Natural Resource Scarcity: The Implications for Procurement

Economic development around the world has continued to drive up the demand for natural resources that are required to build infrastructure or produce new consumer products.

In simplistic terms an increased number of consumers in new places and an increased buyer power amongst those consumers heighten the level of demand. This increased demand will need to be met with an equivalent increase in supply and that may not be possible. In such a scenario the supply of critical resources will no longer be a question of money; securing the limited amount of natural resources available will become the key challenge for procurement teams.

Geopolitics, limited suppliers, price rises and sustainability concerns are just some of the drivers of resource constraints and we are seeing examples of these issues today.

One such example surrounds the supply of rare earth metals, which are used extensively in now common place technologies such as fuel cells, LED lighting, batteries, mobile phones and wind turbine generators. Worldwide demand for these metals already exceeds supply, over 90% of which is from mainland China, and this gap will not be closed unless major new supply sources are developed.

Food or water could be also be highlighted as other areas of scarcity. Global food reserves recently hit an all-time low and, married to continuing population increases, are unlikely to improve in the short term. A recent FT article cited access to water as one of the most significant business risks to the mining industry.

Scarcity is an issue that is on the sustainable procurement agenda now but is moving towards the centre of business strategy in certain industries, with a focus on securing long term supply cost efficiently and sustainably. Firms that are unable to protect themselves from the threat will face significant challenges to their growth plans and long term competitive advantage.

Procurement is often the first function in a business to be confronted by the impact of scarcity (challenges in supply, price increases etc.) and so should be well placed to take a lead in elevating
the topic onto management’s strategic agenda. Other functions such as R&D (innovation) , Marketing (forecasting) and Supply Chain also have a key role to play in developing responses to the scarcity challenge, but may not be as sufficiently engaged.