It’s easy to list the obvious challenges that Covid-19 has presented to global supply chains over the last 12 months. International lockdowns have caused significant delays or a complete halt to transportation of raw materials and finished goods. This has resulted in huge delays in manufacturing and in some instances a complete shutdown of manufacturing sites during peak lockdown times. Covid shone a light on the lack of diversity amongst specific supplier groups and the need for more robust business continuity plans.
It hasn’t been easy for any business over the last year and the objective of this article isn’t to make light of a difficult situation – however there have been a number of positive moves forward specifically in the Procurement space which are worth exploring.
Procurement is only a small section of supply chain – but an important one and sometimes a function that isn’t given the kudos it deserves. However, in a time of huge economic fallout and increased risk, Procurement had an opportunity to step in and do what it does best. Below we explore some of the positive outcomes.
Procurement are getting an opportunity to showcase their skills
During a time of upheaval and a desperate need to save money, Procurement has been called upon to step in and renegotiate supplier contracts and help avoid substantial cancellation fees. During the national lockdown when everyone was forced to work from home, there was no need for companies to spend money on certain services - let’s take integrated facilities management contracts as an example. With no workers in their offices, companies needed to avoid some of these services and free up much needed capital. With long term contracts in place, Procurement was parachuted in to renegotiate the terms and avoid wasting money.
By doing this, Procurement were able to showcase their skills to stakeholders that historically might not have given Procurement teams that opportunity. Although this is only a small gain, it has given Procurement the opening to showcase what they can do and may potentially lead to more long-term wins - such as better stakeholder buy in, more reliance on Procurement at all stages of supplier selection and negotiation - and ultimately increased addressable spend. Essentially, Procurement have been able to demonstrate their value in the short term and hopefully increase their buy in for the long term.
Procurement is getting involved from the start
According to a recent article by Mark Anderson at PwC, mapping all tiers of suppliers and other third parties whilst understanding the different risks each may pose is an essential first step to building resilience and avoiding future risk. Procurement will play a pivotal role in this and must be involved from the beginning of future projects. The global pandemic has helped highlight the risk factors for businesses and the need to mitigate these as soon as possible. Because of this, Procurement is being invited to participate from the get-go and help advise businesses on the processes they should adopt to limit risk.
According to a recent report by Accenture, Procurement can now help embed risk management all the way from upfront sourcing to payment execution. In the past, Procurement was not always involved at every stage of the process and therefore had to work backwards to track risk and get up to speed.
However, the pandemic has forced key stakeholders to involve Procurement teams a lot earlier - this has improved communication and collaboration as well as generating a clear and consistent approach to how suppliers are selected and onboarded. If this trend continues, then there is a huge opportunity for Procurement to implement better ways to track and store supplier data which will lead to a more transparent supply chain and help expedite the accurate use of AI systems. According to an article late last year in Supply Management, 37% of supply chain leaders contacted had blamed unreliable data for the unsuccessful roll out of AI systems. If Procurement is involved in all stages of the process, then hopefully this will soon be a thing of the past.
Procurement is bringing back the focus onto supply chain sustainability
More than 200 of the top Fortune 500 firms have a presence in Wuhan - the original epicentre of Covid-19. As you can imagine, companies with tier 1 and tier 2 suppliers in China suffered a huge delay in receiving raw materials and finished goods. According to a study conducted by McKinsey, 73% of supply chain executives said they encountered problems in their supplier base as a result of Covid-19.
Covid has shone a light on business’ overreliance on low-cost suppliers and forced businesses to review the suppliers that they work with. Sustainability has always been high on the Procurement agenda, but slower to implement during peak times. Procurement is now actively looking to increase their local and diverse supplier base to spread risk and ensure that they are not overly reliant on Far East suppliers. According to a recent survey by Orange Business Services, 48% of companies surveyed have already switched to more sustainable suppliers with 40% of those companies even engaging with external sustainability consultants to help with their goal. Procurement teams can help drive this initiative to ensure that sustainability is centre stage when deciding what suppliers to choose and how they go about it.
Summary
Procurement still has a long way to go before it can claim to be utilized to its full potential within the majority of businesses. However, it has made huge gains in the last 5 years – showcasing an aptitude in streamlining business processes, implementing robust risk management policies, and championing new innovative technologies, alongside cost reductions. Covid-19 is another challenge to overcome but also something which could help to highlight an underused and unappreciated business function that is pivotal to establishing safeguards for future global challenges.
If you would like to discuss your current Procurement team challenges and find out how Pod Talent can help, then get in touch now to arrange a conversation. Email Declan at declan@pod-talent.com