We are in a time wherein the world is experiencing a phenomenon called “Pandemic” which the entire generation has only read in the history books or seen some great minds speaking in TED talks events. Having read, seen or heard, no one is prepared to handle this situation or have the foresight to predict the light at the end of the tunnel. The only option which lays in front of us is to navigate with extreme caution & with minimal consequential reparations. This is the approach adopted by most business entities and with this, we would be dwelling on the topic of Procurement & its role during such Pandemics.
When an entity is financially growing, the profits are soaring, the market size is increasing, the focus of these companies would be the topline growth rather than bottom-line stability wherein Procurement plays a major part. Bullish markets always promote higher expenditure inducing entities to spend. The money flowing outwards isn’t necessarily spent efficiently or acts as a means to bring an increase in profit but when the tables turn, these expenditures could haunt these business entities.
An entity, no matter how strong it is financially or how dominant it is in the market, should have an eye focused on cost-conscious mindset which I would like to coin as “The Third Eye” & the same is a view of the procurement division of the organization.
When there is a downturn in the market, be it triggered via social, economic, global, or environmental issues, entities restore to job cuts as their primary priority. In most cases, this has caused a domino effect, reducing the overall growth of the economy as unemployment rises. This is where procurement could play a vital role which could possibly assist in handling this situation. Having a strong cost focus would be vital and hence entities should work with procurement as they are the cash controllers of the organization. If a strong and focused procurement organization is in place, costs can be managed effectively as most cash drivers from trade debtors and creditors to price change, form a part of their daily transaction.
Strategies tend to vary from industry to industry but with a few benchmarks remaining across the function of procurement. One of the most common methods used is to identify low hanging fruits like consolidation opportunities which would result is volume benefits for the supplier, in turn, resulting in cheaper price.
The other common practice is to review payment terms with the supplier. During difficult times, negotiating a higher payment term with bigger suppliers results in better cashflows. This is a perfect time to break the monotony from the existing vendor base by finding out alternative products or suppliers in the market proving better or cheaper products.
The best way to save money is not spending, one needs to ask whether one really needs to invest or buy now or whether it would be deferred.
Contracts form an integral part of the transaction and one of the biggest common mistakes people do is not reading the contract and its terms and conditions. By reading the contract fully and thoroughly, a lot of pricing strategies can be excavated like rebates, staggered discount pricings, etc. which would have been buried in the sand during the normal course of business. Whilst taking the opportunity of such pandemics, a true procurement professional should use this to their advantage.
As you would be dealing with ambiguity, so are the suppliers. One could start the discussion on long-term contracts with minimal price escalations which would have difficulty achieving in normal circumstances. This could be a win-win situation for both the parties wherein the buyer is getting a guarantee of cheaper products for the future and the suppliers get an assurance of business in these testing times. But one should be cautious with these kinds of hedging.
Most entities will restore to old practices of productivity over costs once the pandemic is over, as many still consider external factors (such as the pandemic) to be a one-off event, but procurement should continue to instill some of the learnings of controlling costs to ensure that the entity starts to become financially stronger which in turn will lead to negative gearing and positive cash flow.
At this point in time with a rise in employees working from home or from remote locations, the need for online solutions, paperless working with better IT infrastructure has been heavily invested in. One such recent development has been automation in procurement.
From finding suppliers in the market to sourcing process with quotation obtained through online eProcurement platforms, the entire procurement organization could be made online with the current technological solutions. ERP software & online workflow solutions are utilized to make online approvals and product handling. Online tracking of goods, eContracts repository with electronic signatures, vendor performance management tools, online pricing catalogs and many more online functionalities, businesses could have an integrated online procurement solution.
Procurement ideally in the future should concentrate on strategy-related activities only leaving the operational activities to technology and algorithms. Algorithms are made for specific uses, one such is to help releasing purchase orders automatically once the requirement is placed from the user. These types of algorithms are highly advanced as they are designed specifically to make crucial decisions as well as follow-up with the suppliers electronically once the order has been placed. With these algorithms, we have just scraped the surface & the possibilities are immense which could be explored. Using the current situation to embrace automation and algorithms to make things more efficient & faster could not only lead to saving processing time but also investing in better strategies & improvements with leaner teams.
Arguably, job retrenchments due to automation have always been a hot topic, but in my view, employment opportunities would continue to rise undoubtedly but would be needing a different skillset to keep up with this new effective procurement process in place. Operational jobs in procurement will be replaced by automation which in effect will continue to hire people with IT skillset to build the systems, economists to keep track of the trend of business and market in line with technology, mathematicians and business graduates to derive strategies for the organization. This is the future of procurement once the dust settles on this grave pandemic.
Rather than thinking of this pandemic as a curse, one should foresee this as a boon. Businesses should focus on helping build a stronger and efficient procurement so it can continue keeping the costs controlled and act as “the third eye”.