CPO Crunch: The forces of supply

David Rae

The European Union's Carbon Border Adjustment Mechanism directive and the growth of 'oligons' will drive continued supply chain redesign

The concept of supply chain redesign has been the subject of several CPO discussions over the past couple of years, increasingly since Covid and even more so since Russia’s invasion of Ukraine.

Why? Many reasons. The need to de-risk over-complex supply routes, the demand for additional redundancy to drive supply security, the decoupling from certain regimes and regions due to geopolitical tension and inter-state competitive posturing, to name a few.

While a well-functioning supply chain should be a constantly evolving entity anyway – a symbiotic grouping of individual entities working together to deliver value; ebbing and flowing depending on external events and forces – the changes that we’re increasingly hearing about go much further.

We’re talking fundamental, structural change that will demand significant capital investment and subsequent corporate restructuring.

In his latest book, Momentum, Kjell Nordstrum, author of the seminal management book Funky Business and a speaker at our upcoming CPO retreat Ovation in Maastricht this July, explores the forces that are driving change at multinational companies today.

He argues that groupings of trading partners will become the norm, entities he calls Oligons, with an increasing volume of trade taking place within their boundaries. They will demand wholesale changes to multinational structures – the creation of new legal entities, divestitures, M&A activity.

Lawyers and consulting firms will have a field day as they get to work on the corporate restructuring required to make trade as frictionless as possible within such environments.

And to this we can add other forces to the equation, too, including the impact of regulatory pressures.

Facilitating a call just a couple of weeks ago on the impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM) directive, it was clear how much work there is still to do for organisations to meet the criteria.

Designed to prevent so-called ‘carbon leakage’, where companies based in the EU move carbon-intensive production to regions where less stringent climate policies are in place, the directive will result in significant costs for importers. 

Many observers see it as a form of protectionism, as one potential consequence is that large buyers of carbon-intensive materials will have even more reason to look to local suppliers and, as a result, build more local supply chains.

While not necessarily a bad thing for the environment, it’s yet another example of a powerful force that’s contributing to the reversal of the multi-decade journey to globalisation we have been on.

For CPOs of multinational organisations, this is a head-scratching moment to say the least; no less so for CSCOs, CFOs and the wider executive committee. In short, there are too many forces in play to prevent the need for a fundamental rethink of global supply-chains.

Deadline day approaching

Friday is deadline day for the World Sustainability Awards (WSA) 2024, meaning you or your sustainability colleagues have just a couple of days to get your entries in. We’ve had unprecedented interest this year, with hundreds of organisations from all over the world registering their interest.

The WSAs recognise excellence in corporate sustainability, and the awards will be handed out to successful entrants following the World Sustainability Congress in Amsterdam in October.

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