Why the Coronavirus Has Organizations Taking a Fresh Look at Procurement
The COVID-19 pandemic has forced companies around the globe to grapple with a “new normal” in terms of navigating impacts to their supply chains while maintaining business continuity. The Institute for Supply Management found that nearly 75 percent of companies report supply chain disruptions in some capacity due to coronavirus-related transportation restrictions. Additionally, more than 80 percent believe that their organization will experience some impact because of COVID-19 disruptions.
A strong procurement operation serves as an essential line of defense in the face of uncertainty. But the scale of disruption caused by the current COVID-19 crisis magnifies how vital procurement may be. Procurement teams — foundationally supported by the latest technologies — are a critical source of real-time intelligence for executives across the business at this time. These collaborative technologies help support key decision-making that charts the best path forward for an enterprise. From identifying supplier risks and alternatives, to assessing company spend data, informing financial forecasting and impact — the case for procurement as an integral voice across the business has never been stronger.
For any enterprise, successful navigation through a crisis requires maintaining three things: business continuity, cash and supply chain effectiveness. Procurement is significantly empowering companies in addressing each critical area. Here’s how.
Procurement Powers Business Continuity
One of the first measures companies have taken in response to COVID-19 is to take care of employees and the customers they serve. In fact, EY emphasizes prioritizing the safety of employees and enabling their continuous engagement as key components of a business continuity plan during this crisis. For many companies, COVID-19 has turned office workforces into remote workforces — leaving workers, workflows, processes and much more to contend overnight with a virtual setting. Navigating this situation effectively calls for a two-fold strategy: identifying the gaps in business capabilities and leveraging procurement to fill them.
To maintain business as usual to the greatest possible extent, companies must determine where their capabilities have been impacted and how they may need to be accommodated. Can the organization’s IT infrastructure support a large remote workforce? Does it need to be stress-tested? Do employees have the necessary tools and technologies to work and collaborate effectively? How much productivity or production might now be lost to manual processes?
Once a company is asking the right questions, their procurement team can efficiently find the answers. Whether it’s voice and chat communications, videoconferencing, online collaboration platforms, display monitors or all of the above, a tech-enabled procurement function can help source newly mission-critical items while always keeping company spend in full view. For the organizations where cleaning supplies and services are a need, procurement can be the differentiator in identifying and connecting to the right suppliers.
Procurement Offers Clarity for Optimizing Costs
In response to an economic crisis, enterprises that are able to operate as lean as possible and preserve cash will put the organization in a better position to endure, particularly when the duration of the crisis is uncertain. According to PwC’s COVID-19 CFO Pulse Survey, 70 percent of CFOs are considering deferring or canceling planned investments. Procurement is essential in such efforts, helping executives see a detailed anatomy of how a business runs: how much money it is spending and where, what contractual commitments are in place with suppliers, and more.
A Deloitte report on managing cash flow during COVID-19 advises companies to revisit variable costs as a means to immediately reduce cash outflows. Using real-time automation-based procurement solutions, procurement and finance are quickly able to identify areas to reduce organizational expense, collaboratively assess key suppliers and execute against critical contracts. By having complete visibility into contracts, suppliers, projects and spending, the enterprise can easily determine what can be deprioritized, and what will provide the greatest business impact.
With the ability to efficiently access and review contracts, procurement becomes razor-sharp in opening up avenues for cash preservation. When companies can pull contract reports across the board, they can establish which suppliers need to be paid now, which have more flexible payment terms and which warrant a timely contract renegotiation. They can also take account of any contracts that auto-renew and ensure those costs are prevented where appropriate.
The holistic view offered through procurement’s lens allows an organization to be more strategic and effective in cost-cutting, instead of simply fixating on the biggest expenses and struggling to determine which have to go. Improved cash and working capital are among the positive results available to companies that focus on strategic sourcing — making its value all the more essential in the context of a crisis.
Procurement Builds Perseverance into the Supply Chain
How effectively a company’s supply chain perseveres during a crisis can make or break its reputation, if not its business. A recent Harvard Business Review piece cites the coronavirus as a “wake-up call for supply chain management,” highlighting companies that were better equipped to face the crisis because they made prior investments in mapping their supply network. Specifically, these efforts allowed them a level of agility to address risks and disruptions that strengthened their crisis response.
These advantages are accessible to enterprises with real-time data-driven procurement solutions. Procurement’s guidance and insight on risk mitigation, supplier resilience and contract exposure can ultimately drive greater business outcomes. By having the insights available at one’s fingertips, the enterprise is proactively prepared and can either switch supplier partners based on risk level or have a back-up supplier identified in the event that an existing supplier experiences a break or disruption.
Procurement also helps circumvent supply chain interruptions by allowing the enterprise to leverage geographic diversity to fortify its supplier network. The impact of any crisis differs from region to region — with some affected at different times and others affected to different degrees. By diversifying their sources and routes, companies can minimize overall exposure to risk and isolate the potential impact of a crisis without letting it snowball. A robust procurement system makes it easy to track and manage a diversified supply chain, removing any complexities associated with maintaining supplier relationships across a wide range of countries and regions.
The COVID-19 pandemic has forced businesses to adapt to a new status quo. This global challenge has shed a light on how elastic the enterprise must be to adjust. A Gartner Business Continuity Survey found that only 12 percent of organizations felt highly prepared for the impact of coronavirus on their business. Without the right collaborative tools and a high level of transparency across finance and operations, it is difficult for the enterprise to get a real-time picture of the business.
By empowering the enterprise, its stakeholders and procurement with key insights into their spending, supplier relationships and more, companies can better position themselves to navigate crises and improve overall business impact. Procurement has long been a driver for enlightening the enterprise to its own ins and outs, helping companies map a path to their desired goals with data-driven confidence. Today, as more companies recognize procurement’s essential value to business strategy, the future of the crisis-ready enterprise grows closer in reach.
Stan Garber is co-founder and vice president of Scout RFP, a Workday company.