In this article, we discuss three topics to consider as we move to procurement’s new normal.
by Dan Fielding, Managing Director ArcBlue
Warren Buffet once said, “It’s only when the tide goes out do you discover who’s been swimming naked”. That saying has never been more true than during recent times with the COVID-19 pandemic exposing gaps and required change in procurement and supply chains.
The last few months, we have heard the word “unprecedented” more times than we’d like. But there is no escaping it – times are unprecedented, especially for procurement and supply chain teams. Even so, some organisations are coping better than others to ride the storm. What learnings can we draw from these organisations as we move through the various stages of survival and into the recovery phase; and who has been caught short? Who will be caught swimming naked?
In this article, we discuss three topics to consider as we move to procurement’s new normal.
Cost profiles need to be agile
Increased focus on short term survival puts immense pressure on margins, meaning that organisations need to take cost out – quickly. Procurement functions are playing a pivotal role in reducing costs with some organisations better set up to do so. For less mature organisations with decentralised procurement models, it can be tricky to mobilise the right skills to centre on delivering these initiatives. Leading organisations focus commercial teams to re-structure costs and deliver immediate improvements but with an eye to the future. This requires a broad category management method, setting strategy, and bringing our stakeholders together with a combined goal for each area of spend. Ensuring these strategies are in place provides a sound basis for setting any short- or medium-term outcomes.
But how do we make cost reductions that stick? Bain research suggests that only 45% of organisations with cost-out programs actually hit more than 50% of their targets and suggest 5 principles which set cost leaders apart:
Source: Bain and Company
Suppliers are part of our team
For years procurement professionals have talked about the importance of supplier relationships, but too often this has fallen on deaf ears. The experience of many organisations coming so close to bankruptcy through the pandemic shines a light on the importance of suppliers to our business.
Many of us have witnessed ‘old school’ negotiators and the world of ‘competitive’ relationships, knowing there is another way. Whilst ‘win-win’ outcomes can be a debatable concept; this experience has shown many C-suite executives that suppliers are critical to the success of our business. Without them we cannot operate. When suppliers are with us, they can influence our survival.
As with anything, suppliers need to be managed and those organisations managing relationships effectively are seeing the fruits of their investment as they realise that they are effectively part of our team, rather than being the competition. As Martin Christopher once said, “supply chains compete, not organisations” – never has there been a more important time to demonstrate the truth of this.
Digital – whether you like it or not
Those organisations who were once on the sidelines of the digital revolution have suddenly had digital thrust upon them, whether they like it or not. You may have seen the following survey question meme doing the rounds shortly after lockdown:
There is a fair amount of truth in this. Organisations that have already embraced digital procurement have seamlessly adapted to remote working and have done so managing all the procurement risks effectively. Others have struggled – without the right tools to manage processes, lacking data to make decisions, having confused decision-making processes and missing their procurement manual in the filing cabinet!
The future is here – and good leaders are embracing the opportunity that digital can offer – to make procurement easier for stakeholders, to manage offline processes effectively and to give people the right information at the right time to make the right decision.
The first step in any journey is to create a plan, then take the first step. Procurement digitalisation is not as scary as it sounds and most likely you already have many of the right building blocks in place.
Procurement’s New Normal
For years, Heads of Procurement around the world have aimed for that ‘seat at the table’ and to raise the profile of their function. One reason for this perceived lack of influence is the setup of procurement, with too narrow a focus on processes rather than business wide commercial issues. Well… get ready for procurement to play a pivotal, new, broad role in Procurement’s New Normal.
Many organisations with procurement teams that have broad responsibility for supply chain, supplier relationships and risk have stepped up to the challenge of COVID. When questions have been asked, they have pointed to data, reports, and risk assessments across the supply base. Some organisations with a narrower role of transactional sourcing often do not have the same supply chain view, leaving it for functions to react – or for the business not to react at all.
In a recent Gartner poll, 31% of procurement leaders said they have too little visibility of their key suppliers to make a risk assessment. This highlights that many firms in the global economy are essentially flying blind during this fast-moving (but long-term) crisis. As the crisis moves from phase to phase, procurement has the opportunity to pivot into the broader supply chain role which is critical at these times.
Of course, to pivot like this is not easy and requires many changes, not least is to develop procurement professionals who speak the language of the business. If we want a seat at the table (and if we ever deserved one, now is the time), then we need to talk the language of the boardroom.
If we can make these changes; take on this challenge; then next time a crisis hits, we can spare our blushes.
Don’t get caught swimming naked. Speak to ArcBlue today to help build strength and resilience through your procurement and supply chain.
For more information, please contact us:
Ph: 03 8400 4220
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