For Business Resilience, Look to Your Procurement Team
Globally, firms are grappling with the effects of COVID-19, with the next 12 to 24 months expected to be a period dominated by multiple waves of partial suppression and re-confinement. This will have a sizable impact along value chains and signals a prolonged and arduous relaunch phase for procurement teams.
A recent Young Presidents’ Organization poll of 3,534 chief executives from 109 countries highlights that 51% of chief executive officers see the current crisis as a risk to the survival of their company or a severe threat. Sixty percent of those same leaders are preparing for a U-shaped recovery — a long period between recession and an upturn.
From restricted access to credit, disruption of supplier operations and even bankruptcies, it is currently impossible to estimate the extent of the impact and what lies ahead. This unpredictability is particularly acute for leaders of procurement teams.
During the COVID-19 lockdown period, we have spoken to those who lead procurement teams across a variety of industries to understand how they are responding to new priorities and adjusting ways of working. Many of them are already tackling the difficult questions head-on.
To steer their firms out of the crisis, many procurement leaders should temporarily reshape their agenda around business continuity, smart cost containment, and using smaller, agile task forces.
Ensuring Business Continuity
The primary role of procurement teams in current times is to ensure operations can continue or relaunch despite the complicated business environment and to anticipate a variety of scenarios. Understanding the challenges suppliers are facing so they can weigh the risk of failure and find alternative solutions is key. This involves being close enough to suppliers to anticipate problems early on and adapting risk management plans.
During this crisis, we’ve already witnessed how this has been successfully put into practice. One example is a leading European automotive manufacturer, which set up a business continuity SWAT team at the beginning of March to make sure that all of its factories would be adequately supplied as soon as production started up again. The implementation of this team was quick, as it replicated a similar set up used almost 10 years ago off the back of the Fukushima events, which stopped production in Japan for several weeks and disrupted global automotive supply chains. The team leverages the flexibility of suppliers and uses alternative sources to match demand. It also identifies critical suppliers in distress and conducts rescue actions to relieve their finances or operations.
This pandemic can be viewed as a unique opportunity to try out new ways of collaborating and reinvent the role and path for the future of procurement.
Managing Costs and Cash in a Smart Way
Decreases in revenues and inbound payments have resulted in cash scarcity. Companies should carefully safeguard their own cash situation so they can be nimble and lean in the future. Keeping small- and medium-sized suppliers afloat with early payments is necessary to maintain a healthy and diversified group of suppliers. It can also be also used to optimize cost conditions or set the basis for deeper collaboration.
Cost containment is often a complex balancing act, with many factors playing a role. One example is a regional telecom operator that, when faced with COVID-19 and falling oil prices, mobilized a special internal procurement consulting team to identify areas of cost optimization. In a matter of days, the team screened most of the supplier portfolio to assess where the recent changes would create negotiation opportunities without harming suppliers. They found, for example, that cable prices would be positively impacted by the drop in the cost of key raw materials such as copper, artificial rubber and energy. Discussions with suppliers revealed how quickly this would reflect in their financials and consequently set the basis for a price revision, beyond the usual contract index adjustments.
Mobilizing Agile Task Forces
The main focus for procurement leaders and their teams will simply be about re-establishing and maintaining the status quo of business-as-usual, which has its own set of challenges. But as this pandemic is unprecedented, it is important to be highly vigilant and able to respond rapidly when required. Here, procurement leaders should organize small teams tasked with assessing the situation, known as “control tower task forces.” Once issues and respective solutions are identified, they can be shared with the rest of the procurement organization for execution.
We have seen one durable goods manufacturer overhaul its procurement dashboard to allow more effective communication during the executive committee’s daily meetings, which has led to clearer ways to take action. Its chief procurement officer mobilized a “COVID-19 relaunch control tower” team. The team regroups daily to consolidate information on supplier panel resilience and to assign tasks, and the executive committee receives a dashboard with eight key performance indicators and a summary of risks and requests.
Time Is of the Essence
There are no easy answers to remaining competitive or afloat in this turbulent time, but investing the time to monitor and learn could make a huge difference. The coming months will be a great experiment to test tools and real-life new ways of working and to develop closer links between procurement leaders and their teams. Here, procurement’s flexibility, agility and ability to build strong relationships internally and externally could have a lasting impact on the survival and success of an organization. While COVID-19 has given procurement functions an added layer of complexity — and many more headaches — it can also be viewed as a unique opportunity to try out new ways of collaborating and reinvent the role and path for the future of procurement.
Time is of the essence, and it is imperative that procurement leaders act now to drive transparency, bringing a global and fair vision to all stakeholders. Risk, cost and cash should remain priorities. Most of all, procurement leaders must make the time to understand what we have learned from COVID-19 and how this can pave the way for future procurement functions with greater vision and clarity.