Covid-19 is lifting procurement's need for insight and digital

28 May 2020 5 min. read
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Three months into the Covid-19 crisis, more than eight-in-ten firms remain in the dark about the precise financial impact the coronavirus pandemic has had on their supply chains. According to a new study, digitalisation will be key to strengthening procurement in the post-outbreak world.

Positioned at the very start of the organisational value chain, procurement plays an instrumental role in helping businesses run efficiently, ensuring external disruptions are kept to minimum, and facilitating a smooth supply chain.

The sudden outbreak of the covid-19 pandemic has rapidly elevated the role of procurement, with executives turning to among others procurement leaders to execute their cost cutting agenda. According to recent research from BCG’s Inverto, around two thirds of companies have already taken business resilience, procurement and supply measures to curb costs and maintain business activities.

However, a new research from European operations consulting firm Valcon (a member of Cordence Worldwide) and Danish Purchasing and Logistics Forum (DILF) warns that many companies actually struggle with implementing and following up on these measures. In some areas, they actually are in the dark about the extent of change needed to adapt their practices amid the lockdown.

Do you have an overview of alternative suppliers to support your critical products and services?

While around a third of companies surveyed have identified alternative suppliers, and around a fifth are found to be ‘well prepared’ for the post-Covid-19 ‘new normal’, the majority have not adequately prepared for changes in procurement volumes. Worse still, many may not have sufficient insights to change this.

At present, the major concerns of the companies polled by Valcon and DILF are dominated by fears of falling sales and supply disruption. Around 34% of respondents said that a lack of sale orders was placing pressure on their company, while 21% cited a lack of supplies.

Problematically though, almost a fifth of businesses also said they have a lack of general overview on the matter – suggesting the power and speed of the current crisis has wrong-footed them, and left them at a disadvantage when it comes to recalibrating themselves in time for a global recovery.

Which challenges are currently the most important in your company?

While it might not be high on the immediate agenda of many firms, in the long-term, this lack of overview looks set to be a major hurdle for recovery efforts in procurement. After months of the coronavirus crisis, only 15% of respondents said they have fully established an overview of the financial impact of the pandemic, either before or after the outbreak. A massive 85% meanwhile do not feel ‘in control’.

With so many firms struggling to get a handle on the situation, it is not especially surprising that only 14% of firms have said they have ‘fully established’ control of the supply chain to their critical products and services, since the outbreak of Covid-19 (13% were apparently already ready before the pandemic). Meanwhile, a 73% majority of respondents still do not feel ‘in control’ of the ecosystems feeding into their critical products and services at present.

Commenting on those findings, the study’s co-authors Ulrick Sebber and Søren Vammen said, “There are several learnings that we can take with us from the current crisis. There is no doubt that once the current crisis has subsided, companies will have to focus somewhat less on costs in their supply chain and production and more on robustness in their supply chain.”

Do you have an overview over the  nancial impact in case of purchase order cancellations from your company?

Ways forward

In the immediate future, the researchers suggest that taking back control of procurement amid this crisis centres heavily on strengthening communication. Businesses need to continue close communication with key customers about demand, while maintaining close communication with critical suppliers.

Using the information from this, firms should create supply chain heat maps of critical suppliers to find stress-points. This will help to ensure that purchase orders reflect actual situation, and enable companies to identify weak-points, where companies need to prioritise identifying alternative suppliers.

Post-Covid-19, meanwhile, improved digital maturity is particularly important. While low digital maturity within procurement and supplier network cooperation is currently a major concern, the researchers also reported seeing digitalisation efforts being hastened and implemented successfully at high speed, because of the coronavirus crisis.

By igniting the digitalisation of processes and planning and supplier interactions (something companies would have had to do eventually anyway due to digitally-savvy competitors), firms can drastically improve their ability to respond to procurement challenges in an agile and comprehensive manner.