P@54 - Post COVID-19 Procurement 7 Cs

 

 

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.

 

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.
  
  

   

I was able to think about 7 Cs:

• 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):

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.

Categories (and risk management):

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.

Costs (and cash flow):

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.

Creativity (or innovation):

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.