I have been thinking for a while about the response of Procurement
in the current Covid-19 environment.
Many colleagues have already shared their valuable ideas and experience on the topic.
Many colleagues have already shared their valuable ideas and experience on the topic.
Personally, I struggled
to find a structured answer as post COVID-19 means an unclear future related
to:
- The evolution of the pandemic.Will we face new waves and how will the virus progress in Africa or South America? Will we quickly find a treatment or a vaccine?
- The response of all governments.Will they collaborate or continue to compete (incl. closing borders)? Will the member states of the European Union finally join their forces to regain some international influence and power?
- The reaction of funds, markets and banks.Will they carry on with their usual practices; or will they really start to support the corporations with strong ESG ambition and goals? What will happen with heavy debts from so many governments?
- The answer of the citizens.Will we comply with the ‘de-confinement’ measures? Will we change our values and behaviors in the medium or long term?
- The recovery of most sectors mainly depends on the above-mentioned items.
- The first 3 Cs are the foundations
- The following 4 Cs are the pillars of the remediation plan
Compassion:
This extraordinary context will continue to generate difficult or extreme situations for people, entire families and businesses. It is all about humanity, solidarity and respect.
Commitment:
Companies and their top executives have the obligation to save employment and essentially communicate in a transparent way to their workers.
As individuals, we need
to continue to work hard independently of the likely future. By complaining or slowing
down, we will run faster towards the abyss. With a positive mindset and
commitment, our days are more positive, productive
regardless of the short-term future that is awaiting us... and, of course, we
contribute to the survival or recovery of the company.
This personal commitment should
be carefully evaluated: depending on the situation, we should
also set aside some quality time to learn new skills and think of a plan B.
Collaboration (and confidence):
To succeed in such a context, the motto is “more
collaboration and less competition”. This is a drastic change for the whole
society.
Internal: Strong cooperation among the key functions
of the company (Executive Mgmt., Sales and Marketing, R&D, Production,
Supply chain, Procurement, Legal). Having a common direction, a set of key
guiding principles, a joint decision-making process and collective actions is the
only way for a business to subsist and recover.
External: With suppliers and customers, it is about combining
capabilities / capacities (possibly depleted) and defining clear outcomes to achieve
together. Keep bargaining with a supplier and lowering the unit price meanwhile
increasing payment terms will end up being highly counterproductive.
Wide: Rather sooner than later, Procurement
departments will have to explore and become much more familiar with ecosystem
management.
Calm (prioritization):
Categories (and risk management):
Costs (and cash flow):
Creativity (or innovation):
Many areas of the business are overwhelmed by requests
and actions to be launched in a context of constraints and obstacles. More than ever, the collective prioritization of the tasks and initiatives
becomes a strategic and vital exercise. Teams are already working on the
impossible; miracles take a little longer.
The strategy of key categories must be revised by
re-analyzing supplier markets and re-assessing the impacts (positive and
negative), risks, possible diversification of the sources of supply. This analysis should also include digitalization and sustainability.
In some cases, the
company gets more power. Taking advantage of the situation may seem
like a good solution: I really wonder about the short-term effectiveness and it
can only goes wrong in the medium / long term.
In many other cases, as a
client, we can face a loss of power in negotiation or supply shortages. It is
all about being highly creative and decisive.
Based on the previous points, only a sustainable cost
optimization approach seems to be the right solution: Zero Based Budgeting and
TCO methodologies; optimization of processes, flows and stocks; systematic removal
of any type of wastes; management
of internal demand. Squeezing suppliers (that on average account for 60% of the total expenditure of a
company), could easily mean short-term gain and long-term pain. Finance and
Procurement must go hand in hand.
The current situation requires rethinking everything,
finding new ideas together with customers, suppliers and other partners (incl.
direct or indirect competitors). The companies that will leverage
hyper-innovation will be in a great position to win.
In the medium / long-term,
we will see how SRM (Supplier Relationship Mgmt.) evolves to CBM (Collaborative
Business Mgmt.); we will negotiate more relational contracts instead of typical
transactional or performance-based contracts.
In the last few decades,
many things have evolved in Procurement, but, in the end, little has changed.
In these complex and hard times, as professionals, we have an opportunity to
demonstrate our full potential. It is time to be brave.