Observations from EVP of North America – Dan Collings, May 19th
When we look back at the economic impact of COVID-19 in the years to come, we may view this current period as ‘the end of the beginning’. I say that because we’ve experienced the initial shock of the economic crash, but the ripple effects of the pandemic will continue to move through our economy in the months and years to come.
Millions of workers worldwide are now working from home, with no return to the office likely in the short-term. Quarantine regulations introduced by many countries make foreign travel extraordinarily difficult. And industries whose whole business model is based on bringing people together, now find that many people are scared to be near others.
My point here is that we’re now entering what many are calling the ‘new normal’, where a new pattern of life is established based around the need to manage and mitigate the COVID-19 pandemic. This presents challenges for procurement leaders. Just as the world is having to change, Procurement will need to change too. And it’s going to be hard. Nobody who is working today has ever experienced anything like this.
I wanted to offer my thoughts on three challenges that procurement leaders are going to face over the coming months in adjusting to the ‘new normal’.
Challenge 1: Maintaining high performance in a remote environment
Remote working is the new normal for procurement teams. With the old office-based ways of working gone, procurement leaders are going to have to find new ways of maintaining the high performance of their terms. There are two aspects to this.
The first aspect is talent management and development. As a procurement leader, do you have a plan for how you’re going to coach and develop your team when you likely won’t see them in person for months to come? What does training look like for your team when the schedule you had in place just three months ago is now in tatters?
The second aspect is figuring out how you build relationships with stakeholders in your organization and understand their needs in a virtual environment. There is a real risk with the fast pace of a remote working world. Decisions are made without the consultation of Procurement. To avoid this, you have to make it easy for stakeholders to engage with you and show how you can add value to what they are trying to achieve.
Challenge 2: Adapting Procurement for the needs of the ‘new normal’
In showing that you can add value to stakeholders, it’s crucial to understand that a business’s needs in the ‘new normal’ will be different. In the coming months, Procurement will need to help make decisions at pace. Businesses will need solutions far quicker than a usual RFI and RFP process would allow.
There will also be a need for greater flexibility and to make decisions not just quickly, but also with incomplete information. This all means the classic procurement model of long-term contracts with chosen suppliers will have to change. There is now so much flux in the market that to utilize the old model in the ‘new normal’ would be commercially naïve.
Challenge 3: Avoiding becoming a blunt tool of cost reduction
We all know and accept the reality that in many businesses, there will be a need for further cost reductions as attempts are made to repair balance sheets. In some ways, COVID-19 has been helpful in showing where opportunities for cost reduction are – you could almost say that for some businesses, COVID-19 has been equivalent to a zero-based budgeting exercise.
For procurement leaders, it is crucial to be involved in cost reduction conversations from the start. Acting as an adviser and helping to shape the process alongside senior leadership will go a long way. Businesses that manage cost reduction smartly can be big winners.
Ultimately, Procurement must be front of mind because we know that cost reduction is crucial but not the be-all-end-all. This crisis has shown the importance of managing supply chain risk and resilience. There is a need for procurement leaders to make a case against throwing the supply chain risk baby out with the cost reduction bathwater.