Sourcing and Procurement
Our learnings in procurement from the year gone by
The year 2020 will go down in history as the year of disruption. There’s no two ways about it. But, as Warren Buffet famously said, “the rearview mirror in business, is always clearer than the windshield,” so is the case with the pandemic-ridden year. Disruptions aside, the year 2020 has been a year of learnings and realizations about the key aspects of how we live, how we work, and that the old ways of doing things may no longer be sustainable.
Originating in China and swiftly spreading to the rest of the globe, the pandemic riled up the fears and uncertainties of individuals and businesses alike. The unique ways governments and political leaders employed to navigate the crisis is an evidence of the unfamiliarity of the situation.
The year 2020 has also laid bare the vulnerabilities in supply chains. The pandemic has severely disrupted logistics network at a global scale, keeping procurement teams on their toes. Procurement subsequently experienced several risks such as imbalanced inventory levels, low visibility of supply network, less transparency in supplier business continuity, risks related to critical labour and material supply, single-source supplier situations, among a few others.
With the world economy suffering a decline after the pandemic setback, most companies have experienced a disrupted cash cycle as well, eroding the reserves. CPOs had to concentrate on cost reduction strategies as a result, even as they strived to mitigate the risks.
After taking stock of the situation and having stabilized, it is now time for companies to bring their attention to medium- and long-term solutions to tackle the disruptions in supply chain, and plan ahead to adapt to the new normal. Even so, risk management, business continuity, and visibility must continue to be the core focus areas for organizations.
Collaboration is key
The procurement leaders I have worked with essentially concentrate on three key areas – revisiting their Operating Model to become more efficient and effective; accelerate their digitalization agenda; and driving cost savings to generate cash for the organizations.
One thing essential in driving all the above approaches is technology integration and collaboration. It was effective collaboration that helped us navigate the crisis in the first hand. Organizations went out of their way to enable optimal technology support for associates, delivering laptops and paraphernalia to their homes personally. Provisions that were not part of a usual day at work were created to arrange local transport for the essential staff handling critical work. Some even chartered planes to help stranded colleagues reach back home.
I remember my last flight to Switzerland in February 2020, when I was travelling to participate in a client workshop. I least expected it to be my last flight of the year, especially considering that I spent about 60% of my time in flying from one place to another in usual times. As in-person meetings plummeted to almost zero, I, like everyone else, adapted to connecting with colleagues virtually over WebEx or Microsoft Teams. Now, in the new normal, we are performing all functions – meetings, workshops, client negotiations – via virtual platforms.
Procurement teams and business stakeholders are also gradually getting comfortable with virtual meetings and online interactions, and are ensuring proper alignment between different functions.
Virtual collaboration is what prompted Facebook to hunt for talent at a global scale, as the need for physical office locations fade away and virtual teams take shape.
Among several other things, the COVID-19 outbreak has also highlighted the need for decentralized operations. Procurement leaders need to consider this factor while designing their future Operating Models. Global Service Providers, such as Infosys, are in a position to add value here, with multi-location strategies and strong business continuity plans in place. Such companies have the ability to redistribute work across delivery centers when required, as in the case of current crisis.
Toying with data
With virtualization, real time insights and analytics have also become vital. In order to be more proactive than reactive, insights based on legible data is crucial. Market insights have helped procurement leaders to quickly identify risk areas in the supply chain, find alternative suppliers, and review their overall service performance.
However, deploying technology is not enough. Procurement teams as well as the businesses need to employ strategies, such as Infosys’ AI- and ML-based Data Management Hub and Procurement Intelligence Hub, to extract and utilize insights correctly.
In parallel with Digital Procurement, the crisis has also brought the utility of bots to the forefront in automating and streamlining manual or routine procurement tasks. The transformation has led to higher efficiency and lower operation costs.
But not all cost savings are necessarily good cost savings. In one of our earlier SpendBytes editions, we talked about the impact of sustainability on Supplier Relationship Management process and the fact that collaboration is key. Simply negotiating lower prices or demanding longer payment terms from your suppliers is not the solution. This requires a different skillset from Procurement professionals. We have seen an increase in client requests to help them with this challenge; the solution requires a holistic, end-to-end category-centric approach, turning every stone possible, as there is no one size that fits all.
In conclusion, the COVID-19 pandemic has been a wakeup call for all of us. Certain industries could be impacted for longer, but the crisis is an opportunity for Procurement to step up and add value. It is up to the leaders to take control and navigate the COVID-19 storm.