COVID-19 and all of the uncertainty around it has created unprecedented challenges across supply chains, causing them to be massively interrupted on an international scale. Increasingly, procurement leaders are having to steady the ship and maintain ‘business as usual’ operations, all while fulfilling urgent demands and mitigating supplier challenges. This is, of course, set against a backdrop of serious disruption and unease across teams, people and communities.
It is fair to mention that procurement leaders concentrated their initial efforts on managing upstream supply disruptions from tier one and tier two suppliers, while rebalancing short-term sourcing decisions in light of almost instantaneous supply network constraints.
As time passes, they must now turn their attention to the medium-term security of the supply base, by intelligently unlocking funds and building upon future-proof resilience by taking digitally led steps to effectively answer the challenges this crisis presents.
This approach will not only help to manage the immediate COVID-19 emergency and minimise its impact, but also build stronger businesses and communities which are able to prosper as damaged economies eventually recover post-pandemic.
The following five key areas require immediate attention and can help to maintain business continuity while building responsible and pragmatic future business practices.
People come first
This can be achieved by developing a refreshed, digitally-driven procurement operating model and finding new ways of working with internal customers, the supplier ecosystem and external partners.
Procurement has been forced to evolve rapidly within the short time since the Coronavirus pandemic began. It is now more connected with its ecosystem of suppliers, external partners and internal customers. An enormous cultural shift in communication and ways of working is additionally underway, challenging traditional views about how procurement executes common source-to-pay activities and governance practices.
Organisations who are good at what they do are using this period to maximise both internal and external impact, showcasing a commitment to collective wellbeing. In the face of all these shifts to the landscape, procurement leaders need to:
Check in regularly on the physical, mental and emotional health of their core and extended workforce, especially those in vulnerable communities where gig working dominates.
Implement support structures for workers, while providing suppliers and extended networks with access to resources to safeguard ecosystems.
Reconfigure ways of working, including capitalising on investments in digital procurement technologies, like supplier collaboration tools and wheeled robots for remote site visits.
Reskill tactical sourcing workers to collaborate with all stakeholders within the design of new remediation, product development, service level and fulfillment models.
Firm up your supply base
This will enable firms to manage and mitigate supply uncertainty with suppliers of all sizes, be it small, medium and large.
COVID-19 has taught procurement executives lifelong lessons about the practicality and stability of their business continuity plans. For example, dual sourcing efforts to scale back reliance on one supplier which could cause disruption across multiple territories.
Some organisations’ contingency plans were found to be too small in scale and simply not designed for a worldwide disaster scenario. Meanwhile, many companies’ smaller and midsize suppliers, which are highly dependent on cash flow, have struggled with digital connectivity, teetered on the edge of bankruptcy or shut down completely.
This all means that procurement leaders have got to play a central role in investing in and strengthening their companies’ supply base. In order to this effectively they need to:
Interact far more closely with tier one and tier two suppliers to understand the risks and how they can work together to remedy pitfalls, backlogs and challenges around liquidity.
Automate, expand and retrofit risk frameworks as necessary.
Identify alternative sources of supply and consider shifting to local suppliers where operationally feasible and socially viable.
Intuitively access cash
Cultivate responsible interventions to minimise unnecessary spending and preserve cashflow for future growth initiatives.
Revenue is slowing and demand in many areas is probably going to remain depressed for some time after the worst of the crisis has passed. In fact, most companies will observe a severe cash crunch for the foreseeable future. Preserving cash responsibly should be one of procurement’s primary goals for the next 12 months. To support this, they should consider how to:
Optimise working capital and cash flow while digitising prioritised interactions with suppliers (such as invoice and payment processing).
Embrace a zero-based mindset in managing all categories of third-party spend, starting with those which are discretionary.
Maximise employee productivity by increasing capacity with advanced automation and AI.
Control and monitor the results through effective partnerships with finance and technology functions.
Future proof your strategy
Update risk management strategies to ensure that resilient procurement decisions are made.
COVID-19 caught many companies unprepared and unexpectedly. It has exposed shortcomings in their capacity to plan for and mitigate supply fluxes linked to natural disasters, infectious diseases and other severe disruptions. It has also revealed a lack of centralised and coordinated visibility in risk monitoring.
To increase their organisations’ abilities to respond to future challenges with confidence and insight, procurement teams can take actions to:
Embed risk management elements into procurement decisions, from upfront sourcing through to payment execution.
Provide enhanced tools to enable centralised visibility and controls. This will expand coverage and mitigate execution from inherent risk to residual risk.
Run scenario modelling and hypothetical analyses more frequently, with the support of applied intelligence, third-party data feeds and predictive analytics.
Be mindful of projected demand slumps and commodity price volatility.
Aim to be groundbreaking
Investment in innovation is even more critical during a crisis but it requires purpose to be effective. Procurement leaders need to know how to use digital tools to redirect their innovation efforts, both for now and after this crisis.
These efforts need to reflect the ways in which COVID-19 has affected companies and people, perhaps changing or intensifying what is important to them. Trends and forecasts before COVID-19 already showed a shift in consumer attitudes towards support for the greater good:
66% of consumers want companies to stand up for the issues they are passionate about.
63% of Gen Y and Z consumers are more attracted to brands that source services and materials in highly ethical ways.
Procurement leaders should channel their innovation efforts towards building trust and securing their companies’ license to grow to:
Help review and update the organisation’s sense of purpose, being thoughtful about customer-centricity and its role in corporate social responsibility.
Be transparent and adopt a stakeholder lens in reviewing key decisions and opportunities.
Revisit their savings distribution model, rebalancing how much is reallocated to the business and its people, how much goes to shareholders and how much is reinvested in society and local economies.
Aim to achieve transparency through ethical sourcing practices and data democratisation with all stakeholders.
To conclude
The COVID-19 pandemic has certainly tested even the best procurement leaders. Never before have they been tasked with playing such a leading role in safeguarding their company’s financial viability and protecting a severely disrupted supply base, all while changing to a fundamentally different way of working. As they navigate the present supply-side storm and plot a course for reshaping their organisations for the post-crisis world, procurement leaders should keep three things in mind:
Navigate the course
Plan for a downturn lasting several months or longer and the risk that the infection might return.
Learn from the experience
Using applied intelligence, take this opportunity to understand any weaknesses or vulnerabilities which were previously hidden. Challenge established norms to protect your people, supply chain and the societies you serve.
Lead by example
Lead with purpose, responsibility, excellence, confidence and humility. Reshape the organisation with an emphasis on greater resilience to help it come out of the other side stronger.
If you would like to talk to someone about your procurement requirements during this time, please contact managing consultant Stephen Fletcher at sfletcher@merje.com
