Observations from EVP, Europe – Ed Winterschladen, July 2020
The business landscape in the UK is shifting at a pace most of us have never witnessed in our careers. So I thought it would be helpful and interesting to pull together some thoughts on how cost optimisation and the UK’s procurement and supply chain market is changing and the trends we’re seeing based on our work and conversations with companies over the last month.
1. Decisions continue to be made at pace and big changes are happening fast
We continue to see that decisions which would have taken months pre-COVID are now being made in days or weeks. It’s not just the pace of decision making that’s changed – it’s also the scale. Transformative programmes that previously would have been mapped out on a multi-year basis are now being driven through on timelines of a matter of months.
Ultimately, the existential challenges being faced by many businesses have put them in a situation where they need to be bold – no or incremental change is no longer an option for many.
2. Cost reduction is being used to stem the need for job cuts
‘Cost optimisation’ is probably the phrase I have heard used most in July by people in the sector. As we all know companies are facing tough choices in relation jobs, and many companies are looking at cost optimisation programmes as a way of delivering savings – ultimately so that they can protect as many jobs in their workforce as possible.
Employees are often a business’ most valuable asset so this is absolutely the right choice. We’ve found in our work at Proxima that cost optimisation programmes can typically cut supplier costs by between 8% and 15% – for many companies that provides much needed headroom to save the jobs of some employees.
3. The way demand is forecast is changing
Knowing when consumer demand is going to be high or low is key for companies and is what makes ‘just in time’ models work. However, COVID has changed the way consumers behave and that means the data that typically powers forecasting models is now often wrong.
To give a very simple example, retail businesses often forecast lower demand in August as people go on holiday – but knowing how many people will go on holiday this year is an unknown and can change rapidly (as we saw with the quarantine rules introduced for Spain).
This means that the previous data and models can now only be a starting point. New insights need to be added on top of that to get close to accurately predicting consumer behaviour as the UK emerges from lockdown.
4. Consumer choice is constricting
COVID has added a huge amount of risk and uncertainty to supply chains. The result of that is many companies are looking to make their supply chains simpler, and one of the ways we’ve seen businesses doing that is by reducing the number of products they are offering. Ultimately, the knock-on effect for consumers will be less choice.
5. Technology is in huge demand
Some of the biggest change programmes that are being progressed at the moment are in the technology space, as companies upgrade old systems to cope with new challenges or bring in new tech systems from scratch.
We’ve gone from a point in May and June where IT contractors were having to search hard for work, to one where it’s now companies who are having to work hard to find available contractors. That’s a problem that companies need to be aware of and think about how they workaround.