Covid 19- The Black Swan Event
Covid 19, the event that was not heard of and thought of when we were saying Good Bye to the last year 2019 is the most searched keyword for last few months. This is one thing that is changing the world and mankind and is defining the new normal, which individuals as well as all organizations across the world are still digesting and adapting to. Be it remote working for the employees of the organizations or the social distancing for individuals, things have changed in last 3-4 months and still are in the process of changing.
In this article, I would share my thoughts on “Impact of Covid on Supply Management Function” and “things to do in the new normal”.
Supply Management, the function that includes Sourcing, Procurement, Supply Chain & Logistics is no less impacted and in fact has emerged as one of the key functions, which is helping organizations to transition to the new normal. This article will help you understand (in no fancy English) how Supply Management function has impacted, rather going through transition (and transformation, as I believe in).
Role of Supply Management in the Organization
Every organization is different. The way it operates is different. The culture varies from organization to organization and the processes differ too. With all the differences, the role and goals of the Supply Management function broadly remain the same:
- Demand planning and forecasting along with production function.
- Sourcing & procurement of Goods and Services required to run the organization and its customers’ needs.
- Managing the inflow and outflow of the inventory – Be it the raw material required or making the product or pushing them to market along with sales and marketing functions.
- Putting Agreements in place to ensure safety for the organizations.
- Driving Cost rationalization and optimization.
- Ensuring compliance in 3rd party spend.
- Managing Supplier relationships by driving SLAs and KPIs in supplies.
Impact of Covid-19 on Supply Management Function
- When the offices are shut, the factories producing essentials are the only ones allowed to operate, the customer base of the organization is working from home, the impact is on both sides – Demand and Supply. With reduced demand, the suppliers who were looking for new buyers for their products were impacted. On the other hand, buyers who were getting supplies from their supplier/vendor base got impacted because of no supplies from them.
- New safety & compliance guidelines were put into place for the organizations as well as the individuals. From social distancing to be followed in the factories & workplace to ensure employees and workers are equipped with PPE kits, things have changed in recent times.
- Scarcity of raw materials supplies, indirect material supplies and the higher lead time is another problem that happened to result in higher prices, limited availability and increased logistics cost to the companies.
- Focus for a lot of sourcing & procurement staff changed to procure a lot of PPEs, varying from masks, sanitizers, office sanitization services, etc. which were not procured in past by most of them.
- Needless to say, buyers and suppliers lost chance to meet each other face to face and negotiate on table. Almost everyone was working virtually and some of the buyers/suppliers who were not familiar with collaboration tools faced difficulties in executing negotiations effectively. In a nutshell, virtual meetings were done for decision making.
While a lot of changes have happened at organization level in various functions in last few months, the Supply Management function has changed too. With all the learning that supply management function has had, here are few areas that should be adopted by the Supply Management functions and professionals to be successful in the post-covid world or the world, where new normal is different.
What to Do to be a Part of the New Normal?
- First and foremost, Buyers need to revisit their supplier agreements and compare pre-covid and during covid situations to analyze what challenges they faced and what needs to be changed in the agreements. Needless to say, the time is to pick up discussions along with legal with the suppliers to bring protection to the organization, be it on “Force Majeure” clause or the “Termination/Exit clause”.
- Revisit your supply base. This is much needed. It is the time when instead of having dependency on one supplier or a couple of suppliers, organization need to have a base of supplier who are ready to serve it when needed. To keep the relationship going, it is advised to keep procuring small quantities from time to time from additional suppliers.
- Start/Improve Supplier Relationship Management program. SRM is not about having a scorecard on KPIs and SLAs, it is about understanding the business, the capabilities, the assets and the skill sets of the supplier. Many a time, a supplier does not take a risk or have a sense of exploring its skills and assets to get into different products and services offerings. Having a healthy discussion, brainstorming sessions may open up new opportunities for a supplier who may Thank you enough. Example- Automobile OEMs started manufacturing ventilators for hospitals, Electronic manufacturers started manufacturing surgical masks, Sugar producers started manufacturing sanitizers…..and all this happened in last 3 months and the assets these manufacturers had to invest in were very limited.
- Needless to say, Covid has taught many things to almost everyone, so the sourcing and procurement function should remain ready for surprises going forward too. Plan for short term and long term is not enough. There is a need to start planning for near – short term too, which can be in the next 24 hours. There is enough data points organizations sit on. The need is to utilize the data science tools to predict daily than monthly, quarterly or annual plans.
In a nutshell, the world has changed and the new normal has changed too and will keep changing as mankind and organizations learn to live with Covid and its effect. Those who have Flexibility, who believe in Change and have Agility will be the one who will survive going forward.