Lessons Learned: Procurement in times of Covid19

Author: Alejandro Basterrechea (21.05.2020)

Procurement's role in times of uncertainty (Covid-19), the need to ensure business continuity and the importance of resilience for successful contribution to the organization. 

During the bank holiday in Germany, I had some time to reflect back on the last 8 challenging but very fruitful weeks in terms of learning about the team's resilience, procurement’s role and contribution. In general, Procurement is usually seen as either the transactional Procure-to-Pay bureaucratic department and/or the cost cutting savings machine everybody fears. 

However, this perception has been changing in the last few years, especially driven by digitization, digitalization and digital transformation. Advance and mature procurement organizations are taking advantage of what new technologies but also new ways of working like agile have to offer. But technology is not the only driver for the change. 

To be successful, the Procurement organization of the future has be part of decision making table and there are a few areas where Procurement needs to excel:

• Digitization: automated procurement processes and solutions
• Data: provide insight and foresight based on advance data analytics
• Efficiency: lean processes by applying disruptive technologies and digitalization
• Agility: ability to adapt to changes quickly, focus on solving problems, flat hierarchies, apply design thinking practices
• Value: become the value creator partner to the business, help the business grow, become that trusted advisor
• Network: take full advantage of the supplier network, bring innovation from the outside, connect all the right decision makers
• Egoless: partner with startups, learn from other teams or organizations that are doing the right things
• Customer-centricity: design user centric processes and tools, implement tools people love to use
• Mindset: from savings creator to value generator
• Talent: the buyer of the future requires a different and enhanced skill set than previous generation of buyers.

There are several articles and studies from top tier consulting firms on this topic already available. However, in times of crisis and uncertainty, Procurement becomes an even more important function to help companies address both the immediate requirements to maintain business operations and to ensure the company is stronger than ever once we emerge from the crisis. 

 But...How?

Based on current events organisations had to react and respond to an uncertainty never known to procurement professionals: a global pandemic. The Covid19 had a negative effect on three key areas in parallel:

i) Immediate health and safety of people

ii) Significant financial impact

iii) Supply Chain disruptions globally

And therefore, these three areas need to be addressed by Procurement organizations to ensure business continuity while protecting employees, contributing to the financial health of the company and ensuring short, mid and long term supply availability of required goods and services.

People first

Securing the health and safety of people is priority number one. In the short term you need to realign priorities to ensure deployment of all necessary measures. This could be the enablement of remote work (digitization is key), acquire preventive items for those who cannot work from home (reallocate resources to focus on procuring this items) and establish a culture of continuous communication for the engagement and motivation of the teams (virtual business monitoring but also remote fun events!).

Financial health

It is important to understand your company’s current position and major risks. There are a couple of questions you need to ask yourself: How far are revenues falling? How much is the EBIT impacted? What is your company's cash position? Where is the business most affected? 

Based on each company’s situation, Procurement will have to address its contribution differently, however, the type of levers are known.

Is Cash the problem? You might need to discuss payment conditions with suppliers, while keeping prices stable or even accepting increases. Take into account your supplier cash position, especially those that you will need later.

Is revenue falling dramatically? Your company is probably driving its operations down, which means, certain investments or costs need to be postponed or reduced. Renegotiation of contracts might require adaptation of commitments or service levels.

Is the operation of your business at high risk? Ensure your suppliers are able to deliver. Looking for second or event third options short term might be necessary.

Supplier Base

You need to be in a position to manage supply chain risks from day one. This means, understanding your supplier base in six major areas:

• High risk / Long term dependency: manage supplier risk closely and proactively
• High risk / Mid term dependency: rethink business model to assess lowering risk or dependency
• High Risk / Short term dependency: availability of goods over short term cost
• Lower risk / Long term dependency: ensure business continuity, help supplier now and leverage tomorrow
• Lower risk / Mid term dependency: leverage procurement now
• Lower Risk / Short term dependency: consolidate supplier base, reduce business, low priority

So what did we learn so far?

1. Spend management as an enabler: you can only control what you can see, therefore, a strong procure-to-pay process provides you with the transparency and information to make fact based decisions. The ability to stop the bleeding, drive cost control while being able to ramp up once we are back to normality is a key contribution of Procurement.
2. Crisis time is procurement time: use the crisis to get a seat at the table by helping the business in their challenges, whether is business operations continuity, acquiring prevention items or delivering cost/cash containment measures. But also looking into the future like minimizing supply chain disruptions or managing risks in a sustainable manner.
3. After the crisis is before the next crisis: get stronger out of the situation. Manage the risk short term while planning what is needed once you transition back to normality. Learn from the crisis, it will prepare you for the next one.
4. Every challenge is an opportunity: use the crisis to leverage procurement! This means, leverage business opportunities where possible. This could be in areas like supplier base consolidation, rethinking cost models or improving commercial conditions, while ensuring long term relationships with strategic suppliers.
5. Remote work is disruptive: take the chance to digitize and eliminate unnecessary processes. Leapfrog the digitization of procurement processes and become leaner and agile in your way of working. Working remotely will give you the opportunity to review what is working well (double down) and what is not (reduce or eliminate).

Stay safe, stay healthy!

Note: all content represents my personal experience as well as observations and discussions with peers. It expresses my personal opinion on this matter.