Procurement has a tangible, measurable impact on companies’ performance. Their share in the total spends of the companies vary between 40% to 70%. The global financial crisis in 2008 revealed that those companies who were not only able to manage costs down, but were most proactive in preparing for recovery, were able to improve their valuation as they emerged from the crisis. Traditionally Procurement is viewed as a support function but during crises their role becomes very important for survival.
During the recent crisis of COVID-19, Procurement Functions of many companies were found as unprepared. This revealed larger than expected risks due to over reliance on sole source in one country. Although, many have been quick to respond to this challenge with speed to source new suppliers.
To cope with such a crisis in future, there is an urgent need to build Resilient Procurement Function. Broadly this could be grouped as under.
A. Tactical Approach (Firefighting): This is a short-term approach to recover from the above shock for survival.
- Anti-Globalization: Move from off-shoring to near-shoring.
- Change Specifications: This one is sometimes a major obstacle to identify new suppliers. Review your specification and change without compromising performance requirements.
- Agile Supply Chain: Since demand is very volatile, we need to focus on flexibility and receptiveness to meet customer needs and changes.
- Supply Sources: Need to have some back up supplier to cater emergency requirements.
B. Strategic Approach (Resilience Building): This is to address the long term need to build Resilient Procurement Function. Before undertaking this, companies could check their maturity level of the procurement function.
- Spend Analytics: Creating spend visibility and accuracy by making use of standard Procurement Taxonomy.
- End-to-End Visibility of Value Chain: Traditionally procurement teams limit their oversight of the suppliers up to tier 1 level. This needs to be extended to next levels based on need.
- Strategic Sourcing: There is a need to move from tactical level to strategic level of Procurement.
- Supplier Collaboration: Depending on risk and value of procurement, one need to develop Supplier Relationship Management Framework.
- Professional Development: This calls for upskilling & reskilling the staff.
- Organizational Structure: Need to promote flat structure with peer-to-peer networking.
- Digital Technologies: Adoption of Source -to-Pay tools and advanced analytics to make procurement automated, proactive, and predictive.
Key Mantra of Success (Fundamentals have to change):
- Little Hierarchy
- Few Procedures- Keep it Simple
- Speed with optimum cost and high quality
In case you wish to assess the Maturity level of your Procurement Function and make it future proof, you are welcome to contact us .