The pandemic has created a seismic shift in focus for enterprises towards minimizing disruption, getting to quick recovery, and building resilience in operations going forward. With no definitive end in sight, enterprises are now taking a hard look at the way they conduct business, analyzing their spends and executing plans to conserve cash. Enterprises are now focusing on digital procurement to drive profitability in the face of uncertain growth.
Challenges with respect to state of supplies, supplier engagement and procurement costs while always important, have now assumed a new level of urgency. Enterprises are taking a view on the more granular aspects of procurement impact across factors such as force majeure exercise by their suppliers, supply disruptions due to geo-political factors to ensuring that the cash flow requirements of suppliers are taken care of via timely invoice payments. The procurement function is also facing tremendous heat due to most employees now working from home. These teams now need to be equipped with digital infrastructure as well as importantly, information and data, to be able to conduct their transactions.
The procurement function was always high on priority for automation initiatives, but the pandemic has pushed the levels of urgency several notches higher. Enterprises are investing in digital solutions to ensure automation and less human intervention across the process from sourcing to supplier shortlisting, negotiations, supplier onboarding, master creation, PO release, good receipt and invoice to posting and payment processes to ensure minimal risks and greater visibility across the value chain.
With supplier collaboration processes fully digitalized, procurement teams have early visibility of open PO’s and their respective status to determine late deliveries and poor performing suppliers to then take proactive steps to minimize risks. Since invoices can no longer be received in physical formats, enterprises are frantically automating the invoice to pay process to ensure that they are not adding to the liquidity challenges of their suppliers.
Procurement teams are actively monitoring their supply sources to have back up plans and considering shifting to local suppliers as required. They are evaluating spends carefully to minimize discretionary spends and apply advanced automation to bring down the procurement process cost. Here are some of the leading procurement initiatives to enable a quick recovery:
- Accelerate digital adoption: Digitalizing procurement processes that enables early visibility to processes, facilitates smooth remote working and significantly accelerates competitive advantage via enabling quick decisions. With digital, enterprises are bringing down their procurement process cost by at least 40% while reducing direct material and services cost by 10-15%.
- Understanding supplier risks and build resilience: Assessing the financial health of the top suppliers enables enterprises to take proactive measures to mitigate risks that could arise in the form of either delayed supplies or higher costs. Likewise, the geographic location of top suppliers and its impact due to lockdowns or geo-political tensions are being intensely assessed. Procurement teams are diversifying their supplier base to ensure timely delivery at the lowest cost. They are also actively running simulations and stress tests to determine which materials and services are at high risk and putting mitigation plans in place.
- Cash and cost management: Procurement teams are working closely with the CFO’s office to manage working capital tightly. They are finding ways to extract better value, reduce costs and deliver far greater efficiency in supplier operations. They are putting systems in place to ensure optimal inventory availability (neither shortfall nor excess). They are also negotiating better rates and payment terms with their suppliers to achieve mutual business goals.
- Procurement strategies to suit shift in new business models: Enterprises are consciously evaluating their business models to suit the new reality. Almost every industry has seen impact on customer demand resulting from their need to spend conservatively. Internal operations on the other hand has also turned on its head with remote working and supply chain disruptions impacting production. Some enterprises have moved fast to launch a new range of offerings relevant in the context of the new reality. Some others have re-arranged their operations just enough to meet the new requirements. The procurement teams are working closely with internal business users as well supply chain partners to better predict demand, create a pipeline of top performing suppliers and closely collaborate with them to quickly meet the changing requirements of business.
- Close collaboration with logistics: Identifying categories at risk due to transportation and shipment delays or costs, the procurement teams are working with logistics partners to reduce costs based on impact to supplies, leverage freight capacity and have back up plans for critical deliveries.
The pandemic is a wake-up call for everyone. Enterprises have increased vigilance on supply chain, procurement costs and are investing in automation solutions to minimize risks and accelerate processes. While this has always been important, this could now become a game changer to build resilience in the COVID world.
(The author is Founder, Director – Avaali Solutions Pvt Ltd. and the views expressed in this article are her own)