Considering there is an old saying that “the secret of effective crisis management is not good versus bad; it’s preventing bad from getting worse.”
As the COVID-19 virus grew into a global pandemic forcing governments to institute social distancing measures to contain the spread, the latter point is especially notable.
However, and despite the challenging times ahead, there are opportunities for procurement to evolve, including more immediate and dramatic changes that will accelerate said evolution.
“The exposure of crisis management should be perceived as an opportunity to learn in troubled time and to have close and frequent access to C-level and investors.” – Frederic Blanc, CPO Klöckner Pentaplast
The focus of this article is to examine each of these changes in greater detail.
Handling crisis management
According to an IACCM series of surveys, supply chain disruption is increasing at an alarming rate.
In the March 6th survey, 27 per cent of responding members reported that due to the coronavirus they had experienced some disruption of their supply chain. In a follow-up poll later that same month, this number grew to 60 per cent. As of April 14th, 78 per cent are now reporting some form of disruption of their supply chains.
As a result, CPOs and procurement professionals are being called on to managed daily supply uncertainties to fulfil ongoing business needs.
In meeting these needs, procurement must have clear communication with both suppliers and stakeholders while working within a structured principle framework. The primary purpose of the “framework” is to ensure the ongoing viability of existing contracts, delivery capabilities, and cash flow (both in and out) and the resulting consequences of any decisions for all involved.
Given this objective, it is also necessary to empower procurement to make decisions in line with the principle framework and supported by the CPO. By not providing personnel with the authorization to make such decisions on a timely basis would severely limit their effectiveness. Decision-making freedom is especially important to manage low demand and what is becoming an increasingly uncertain outlook. Otherwise, how will organizations bridge the gap to reach shareholders returns?
De-Risking the supply chain
The crisis has taught us about the risk of over-adopting a low-cost country sourcing strategy in which most organizations place their eggs in a single basket, i.e. China. In this regard, it will be an absolute necessity for CPOs and procurement professionals to push for greater supply base diversification to reduce its exposure to “sole source” supply.
Starting with having a better understanding of value chains (Tier 1, Tier 2, Tier 3) diversification while initially challenging, will bring opportunities to qualify new suppliers. It will also prompt procurement to question/adjust specification/demand profiles during this critical time and beyond.
When we say beyond, what we are talking about is “advance market intelligence”, and a more substantial knowledge of the entire value chain as many of the current upstream suppliers may no longer be in business when the crisis has passed. In short, forward-thinking is vital.
Considering the above, diversification will also focus efforts on developing local sources. In essence, a repatriation of the supply chain – where it is feasible, to buy close to where you use/sell it. To be effective in this new arena procurement must be open to new and innovative business or contracting models such as longer contractual engagements, joining forces with other companies, and helping with financing.
Enhance supplier relationships
Whether solidifying current supplier relationships or establishing new ones, CPOs and their procurement teams must be able to reach out to suppliers to develop a deep or more in-depth understanding on their supplier dynamic (i.e. liquidity status, loss of business, funding issues).
Many suppliers are extremely concerned about the future, and procurement leaders can help to bring stability through a more proactive and transparent dialogue. For example, procurement leaders should encourage their CEO to connect with their supplier’s CEO to facilitate a partnering mentality and the collaborative working towards shared beneficial outcomes.
A common purpose
There are, of course, other essential factors to consider, such as optimizing internal synchronization – you can’t communicate with external stakeholders if you are not in alignment internally.
We also a need to effectively manage the pace of change as not every organization can respond within a single time frame. In this regard, technology should have a more significant role to play, starting with engaging service providers to assist with extracting higher value from current platforms.
Finally, the public recognition acknowledging the efforts of suppliers and procurement teams to make the needed change to be effective in the collective new reality is key.
As stated earlier, with every crisis, there are opportunities for meaningful change. Having a plan that focuses on the essential levers of change is what matters most. What are your plans?
Our Guest Blogger:
Frederic Blanc, CPO Klöckner Pentaplast
Experienced Director Global Procurement with a demonstrated history of working in the consumer goods industry. Strong purchasing professional skilled in Negotiation, Fast-Moving Consumer Goods (FMCG) and B2B, Supply Chain Optimization, Global Sourcing, and Procurement.