Before the COVID-19 (coronavirus) pandemic upended the world eight months ago, conversations about supply chain issues were not common outside procurement circles. Now, it’s not so uncommon to hear talk of supply shortages, sourcing challenges, and other such issues. While some industries have, unarguably, been hit harder than others, parts of the conversation surrounding economic and supply chain recovery have something in common: there is much that is still uncertain.
Another increasingly popular topic is “the new normal.” So far, we’ve learned to adjust to social distancing, mask mandates, and remote work. It’s not implausible to assume we’ll be continuing with these adjustments, and then some, for the foreseeable future. So, what does this mean for global supply chains and procurement departments?
The effects of the coronavirus on supply chains have tested procurement departments, and businesses have learned a lot. For one, in the face of so much change, it has become obvious just how important procurement as a function really is to so many businesses. Thus, as they integrate lessons learned, companies will need to ask themselves what the procurement function is truly capable of under this new normal. Below are a few areas in which to start.
Prioritizing adaptable, efficient, and resilient supply chains
One of the first steps procurement departments will want to take as they approach their new normal is supply chain reconstruction. COVID-19 has provided an opportunity to reexamine sourcing and procurement processes, the end goal being to make them faster and more agile, as well as more productive. During the pandemic, procurement teams have been streamlining projects as much as possible. In a report by Bonfire, a strategic sourcing software company, RFP projects were shown to have had a 15% decrease in the average number of evaluators per project since the pandemic hit, and non-RFP projects (e.g. price-driven bids, invitationals) have had a 6% decrease. Furthermore, the average number of pages per vendor submission across all projects has decreased by 25%.
These trends toward efficiency will continue to be prioritized as businesses prepare themselves for budget cuts and other impacts of the current economic decline. In order to identify weak spots, it’s important to ask where disruptions have already occurred. For example, if sourcing was affected by transportation issues, what changes to logistics strategy can be made to mitigate the risk that transportation issues will interfere with sourcing again?
Strengthening operating models and category management strategies
Procurement departments also need to transform how they operate. The ability to scale procurement functions up or down is becoming increasingly necessary as businesses respond to supply challenges. Responses include capturing value in a specific spend category, resetting cost structures to make the most of shifting market dynamics and addressing risks posed by changes in value pools. It’s also important to consider changes outside a company’s industry that may filter down and affect the categories a business depends on.
As a team constructs its COVID-19 recovery plan, it’s important for it to evaluate its workforce and determine how resources can be optimally utilized. For example, will success depend on expanding reach into new categories, business units, or geographies? What strategic changes are necessary to assure supply continuity by category?
Embracing online procurement and digital tools
The move toward procurement digitization has been ongoing for some time, but until now, progress has been slow. COVID-19 has accelerated this shift as companies have adopted new ways of working. According to the same Bonfire report mentioned earlier, 98% of procurement teams have been working from home during some point in 2020. Additionally, when procurement professionals were asked if the pandemic has caused their organization to realize how vital digital procurement is to business continuity, 73% responded “yes” and added that their organization will continue to make digital procurement a priority moving forward.
As remote work becomes increasingly normalized, embracing digitization will allow effective collaboration across functions, such as speeding up negotiations with suppliers. Also, to counter profit margin pressures and increased volatility, spend analytics can provide insight into opportunities for cost savings and competitive advantages.
Lastly, embracing online procurement and digital tools will make it easier to centrally monitor and manage operations in real time, allowing for faster decision making and more informed responses. Of course, there are challenges, such as cybersecurity, that come with this shift.
Implementing risk assessments as a top necessity
One of the most critical lessons for procurement professionals during the pandemic has undoubtedly been the importance of conducting regular risk assessments. COVID-19 will someday be a thing of the past, but as supply chains become progressively global and interconnected, more challenges, such as climate change and geopolitical risks, will arise. Therefore, to detect potential and present risks and create better transparency, it’s important to work with suppliers to gain information about their next-tier suppliers and upstream value chains.
It’s important to consider the impacts that a company’s suppliers and its suppliers’ suppliers have had to endure during the pandemic and may endure in future scenarios. To ensure business continuity, a business’ procurement team should be reviewing its suppliers based on its new capacities, reliability, and risk levels. Questions to consider include: Who are the most advantageous suppliers in this new environment, and how can the company best monitor supplier health going forward? Finally, how can the business reduce its reliance on specific countries, regions, or suppliers if necessary?
Preparing for an Uncertain Future
Shifting procurement to its new normal in a way that allows it to step up to its greatest potential will be a process—one that, instead of requiring perfection in volatile times, promotes flexibility and accommodates for extreme levels of uncertainty. Adopting a forward-looking attitude of constant learning should become the primary focus. Investing in future-ready practices and believing in the value that procurement can provide will help organizations come out of this challenging period stronger and more capable of combatting any future crises.
By: Mara Michael
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