The start of 2020 won’t be forgotten quickly. Covid-19 has caused chaos across global value chains and will likely result in long-lasting damage to international supply and production networks.
Most organisations have spent the past few months fighting fires and mitigating immediate risks. But new questions arise as the wheels of industry begin to turn again. Most pertinent among them: how do we get back to business and adapt our procurement functions for ‘the new normal’?
The next 100 days will be vital in answering these questions the right way. From reassessing demand to rethinking category strategies, here are five things you need to consider.
There’s no such thing as business as usual anymore. So, before you do anything else, it’s important to identify what demand might look like in this new climate. This will help you assess the near-, medium- and long-term outlook for both your sector and your organisation.
The best place to start is by exploring how your industry has fared overall in recent months. Then, specifically, your customers, suppliers and competitors. How have things changed? Are those changes temporary or permanent?
Above all else, the key to predicting demand is having a firm understanding of the levers and drivers that affect it. This will help you better grasp the nuances of market shifts. Of these, which will be short-lived? Which will be permanent, and require you to reconfigure your business model more substantially?
This understanding can also help you predict the likely pace of recovery, which will be integral to making the right investments at the right time.
Although supply chain optimisation should be a continual process, right now, it’s more important than ever. With that in mind, there are four things you can do over the next few months to ensure your supply chain is configured for optimum value.
First, establish the short- and long-term implications of Covid-19 for your supply chain strategy. You need to identify where disruptions have occurred, how long they’re likely to last and whether you need to make any broad changes to adapt to them.
An important element of this process is improving supply chain visibility, including Tier-2 and Tier-3 suppliers. With in-depth insights into the health of each layer of your supply chain, you can implement a more flexible risk programme, identify alternative strategies and plan for a more secure future.
You also need to consider how your logistics strategy may have been impacted and assess the alternatives available. When doing so, consider how those alternatives might affect your sourcing and cost management targets.
Last, but certainly not least, find ways to embed agility into your supply chain. This is key to thriving in unpredictable times. None of us can be certain what will happen next, but scenario-based planning is an effective way to prepare for multiple outcomes, setting you up to understand the range of possible actions you need to be ready for, and then optimally tackle whatever you do encounter in the coming months.
Rethinking functional operating models is another important consideration for procurement chiefs. The extent to which this needs to be done requires a clear definition of what success looks like in a post-Covid world. Does it require expanding your reach into categories, business units or geographies that were previously untouched? Or reassessing your talent pool, and how you deploy resources optimally?
It’s quite possible the function many not require wholesale changes, but there are a few areas that need to be prioritised.
First, you need to work towards greater business agility and continuity. Embedding flexibility into processes, for example, through make/buy analyses; and identifying points to upgrade the function’s talent pool, to have better business partners, for example, is essential.
Similarly, a structured risk programme is now a must-have. Many companies have a good amount of work to do here, whether it’s looking at value chain risk, category risk or individual supplier risk. So, if you haven’t already, this is the time to allocate budget to implement strategic risk monitoring and management.
Finally, this is the right time to accelerate the digital agenda. Start by identifying critical gaps and opportunities for quick wins that can materially improve performance at minimal cost, such as enhancing spend visibility or providing better insights into supplier agreements. Then looking at alternative longer-term models that can be phased in – integrating both end-to-end and best-of-breed solutions – can help you devise a digital strategy more fitting for the current climate, your budget and the longer-term.
One thing is for certain – the category strategies you put in place for this year are no longer applicable.
Now is the time to think about what strategic changes are needed in this area to ensure future continuity. And there is a lot to think about - from the category profile, to supply regions, to product/service economics.
The best place to start, as with the other changes we’ve mentioned, is by gaining an overview of the impacts of Covid-19. You need to assess which categories have been most affected, identify the ones you need to analyse more deeply, understand how supply and demand shifts have impacted those markets, and decide what relationship and contractual changes can help better manage future risk.
Our final priority for the next 100 days is rethinking your supply options and risk levels, and improving supplier management.
Again, the first step is to assess the damage, figuring out which suppliers are still in business, what shape they’re in, and identify any new risks in your network.
A parallel strategy that may also need to be considered is reducing dependence on specific countries, regions or individual suppliers. This will require pre-qualifying alternative sources before replacing what you already have.
Ultimately, though, the question you should be asking at all times is: who are the optimal suppliers in this new environment? And what do you have to do to onboard them and get them up to speed? Having an in-depth, holistic view of supplier health – from financial and operational, to compliance and strategic – is integral to finding the right answers.
This week, The Smart Cube is opening up Amplifi PRO, its on-demand digital procurement intelligence platform, to the worldwide procurement community.
From today, companies of all sizes can easily and instantly access essential procurement intelligence, related category resources and useful decision-making tools, to help them prepare for the medium and longer-terms as the world emerges from lockdown and recent supply chain disruptions start to subside.