7 Lessons for PROCUREMENT from the pandemic

Novermber 2021, By Jonathan Dutton FCIPS, CEO at PASA

What have we learnt in the last two years?

Procurement held momentum when the pandemic struck in March 2020 – and had a good early few weeks coping with the crisis as it enveloped organisation’s supply side. But what lasting lessons can we take from the Covid experience and what should we do differently in future? Asks Jonathan Dutton FCIPS for Supply Clusters members:

Procurement had a good crisis in the main.

The early priorities were firstly working to secure new supplies fast (mainly PPE at first, to keep operations open), then securing vital supply lines quickly and pausing non-essential supply lines as soon as possible – renegotiating volume commitments no longer needed.

As time dragged on, they became less operational (cancelling orders, forging claw-back agreements, pausing contracts) and tactical (reassessing current needs, stock disposals, extending/curtailing agreements, building cash reserves) to become more strategic in their approach (addressing future needs, helping key suppliers, using social changes to pivot to new strategies and new requirements, rebalancing risk & cost on inbound supply chains).

Yet, bigger questions remain as we begin to exit the lockdowns and head into a new year. The alert amongst us are asking the right questions already:

i. What should our priorities be in 2022?

ii. What’s next? And how do we make sure we are ready?

iii. How will this experience affect procurement and the stakeholder demands upon us?

iv. What will the new normal look like?

v. Have we truly learnt from this experience? If so, what …?

This fifth question is the critical one for right now – what have we in procurement truly learnt? Have we heeded the wake-up call? Can we be more ready for next time?

The 7 Key Lessons for PROCUREMENT from the pandemic:

1. Service works!

Early into the pandemic Procurement responded to anxious stakeholders with a sense of urgency, aligned directly to their business needs and helped them through the buying process proactively. And stakeholders loved it!

As one stakeholder remarked, “they were our pathfinders, guiding us quickly through the process to get to the right outcome in record-time; just days rather than weeks or months”

The challenge is how we sustain such alacrity and responsiveness? What will senior stakeholders say next year when they are quoted months for an essential sourcing go-to-market exercise, ‘… how long? But you did it in days during the crisis? We want that approach!’

Use the crisis as an opportunity:

• Work to build the user relationships you built in the crisis

• Align directly to their business goals

• Consider Agile Procurement approaches

2. Rebalance COST with RISK on inbound supply chains

One story from a CPO during the early days of the crisis illustrated the RISK v COST issue and resonated for a few in that particular PASA CPO Roundtable:

CASE STUDY: This CPO had sourced specific blue bottle-tops from Milan, Italy for their bottling plant here in Australia. Milan was the first region in Europe to be locked down and the supply line was cut – quickly halting factory production in Australia. They had paid the price for a “one-eyed purchasing decision of the past” he said, and were now reviewing all vital inbound supply chains for a re-balancing of risk.

The global financial crisis (GFC) back in 2008 taught us that RISK was the biggest issue in business – not cost. Had we forgotten this lesson? What risks are we running to source vital components and supplies from overseas? What benefits are we getting – just lower costs, or creative benefits like the right shade of blue? Or technical benefits too? Use the crisis as an opportunity:

• Review all your vital overseas DIRECT supply lines to rebalance COST v RISK

• Consider a ‘PLAN B’ to offset any unacceptable risk – buffer stock or alternate local suppliers

• Utilise supply chain tracking services or local procurement service-provider outsources to manage risk UPSTREAM in your supply chain

3. DATA is always important and must be timely

Many eProcurement systems were found a little wanting early in the pandemic. Not quite what was envisaged, with not quite the information requested, or clumsy reporting, or just plain out-of-date data.

CASE STUDY: Another CPO during a PASA Roundtable confessed that the CEO’s office called him in April 2020 – they had never called before. The CEO wanted a list of essential and non-essential suppliers; with contact details for their CEO’s. Not quite what this CPO’s system offered – DIRECT or INDIRECT sure, a Kraljic Matrix even, just not a list of operationally vital suppliers. And, the contact details they did have were out of date for key staff,. And did not include the supplier’s CEO anyway.

The eProcurement vendors have worked hard these last 12 months or so to improve functionality and prepare better for future “what if” scenarios and to support business continuity plans. But there was much to do.

Not just software changes though are required – also data protocols. One CPO insists on data deletion every 13 months – she argued that this made regular suppliers on-board again annually and ensured DATA was much more up to date. Use the crisis as an opportunity:

• Review your eProcurement systems strategy – and the functionality of your systems to support BCP plans

• Reconsider your data policy – what works for you?

• What data do you hold on your strategic suppliers? Is that up to date? Always?

4. Supplier Relationships are valuable but need proactive investment

During the early stages of the crisis, most procurement people were directly engaged in one of three important activities - either securing vital supply lines, sourcing new requirements or urgently pausing non-operational supply; each as their business needs dictated.

Yet each of these three activities called upon a new level of vendor engagement – even to the point where fast relationship-building substituted for procurement process. Really, supplier relationship management (SRM).

Indeed, this crisis has highlighted just how SRM can become a strategy more than a tool; a lesson we should not miss the opportunity to capture.

Case Study: Another CPO, in the health sector, and later in the crisis, answered a key question about how they secured vital medical supplies at the height of the crisis? Simply that “our friends didn’t let us down” she answered.

She elaborated that investing in supplier relationship management (SRM) as a strategy was not easy, took time, needed perseverance, and a strict commitment to proactivity to be able to achieve strong supplier relationships.

The really difficult element of this strategy was convincing a sceptical CFO up front of the need to invest in “being nice to suppliers” as he had paraphrased the request for budget. Hiring an SRM manager or three, attending quarterly meetings with the top 25 suppliers (100 meetings per annum), training the team on SRM, working-up an SRM strategy and set firm goals, all takes valuable resources. The difficult thing is being precise about the hard benefits of SRM … and quantifying them in a business case which justifies the investment.

Use the crisis as an opportunity:

• Determine your Top 25 strategic suppliers – use the Kraljic matrix

• Establish your goals for any SRM strategy engagement with these Top 25

• Specify HOW your SRM strategy will deliver these goals and insure you for future crises

5. Business Continuity Plans were often weak and rarely included the supply side

Too few procurement teams seemed to have genuinely well-prepared business continuity plans (BCP) in the event of a major supply failure - never mind for any potential pandemic.

Volcanos over Indonesia, and the surrounding region, have erupted several times in recent years – not least in 2017. It was remarkable at the time how vulnerable Australian and New Zealand supply chains were to air-freight interruptions. Stock outs within one week were evidenced in certain categories. Once again, a wake-up call unheeded perhaps?

Use the crisis as an opportunity:

• Review your BCP plans from first principles

• Add an external supply-side perspective

• Work out a BCP strategy for your vital supplies – with a PLAN B for reach

6. Sustainable procurement initiatives have genuine momentum

Early in the crisis, as the topic of sustainable procurement was raised in the PASA CPO Roundtable, and one CPO snapped, “who has time for that now? We have a business to save, otherwise we’ll never discuss it again …”

Two recent pieces of research (Grosvenor 2020-21 and The Hackett Group 2021) both verified the momentum that a widening range of sustainable procurement initiatives have built. Both research reports highlighted the prominence of RISK as the number one priority for procurement teams at the outset of the pandemic (as opposed to the usual COST priority at all other times) yet both seemed to identify the usual pre-eminent COST focus within just six or so months of the crisis and, then, perhaps more surprisingly, the re-emergence of sustainable procurement initiatives.

Indeed, the momentum built up by the sheer modern relevance of the topics within the ‘umbrella’ term of ‘sustainable procurement’ and, driven largely by the younger staff within the procurement profession, as well as some mandatory elements within the new growing corporate ESG agenda (environmental, social & governance) has ensured its re-emergence as the time became right.

Use the crisis as an opportunity:

• Determine your status on all mandatory elements of sustainable procurement and establish your next steps towards compliance

• Align your sustainable procurement policies more towards your organisations specific needs and towards brand relevance

• Prioritise your sustainable procurement efforts in terms of relevance, resources needed and ease/practicality of implementation

7. COST is always a priority, if not a strategy

Cost can never really be a strategy. Only a tactic for an outcome or for good housekeeping or, even, for survival in extreme circumstances.

“You cannot cost-cut you way to greatness”

Ruth Porat

Yet, like it or not, for procurement teams COST is ‘table-stakes’. Always expected, even demanded. And, as the ramifications of the pandemic became more obvious for the many organisations that suffered through close-downs, reduced demand, supply deficiencies or restrictions, fiscal repair demanded the knee-jerk reaction of cost reductions. Often draconian cost reductions too. Especially for those short of cash and needy to survive.

But, nonetheless, safe territory for procurement people. Reducing cost. Again.

Use the crisis as an opportunity:

• Rehearse your argument with suppliers – why more cost-down this time?

• For one-time cost-reductions – what GAIN will suppliers get in return?

• Prepare to manage COST during more inflationary times.

Conclusion

As the pandemic recedes (we hope) and a new-normal beckons, reflecting on these 7 tips for applying the lessons that Procurement should perhaps have learnt from the crisis, will enable you to work out what is most relevant for your organisation as we build-back-better. For that, ultimately, has to be the challenge – how, we learn from our experience, and apply these lessons in future.

Building greater preparedness, and resilience, into the supply side is vital for Australia and New Zealand, as service-based economies with HIGH quality needs and LOW volume requirements, located at the very tip of the global supply chain.

And we are unlikely to have yet seen the full extent of the supply side crisis. The bottlenecks in global supply have not fully played out. For example, the container crisis has not peaked, yet prices are currently six-fold to ship containers and most are in the ‘wrong place’ for facilitating easy global trade. Shortages of core materials (timber last month, supermarket range this month, new cars next month) have not played out yet either. More shortages will surely follow.

‘Assurance of Supply’ is the first responsibility for any professional buyer – not price or cost management and not even risk per se. Just getting things to turn up when they should – DIFOT: delivery-in-full-on-time … what are we doing today to ensure this tomorrow for our organisations?

Jonathan Dutton FCIPS has a non-executive role at SUPPLY CLUSTERS and writes a monthly column for the website. Jonathan is the CEO of PASA who run a wide range of procurement events and training programmes each year www.procurementandsupply.com and cover all aspects of sustainable procurement thoroughly including their forthcoming conference on the topic. He has also worked extensively in the past as a procurement consultant and is a former non-executive director for over four years of the Australian Centre for Corporate Social Responsibility (ACCSR). Jonathan also holds a non-exec role at Axis Group International based in Perth.