‘Business as usual’ is not a term that is valid anymore. The current situation is anything but usual. While the challenges may vary by sector, most businesses are in crisis management mode already and will remain so for some weeks, as they first deal with supply chain disruption and new ways of working as the disease works through the population.
Cross functional cooperation across businesses will be key to managing in the short term, and while frontline and operational staff will play a big role in ensuring continuity of trading, procurement and supply chain teams can and will play a pivotal role in finding solutions to minimise the impact of the current crisis.
The conversations CPOs are having with us about Covid-19 distil down to the following issues:
People. How do I keep my workforce and partners safe?
Business continuity. How to keep up delivery of day-to-day activities?
Supply chain. How to provide continuous service through this period?
Supply chain. How to right-size without burning bridges?
Customers. How do I assure safety?
Revenue. How do I look at alternative ways to drive revenue?
Taking account of the above, there are key actions for your procurement team to be doing right now. Doing these will ensure not only that you are managing the crisis effectively, but that you will also come out stronger on the other side.
1. Business continuity procurement lead. Most businesses have continuity plans for their suppliers and wider supply chain. However, given the scale of disruption expected, there is a need for a dedicated procurement lead who is coordinating the supplier base action plan and reporting to the CEO as part of a wider emergency response team. In addition to ensuring supply, it is also important the procurement lead coordinates internal needs with the external environment; where either there is an excess capacity due to reduced demand or a short-term need required due to increased demand or absenteeism resulting from the disease.
2. Championing remote working. Most companies are set up to support home working. However, working from home for extended periods will bring a new set of challenges. Most procurement events are facilitated by face to face sessions and there is a danger these events will be delayed or stall due to uncertainty. Procurement is the key relationship owner with suppliers, we have an important role to drive the necessary changes to ensure new ways of working are developed. Procurement must lead by example, with daily huddles. Focus on keeping activity visible and highlight issues quickly. Meetings with camera ‘turned-on’ are good for maintaining focus and improving communication.
3. Communication plan for internal and external stakeholders. In the time of crisis, difficult decisions and choices will need to be made. Suppliers will be making decisions on whether to supply your company or other customers as their capacity reduces. Communication to the supply base is critically important.
Remember you may be going back to these people in six months asking them to help you rebuild your inventories. They will understand hard choices are necessary, and they will also remember if they are treated with respect and consideration. Therefore, communicate to your top suppliers, but take the time to explain your position to those you are terminating or imposing new terms upon. This can be done with customised decks containing the key messages and supplier’s data, to enable a buyer to cover more suppliers efficiently.
4. Supplier segmentation and prioritisation. It is not always possible to make sure every supplier is fully communicated with, supported and the relationship maintained. You must segment the supply base and then prioritise accordingly. Segmentation will vary by business but key criteria to consider are whether they are essential to business running in the short term, where you need them in the long term to maintain your competitive advantage or whether you have alternative options. This will help you prioritise suppliers, what support is necessary and where you turn-off support or implement cost reduction opportunities. It’s important to remember suppliers will remember how they are treated.
5. Identify opportunities to collaborate. We have clients where demand has plummeted, others have seen it surge. This crisis presents significant opportunities to collaborate with suppliers, customers and industry peers. For example, a wholesale food distributor focusing on food services sector is now looking to collaborate with grocers to utilise unused capacity. In France, Ricard is supplying alcohol to Tereos, a sugar producer, and LVMH, a luxury goods group, who are both utilising their production lines to manufacture hand sanitisers. We are also encouraging our entire network to think about what they can offer and what they need. Dedicating a procurement specialist to the activity of understanding these needs and wants and expressing them as a specification could go a long way towards creating new opportunities both for short term as well as long term.
6. Contract management. Procurement typically focus on the commercial elements of contracts with the corporate legal team setting the contractual terms and conditions. When the need to manage cashflow becomes acute, options to manage the supply base are always welcome. This is a great time to go through the contracts, deciding which of these it makes sense to terminate or dial down and those you would like to reinforce to ensure supply. This coronavirus outbreak may be enough to alter the party’s obligations and/or liabilities under the contract. Therefore, the drafting of each contract will need to be considered fully. It is important you communicate effectively with your key suppliers as these provisions should be held as a last resort.
7. Identify risk in your supply chain. It is a good time to put some resources to identify risk in your supply chain both from short term and long-term perspective. Looking to leverage the position of your suppliers, the geographical split of your supply chain by category, business continuity plan they have in place as well as relationship management measures currently in place will help identify gaps.
Having a good understanding of these gaps will help anticipate where and when issues might occur to take some proactive mitigation actions. It will also prepare you better to take long term mitigation actions as you come out of the crisis.
8. Rethink your budget for 2020 and priorities. Considering significant adjustments businesses will need to make, your current budget is likely to become irrelevant as no one could have foreseen the current events when the budgets were created.
However, this crisis gives some time to rethink and be radical. A major retailer has taken the opportunity to close two central London offices, an idea that had always previously been in the ‘too hard’ bucket. Techniques such as zero-based budgeting could help identify what the priorities should be to make the business stronger as the recovery happens.
Coronavirus has taken a lot of things out of our hands. However, procurement has a major role to play in maximising the control we still have. So, you need to get organised and get ready. Embrace the new ways of working and provide pace and purpose to your organisation.
Procurement skills of developing workable specifications will be invaluable to your organisation in developing collaborations. So, understand what you can offer others and need from others and work your network.
Communicate with the supply base. Suppliers will understand that difficult choices are necessary. Procurement has a critical role to play ensuring that we continue to work constructively and respectfully with the supply base and ensure we come out of this crisis stronger.
Questions on how to implement current actions? Don’t hesitate to contact us. Our (virtual) door stays open while working remotely.
Article by: Steve Harrison, Pro Ganguly and Robin Agarwal (2020). Coronavirus: eight tasks for procurement.