade.

So, geopolitics plays obviously a huge role in defining the course of global procurement.

How exactly does geopolitics affect global procurement?

Khalid:

Yeah just as you said right now, more than ever geopolitics plays a very high let’s say impact on how we buy, how we select suppliers, how we even set up our supply chain but it has always been the case in fact.

And if we look back at the history when people were trading, this has always been a point of discussion, you know.

When we were exchanging materials or spices from one continent to another, they were taking some roads, avoiding others because of threats, you know, so risk has always been, let’s say in the whole History of trading, has always been a major driver to decide what source we need to select and how we will get this material.

And I think now of course the number of, let’s say, geopolitical issues that we are facing, but not only there is a number of issues in regard to environment climates, which are impacting the choice.

We know that there is the global warming that will have a very similar impact on many, many countries.

And all those things are obviously elements that we need to consider when sourcing materials or sourcing parts, or even on the indirect material side. So, talking about, let’s say the recent events in Ukraine and Russia, of course.

We know that in Ukraine, you have a lot of developers working on software development. So, when things like this happen and your team is located in Kyiv, or your partner is located in Kyiv, what do you do? You know, we all have to raise those questions before it happens.

But it’s nothing new. It’s just that things are getting faster. But we always had to take into consideration these elements.

And historically, I would say the most successful nations are the one who have been able to manage the best, all those risks.

So right now, it’s a mix of geopolitical issues, whether it is what we see right now in Ukraine and Russia, but not only.

We have a lot of areas in the world where production is at risk, or the Finance is at risk. If we source for instance cobalt, okay. Cobalt is dominated by Congo. So, any political change in this country would affect drastically the supply because we see that those materials are also very volatile.

There’s a lot of speculations as well, going on the commodities. So, the second thing to try to understand when we are in the procurement is first obviously to anticipate all those risks or at least to deal with it.

But second to understand what the real impact of those changes is in what we buy and what is related really purely to the speculation and that’s a very difficult exercise. Because no one can say for instance if we take materials like precious metals: gold, or Palladium or others.

Yeah, definitely, we know what is costing us the extraction of the raw material from the mines, and then the process and so on. But [it] will be a part of the price, which is always regulated by the market and the market is purely the speculation.

So, these are two very important elements in my opinion to have in mind. And now I think that more than ever the procurement function, they need to deal with this uncertainty.

We often hear about anticipation, and we have to anticipate of course, as much as we can, but anticipation is not the only trigger right now.

I think we need to be agile, we need to react quickly, and the way we will set up our supply chain or procurement organization needs to be flexible enough to be able to react when there is an event that we could not foresee, that we could not anticipate.

The risk of having a structure, which is too rigid, will not allow us to react quickly. And I’ve seen it too often.

I mean, we see sometimes very big companies having very strong organizations, but too rigid. And then when any impact is coming, that it’s difficult to address it. I will just take an example in the electronic world, there is what we call MLCC, so Multi-Layer Ceramic Capacitors.

Very small, small parts, just the size of a rice kernel. When you don’t have that, you stop the production.

So you can have the most robust and the let’s say the most knowledgeable team everywhere in the world, as long as you did not anticipate this in your needs, in the potential impact that you would have in the coming years, then you stop the production and you don’t have any parts.

So just, just one size, you know, just a kernel size will just stop your world production.

So, it really goes beyond the procurement. Yeah, it’s a thinking that we need to have at our company level, how we set up, let’s say, the goals that we want to achieve and the setup that we want to have as a company to be able to address this situation, which is more and more uncertain.

So, risk mitigation, business continuity plan, anticipation are really important, but I think in my opinion, in view of the current world where we live, it’s not enough. We need to be agile, and we need to have a setup that will allow us to be agile enough to react to those events.

And this is what I’ve noticed in my career.

I was in Japan when we had the Fukushima issue. And something [that] was really interesting [in Japan is that and many, many people would say, yeah, we have very very high standards.

Everything is clearly set up and we have a process for every single thing. But in the same time, they are very agile when it comes to a crisis. Because it’s a nation that has always been living with crisis.

They have earthquakes, you know, like only every month for every week or I don’t know, depending on the intensity. They are an island. I would say most of the population are living on the coast. So [REP – they,] they know how to react when something happens.

And something that surprised me a lot is that when we had this issue, customers and suppliers really worked together to face those problems and to solve them.

I saw customers being in our factory, working the production, because they understood that it was the common interest to keep the production running and to secure the business for all of them whether it is for their suppliers or for the customers.

So, then the paradigm is changing. The relationship between suppliers and customers is, for a while, just becoming something totally different. We put on hold, we change, and we adapt to what we are facing.

And I think that’s a great example on how we should be working. We need to be agile, and we should not be afraid of really being disruptive when it is needed.

We need to really think differently the way we work with our partners, whether they are internal stakeholders, suppliers, customers because at the end of the day, we want to have a robust and sustainable business that will help and and be a source of revenue for all partners for the coming years. And if we fail, definitely everyone will be impacted. So that’s very important.

What measures were taken to overcome geopolitics event?

Hélène: 

No, I agree. And you shared an example of what happened. Do you have an example where you as a procurement leader, you took measures to overcome a geopolitical event?

Khalid:

Yeah, I mean, you know, for instance, on the precious metals we know that some countries are dominating the market. Like we take Palladium, obviously, Russia is playing a major role.

If you talk about Cobalt or Chromium, Congo is definitely one of the biggest players in the world. So, we need to be ahead of that. And we need to see, first of all, what alternative material we can use versus those standard materials.

And we should not neglect any lever. If we can have alternative for five, 10% of those materials that are rare, and that we know that I would say, even putting aside that only some nations are dominating the market, we know that this is a rare commodity, so it would be a time where we will not have it anymore.

So, we need to develop alternatives and we need to be agile enough to be able to address the whole market.

So, we need to diversify the sources that we use when we procure those materials. And this is exactly what we have been doing.

So, there is not a single source that we are ignoring. We are listening to every single partner who has to offer the material or this alternative.

And thanks to that, we have been able to mitigate those risks. Because those risks are coming, let’s say every month, every year. If it is not in one side of the world, it’ll be on the other side of the world. And then we have at least a balance between the suppliers or the partners that we are working with.

And this is absolutely clear. You know, it’s the way I see it is more or less how we handle an investment, you know, or your capital as an individual, procurement is nothing different than that.

You know, we often say that, okay, you should not put all your eggs in the same basket, and this is very valid, you know you will probably invest in real estate.

You will probably keep some money in your bank. You will probably, I don’t know go and contract a pension and you are diversifying as an individual because you care about your capital.

We should really think the same way when we handle a category or commodity and wherever it is in the indirect material, or the direct material is exactly the same way.

Diversifying doesn’t mean only to diversify the type of supplier we have. But diversification is also geographical diversification, the type of suppliers, the type of materials, the type of contracts we have.

We may want, or we may need sometimes, and this is what we have, to have a spot buy, or a long-term contract, or a midterm contract, or booking only 50%, and then edging the rest of the 50%. And that’s what I mean by being agile and by diversifying the way [REP – we, we,] we engage our suppliers, the way we contract and the way we buy at the end of the day.

That’s absolutely key because very often we would say, okay, yeah, but for the last 10 years, I never had any issue.

So, the risk level of having something happening is very low. Yeah, true. But [at] when the 11 hour you have this problem, the cost of having this problem will be much higher than the 10-year revenue that you secure. So maybe one more thing is really not to be too short term.

We need to be in the long-term vision, in the long-term strategy and some countries like China, for example, they are in the long term strategy.

You know, they are not in the two, three years ahead. They always secure and set up their process the way they source and manufacture, or the way they set up their supply chain, and they engage with other countries, is always – in a spirit of 10 years, 15 years, 20 years and even beyond that.

Because in fact everything is subjective. We can have a good performance for five years, but if you take 10 years, the results will be completely different.

It’s just like the exchange rate, you know. It depends on what reference you take at the end of the day.

Hélène:

No, absolutely. I hear something in what you say that I found very interesting. You said that you need to listen.

So, it means that, as procurement leaders, we have to anticipate to be agile. We need to understand what are the different alternatives, you know screen the market and so on, but also connect with the business lines in particular production.

But also, innovation, marketing in order to be ahead of the curve and then also connect with the suppliers and build a relationship.

What I mean by that is that the procurement leaders are not only that executing function but has also a lot to do with building relationships anticipating. It’s much more strategic and relationship-based then it was in the past.

Khalid:

Yeah, it’s absolutely true in fact, and it’s a very good point. I totally agree. In fact, as a procurement leader, you need to capture those innovations, those way of working. You know, I talked about disruption, disruptive ways of handling something.

And when I say something, it is just because is not only price, is not only logistic, it goes really beyond. And as a procurement leader, you cannot be the expert of everything.

So, you have to be surrounded by the best partners who will advise you, you know, and you have to listen to them because if you specialize in digital marketing, for instance, or if you specialize in plastic injection you do it eight hours a day for the last 20 years, 30 years, sometimes a hundred years, depending on the company.

So, you probably have a lot of things and plus you work with many different customers.

So, it’s very important in my view to always be humble as a procurement leader, and to always be listening to what we can potentially learn from partners, from suppliers, from the market, from our internal stakeholders, and to take what will benefit the best to the company.

So, if I have this very strong idea, innovation, that will definitely help my company to add value, I pick it up. Mm-Hmm,

I pick it up and I bring it internally. So, and that’s for me that this is what make the difference between a major procurement organization, or let’s say an organization, which is ahead in the market.

And the one that are let’s say more reactive to the market. And yes, it takes time. But we need to do that and not all ideas will be implemented, but this is super important because just as you said, if we want to be ahead of, of the issues we will face, or if we want to gain on efficiency, if we want to be faster.

If we want to really get those added values we need to capture them and to capture them, we need to listen to the partners who are specialized to those topics that we are addressing.

And again, this is really a principle that we can implement on anything we buy, whether it is a commodity or service, it applies the same way, exactly the same way.

And it’s not easy because you know, the current situation, everyone is very busy. I think everyone has a lot to do so. I would say maybe one difference if we look back 20 years ago and now, everything goes faster.

And we cannot afford the same time as before. But this is something that we need to plug in our agenda, in our respective agenda to learn from the market, to read what’s going on to listen, to attend events, and so on, to be ahead of the issues.

Because as we often say, you know, information is the key for success. And bringing the right information to our company will help our company to be even more successful.

And this, is our role as procurement leader to promote the best innovation, the best solution to our company and to make sure that then, we are ahead of the market, ahead of our competitors and that, at the end of the day, we secure the organization.

Hélène:

So, let’s imagine we have one of the listeners who want to get started and they want to be, you know, more resilient to geopolitical events, where should they start? That’s a tough one.

Khalid:     

That’s a tough question. And we discussed about the reason why I moved to procurement, but in fact, I’m thinking about as a student, you know, when I was in college [middle school in France], I always loved History and Geography [classes].

So, I was fascinated by those lectures. And I always, you know, like to learn about the civilization, the way the trading was done in the history, how nations have been developed and so on. So, I think it starts from there.

I think you need to have a strong culture, a strong understanding of how the world is organized, how the nations are working. You need you need to understand the world we live in, what are the main changes, how things are moving around and what can potentially impact the scope you have. Okay.

Hélène: 

You know, it reminds me of that TV series in France. That was called “Le dessous des cartes“. I don’t know if remember this one.

Khalid:    

You’re right. Yeah, you’re right. I remember, and that’s very, yeah. It’s a very good example, Le Dessous des Cartes. Exactly. Yeah. It’s a good point. That’s exactly the way we have to start.

Hélène:    

Yeah. So, looking at historical events, looking at how it has shaped a relationship between countries between ethnic [groups], between people and then look at why it explains partially what is happening today and what are the different things that, you know, shape the world we are in today,

I think you’re right. It’s a very good starting point. So be aware and be curious, actually be aware and be curious about that.

Khalid:

Yeah, exactly. Be curious that’s a very, you know, important thing. And what is happening at least from a geopolitical standpoint has always roots from the history.

You know, everything is always connected and there is not a single war, crisis where we will not find roots in the history. Okay. We will always find it.

So, understanding that it’s super important to know how far it can go and how far it can impact you and your category that you are managing. Having that in mind, then you have to see what are the alternatives.

What alternatives we have, this is the very important second step. Always to think what alternatives I have to mitigate the risk of what I’m having.

Hélène:  

That’s a very good point. You know, I was working a few years back with a Saudi company and so we were sourcing consulting firms, and obviously there were conflicts at the time between Israel and Saudi Arabia.

And there are very strong consulting firms in Israel, very good ones in particular, in the space they were looking for, but there was a no-no. So, we needed to find some Arabic speaking consultants.

Fortunately, we have in North Africa and in Europe, we have some very good consulting firms with Arabic speaking consultants.

But these things mean that’s reduced the scope of what you can do when you have enmities like that between countries.

And I agree, this is this is important to understand the reasons because there’s no way around, right?

Khalid: 

No, you have to be prepared. You have to understand the constraints. And then, you know, depending on what you handle, your alternatives might be just few alternatives, but you have to leverage and to activate the alternatives that you have.

Because you have two options. Either you block the whole process, or you activate those levers, and you keep moving forward. And sometimes we have to make choices.

Sometimes the alternatives we have are not, probably not the best ones, but they will help us to keep going, okay.

Not to reach the goal that we initially had, but to keep moving. So, it’s always a question of what do we want, you know, I mean, from a risk point of view, is it better to achieve 50% of what we were supposed to achieve?

Because we have no other choice in regard to the situation, in regard to the alternatives we have, or to run the risk of keep going the way we go, but we don’t know how long it’ll last, maybe a year.

Hélène:   

It’s always a tradeoff.

Khalid:

It’s always a tradeoff. And that’s why I’m saying coming back to the point, it’s an investment. Procurement is an investment. The way you handle your category is the way you manage your capital. If you don’t manage your capital well, you may have problems.

Hélène:

So now It’s time to wrap up. So, if there’s one thing, just one, because you’ve been very inspired today. And that was extremely interesting, but now we want just one thing for our listeners to remember. What would that be?

Khalid: 

Be curious and listen. Okay. Open your eyes, keep your ears wide open and get what needs to be done for your company to secure the business on the long run. This will be my take from today’s discussion.

And this is what I would advise you or anyone who would like to let’s say be engaged a little bit more in geopolitics, it’s all about, it’s all about information and picking up the right thing at the right moment for specific needs that you have.

And it’s a balance at the end of the day. So, you need to find the right balance or maybe this would be the word balance.

Hélène:

That’s a very good one. Yeah. Thank you. Thank you for your time, Khalid.

That was very interesting. So now it’s your turn to tell us about your experience and challenges in the comment sections.

Don’t forget to subscribe if you want to be notified when new episode is out.

Thank you for listening. Thank you again, Khalid for your time.

Khalid:

Thank you.

Hélène:

I hope you enjoy this episode and if that’s the case, you give us a thumbs up.

Happy sourcing to everyone. Bye Au revoir.

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Helene Laffitte

Hélène Laffitte is the CEO of Consulting Quest, a Global Performance-Driven Consulting Platform. With a blend of experience in Procurement and Consulting, Hélène is passionate about helping Companies create more value through Consulting. To find out more, visit the blog or contact her directly.

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