Emerging from the crisis - The role of procurement

Emerging from the crisis - The role of procurement
Published: 27 May 2020

Boards and governments now see procurement leaders as playing a critical role in ensuring that their organisations avoid interruption to production or critical operations today, whilst shaping their future. Whilst coronavirus has taken many things out of our hands, procurement plays a pivotal role in maximising the control we still have. Leaders must be organised and decisive, providing value to their organisations in the crisis of today, whilst building a robust strategy for the future.

The crisis has highlighted that for many, their supply chain business continuity plans have fallen short. This is leading to significant scrutiny on end-to-end supply chain transparency and risk mitigation enabled by technology.

Previously, it has been suggested by some, that the function has been unappreciated, where savings had been seen as the only critical success metric. Yet now, many organisations are revaluating what they need from their function in the future and what skills are required from their leaders to drive this change.

Tom Graham a Consultant within Berwick Partner’s Procurement and Supply Chain practice discusses what organisations are looking for from their leaders and how the global pandemic is impacting how they plan for the future. Since lockdown, he has spoken to Global Chief Procurement Officers from across industry, discussing how COVID-19 is transforming their operations and the people they need to drive change.

Supply chain strategies

COVID-19 has been a catalyst in the revaluation of the majority of CPO’s supply chain strategies. Many organisations who have believed that global supplier agreements have been the benchmark for good procurement for years are now questioning this strategy. CPO’s from across industry are now in agreement that the global pandemic has made them revaluate what ‘good’ procurement looks like.

CPO’s from production or automotive industries where long standing and accepted best practice principles such as ‘Just in Time’ recognise that this approach now faces an uncertain future. Disruption in the supply chain from Tier 2,3 and 4 suppliers remains an issue, culminating in a shut-down in operations or a slow or staggered recovery when production restarts. Furthermore, each supplier’s resilience will vary from country to country.

Countries will ease lockdown restrictions at different times, some may go into a second lockdown (as we have seen in Singapore), whilst others, particularly in the less developed world, will suffer a catastrophic loss in service. Introducing new sources and building inventories are both being considered yet come at a cost and take time.

Supply shortage is a problem, particularly in the pharmaceutical sector with one CPO stating that whilst their supply chain stability has not been compromised, there have been issues getting sufficient raw material to maintain production. These supply chains have been too rigid and not been able to cope with a ramp up or down in demand. Questions are now being asked as to how they can build greater flexibility into the supply chain and their onboarding process.

A CPO from a leading financial services organisation discussed a catastrophic loss of service from their offshore BPO’s, particularly in countries who did not have the technology infrastructure to work from home.

So, what is being done?

Leaders are now shifting focus to the ’new normal’, as McKinsey state in their article, Supply- chain recovery in coronavirus times – plan for now and the future’, “leaders must design a resilient supply chain for the future.” For many the crisis has raised questions as to what they want their supply chain to look like long-term. Simpler supply chains which are agile and resilient are becoming preferable taking precedence over cost.

Procurement executives, particularly in manufacturing or production environment, are investigating how to nearshore activities. New models structured around more localised operations, allowing greater flexibility to a change in demand and increased uncertainty are now more attractive. De-centralised/localised supply chains have tangible advantages, keeping pace by having a clearer visibility of each geography.

A CPO from a leading insurance business explained that nearshoring was also being looked at with their outsourced contact centres. An increased confidence in a flexible working hours model, mean considerations are being made as to how flexible shift patterns, with employees working from home will ensure they can cope with peak demand call times. If there is not the current opportunity to nearshore, certain CPO’s are looking at where, or how this can be developed, evaluating opportunities for collaborative competition in order to build a more local supplier base.

Regulated industries such as pharmaceutical and central government are realising that greater speed and agility is required. As some processes have been streamlined during crisis, a CPO from a leading pharmaceutical business questioned why we would revert back to a slower process, which offered no clear ‘value-add’ when we return to normal.

The role of technology

The silver bullet appears to be coming in the form of digital and technology enabled transformation. The crisis has meant there is no longer time for bureaucracy with businesses fast-tracking programmes that digitally map their supply chains. As McKinsey state, ‘a digitized supply chain strengthens capabilities in anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity’.

Technology has ensured many businesses still maintain operations by working remotely. For several, this global crisis has forced them to try new things, ‘breaking habits’ and proving that certain preconceived ideas were false. It has forced new ways of working, and by utilising technology, demonstrated that you could achieve want you wanted when working remotely. Many organisations are using this as an opportunity to review their business, posing the question, “what do we want our business to look like when we are out of this?”. It has allowed some to roll out projects in a few days that had previously been deliberated on for years.

The microscope is certainly on production and manufacturing environments. Operations have altered and businesses have had to establish social distancing in manufacturing and frontline staff. Some businesses have seen production levels maintained with a reduced workforce. This has led to some assessing which elements of their business, in both production and supply chain have the potential to be automated.

When speaking to a CPO from a leading retail bank, the company has changed its perception on where his team will be based in the future, looking more broadly across the country or region, in areas that traditionally may have a lower cost base. Technology has allowed many to work successfully from home, allowing more flexibility for a remote workforce. Cross functional, executive committees are now reviewing their property portfolio across industry. Questions are being asked as to what property footprint is essential and how will they purpose of the building shift, the focus less on task-based positions and more on areas to build culture, collaborative relationships and well-being.

The skills to succeed today and tomorrow

Strong leadership skills are critical to steer us through the crisis and drive change for the future. What has been found during lockdown, is that the strong leaders in the office remain the strong leaders remotely.

Organisations are evaluating what skills are needed as we enter the ‘new normal’ and start planning for the future. Leaders are required to act quickly whilst dealing with mass uncertainty. Structure and process has its place, but leaders must have the ability to make logical, decisive decisions, without perfect information and communicate them clearly. It is these skills that will allow companies to manage the crisis today emerge from the crisis, better prepared in the future.

Relationship management have never been so important, both with your teams and your suppliers. A CPO from a FTSE 100 manufacturing company stated that his managers are having to develop their EQ skills in ways they have not been tested before, managing teams based on trust and outputs rather than presence.

The ability of their leaders to see potential physical or mental health issues is vital. Leaders must strike the balance of empathy, authenticity and ability to motivate without having too strong personal connections. 

Leaders must be creative and pragmatic; strong supplier relationship management is also critical to ensure you are a customer of choice to your supplier base. Great collaboration is required, as McKinsey state, “Over time, stronger supplier collaboration can likewise reinforce an entire supplier ecosystem for greater resilience.” In many cases, businesses and trading off existing relationships. This will not last forever and trust will need to be built virtually with new suppliers you may not have met in person and may not meet for some time.

As we look towards the recovery phase of the crisis, organisations are redefining what they will look like in the future and who they will need to drive this change. Procurement’s role has never been so critical, and the skills required to drive this change. Creativity, pragmatism and, above all else, leadership will separate those organisations that emerge from this crisis well vs those that lag. 

For more information, please contact Tom Graham, a consultant in Berwick Partners’ Procurement and Supply Chain practice. 

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