We have all seen how the pandemic has affected businesses and led to the closure of many. If procurement teams are not future-ready now, their company can take a toll too and suffer badly, says Prasanna Rajendran is the Vice President at Kissflow. Read more!
The COVID-19 epidemic has severely hampered global supply chains, causing the industry to occasionally come to a standstill as well as the closure of airports and seaports for a significant amount of time, thus preventing the transfer of both raw materials and completed commodities. As companies were trying to manage the aftermath of COVID-19, the Russia-Ukrain war occurred, whose ripple effects are now testing global economies.
The conflict between Russia and Ukraine is significantly influencing the world's supply chain, obstructing the movement of commodities, causing sharp price hikes and product shortages, and leading to severe food shortages globally.
A recent study by Mckinsey shows that in addition to regaining profitability and finding methods to conserve cash, businesses must also struggle with shifting dynamics in the supply market, evolving workplace practices, variable demand, and de-risking their supply chains to make them less susceptible to disruption.
We have all seen how the pandemic has affected businesses and led to the closure of many. If procurement teams are not future-ready now, their company can take a toll too and suffer badly.
Conducting Sourcing During a Crisis
Following strategies are adopted by best-in-class procurement teams that help them navigate through the uncertainties faced during a calamity:
1. Investing in Collaborative Sourcing
Every procurement expert stresses the importance of collaboration. Collaborative sourcing is achieved when sourcing executives, buyers, and suppliers work together to achieve procurement goals. Collaborative sourcing embeds more comprehensive supplier category strategies and in-depth perspectives of supply marketplaces compared to traditional siloed sourcing methodologies.
A report on strategic collaboration mentions that your relationship with suppliers should be strategic instead of transactional. To do so, collaboration should take place within the organization as well. Procurement leaders should engage senior management on the procurement vision and communicate the goals throughout the organization.
This can be done through interactive presentations clearly stating the potential outcomes of the transformation, talking about it in weekly team meetings and sharing case studies of organizations that set their procurement goals straight. Dedication to the vision is the key here.
When the whole organization is on the same page, they reflect similar values and objectives to the suppliers. This fosters a connection built on trust between the customer and the supplier. It does this by allowing for the suppliers' most effective standard services with minor alteration and a thorough grasp of the acquired services.
If your supplier is comfortable doing business with your organization, they will not want to lose you. They will ensure that they stick with you even in challenging times, accommodating your organizational needs as much as possible. In addition, such suppliers also offer discounts and rebates that prove advantageous during crises for the buying organization.
2. Inculcating Contingency Planning
The first step in risk management during a crisis is having a strategy. Remember that market circumstance won't always be favorable when developing your sourcing and procurement plans and be sure to account for uncertainties.
Top companies work tirelessly on guaranteeing business continuity and minimizing supply chain risks. They create business strategies, realistic roadmaps, and liquidity scenarios while considering their company's income, operating expenses, and the results of existing and upcoming market disruptions.
Apart from having secondary sources to supply critical goods and services, they make identifying new suppliers a continuous process, as opposed to when the need arises. When a crisis strikes, alternatives become crucial to staying ahead. Another lesson that was learned from COVID-19 was the geographical diversification of suppliers.
A supply chain's rival suppliers frequently have a propensity to cluster together in order to benefit from a nearby port facility, labor, or technological spillovers. However, being close to one another also makes whole supply chains collapse due to a common issue.
For instance, the province of Wuhan, which served as the Covid-19 outbreak's focal point, is a significant source of supplies for the consumer electronics sector. Therefore, when buyers have other suppliers in the same area, their businesses are more exposed to an interruption in the supply chain.
3. Using Digital Technologies for Enhanced Visibility
In uncertain times, businesses try to cut spending and postpone significant investments. Capital expenditures are postponed while cuts are planned. To maintain a routine, the procurement team requires insight into several spending categories, including contingent labor and direct and indirect products and services purchased.
Proactive procurement teams rely on solid spend analytics that depicts a single picture of all their spending to reach the unmatchable degree of visibility. For instance, with access to purchase orders, teams may determine if the associated cost should be postponed, renegotiated, or canceled. Your spend analytics should show growth and drops in spending throughout your company from various budget owners.
Apart from that, modern technologies can identify different trends around the globe and predict the market situation for the coming months, also known as predictive analytics. Top companies are utilizing such technologies to prepare themselves for upcoming events. Such procurement software also helps provide greater visibility into supply networks, which informs them which supplier they can not rely on beforehand.
4. Training Procurement Teams
Procurement teams must intervene when the business climate deteriorates to reduce spending and support their company through the crisis. To make this happen, you need a strong procurement staff specializing in all areas, including contract administration, strategic sourcing, data analytics, and reporting.
Smart companies invest in their procurement teams by training them and keeping them updated with the latest market trends. Training may range from technical, such as leveraging software, to non-technical, like developing relationships with suppliers. Procurement training provides specific management skills by combining current industry notions to produce an advanced level skill set relevant to any procurement team member.
For example, a better understanding of the effects of procurement on an organization's finances can lead teams to cut unnecessary costs and boost efficiency. Similarly, working on their interpersonal skills can help in establishing a good relationship with suppliers which proves beneficial in challenging times.
Skills such as change management and adoption prepares procurement teams to adapt and adjust in an unstable environment posed by the crisis. Personal development training can also help teams to stay motivated as they can set individual goals that resonate with the organizational goal without any direct supervision.
In a nutshell
As the world is evolving and becoming globalized, any crisis happening in one part of the globe will undoubtedly affect the other part. In addition to the present crisis, unforeseeable events like natural catastrophes and an economic downturn cannot be avoided.
The secret to overcoming such situations is to make the most of your company's procurement capabilities by emphasizing contingency planning and bolstering your supplier network. Procurement will still be crucial to recovery in the years following the crisis.
One of the usually expected consequences of any calamity is that it limits the movement of people from one place to another, restricting them to their houses. During such incidents, training and digital technologies come in handy to communicate and deal with unforeseen situations.
As a result, when a crisis arises, a well-organized procurement team and best-in-class techniques may enable your company to move promptly and align with the following market conditions.