June 23, 2020

Coronavirus Crisis: The Lessons Procurement Must Learn From COVID-19

Covid 19 Coronavirus pandemic procurement supply chains impact 900x600

The COVID-19 pandemic, more than any other crisis event in recent times, presented immediate and urgent challenges to organisations, and major threats to business continuity.

As such, all divisions of all organisations – including procurement – have had to adapt to support rapidly changing priorities. This extreme adaptation is actually an outright acceleration of trends that were already underway. The organisations faring superiorly better under the pressures of COVID-19 are those that are supported by procurement divisions whose vision has gone far beyond merely supporting processes, to one of managing relationships.

The coronavirus emergency has brought into sharp focus the importance of ‘knowing’ the supplier ecosystem. For many, it revealed shortcomings in being able to connect and collaborate with the supplier community. This hurt agility and created less flexibility – exactly the attributes most require when a crisis event causes such levels of worldwide disruption.

There is also the growing realisation that circumstances will not simply return to their pre-crisis state. For procurement, this means that the journey towards building stronger relationships with the supplier community – one that moves beyond transactional processes and towards becoming the ‘customer of choice’, is now a strategic necessity. Procurement has done well – perhaps too well, some would argue, given the rise of its pejorative alias ‘spend police’ – at creating savings and driving down costs. The emphasis needs to shift from procurement for savings to procurement for resilience, while creating wider value (such as brand reputation or know-how) for the organisation.

By assessing the impact of COVID-19 on different enterprises, and looking at those that performed significantly better, three lessons emerge:

  • Onboarding new suppliers is too cumbersome
  • Data is not fit for purpose
  • Systems are not optimised for collaboration

Crisis events emphasise inadequacies of supplier onboarding processes

When a crisis event occurs, organisations find that they must answer crucial questions very quickly and are often unable to do so. In the case of COVID-19, companies have had to pivot and provide different products in markets that are new for the organisation. In this scenario, there are two immediate questions: first, can your existing suppliers fulfil your requirements if you’re transitioning to new products, product lines, or entirely different business verticals? Second, if they can’t meet your needs, can you quickly onboard and thoroughly vet suppliers that can?

The chances are that the answer to the first question will be ‘no’ in certain instances, so there will be a requirement to onboard new suppliers rapidly. This is often the first stress test that shows the process is simply not agile enough. In some cases, onboarding a single supplier might require interactions with 20 people or more, involve multiple systems, and take as long as half a year. With new suppliers comes additional risk (such as operational, regulatory, or reputational risks), giving rise to the need for internal checks by departments such as legal, compliance and information security. The urgent need to bring on new suppliers quickly cannot be used as an excuse to simply ignore these requirements.

On the other hand, organisations that have reduced the number of ‘manual’ processes that are involved in supplier onboarding (e.g. emailing spreadsheets from person to person), that have streamlined the supplier onboarding process by establishing a single entry point, and that allow people from different departments to do what they need to do – when they need to do it – will find that they have not only improved the onboarding experience for the supplier, but will be able to pivot faster, with reduced risk, and benefit from accurate and reliable data in times of crisis.

Data is not fit for purpose

The need to rapidly onboard new suppliers assumes that the information available was adequate enough at the point of need to identify the gaps in the organisation’s supplier ecosystem. Unfortunately, as COVID-19 has highlighted with some brutality, this is also more frequently not the case. There are two critical moments in the lifetime of a ‘data point’ – the moment in which it is created and the moment in which it is used.

When we create data, we naturally create data that is fit for our own requirements and purpose – as such, there is no data quality problem at origin in the mind of the originator. When others use that data, issues begin to arise, creating pain further down the line. Normally those users that create the data are not aware of how the data is going to travel through the business, and be filtered and collated on its way to facilitating other uses, such as spend analysis, risk management, category management, performance management – or in the case of COVID-19, to understand the complete supplier ecosystem and make decisions based on that.

This happens, for instance, in the case of using ERP systems for supplier information management. It is assumed that the data is there as it will contain information on all suppliers that need paying. Actually, the ERP contains only a very small subset of all the data that is available on the supplier.

The purpose of the data is to facilitate the payment of an invoice but it is not designed to answer other business questions, such as levels of risk in the supplier ecosystem or ecosystem coverage. That means, in times of crisis, the data cannot be relied upon or the format may not allow questions to be asked – which creates frustration and distrust among other data users and means that decisions can’t be taken at business critical moments, data remains siloed and unusable, and internal collaboration suffers.

Bad data and poor onboarding means less collaboration and worse outcomes

However, collaboration doesn’t just suffer internally when data is bad or onboarding is poor.

For example, an event like COVID-19 makes it necessary to assess the supplier base in order to determine its resilience, conduct business continuity planning and plan to offer support where it could be needed.

However, with only transactional information available, an organisation is left without a mechanism for carrying out this exercise and would have to resort to manually ringing or emailing contacts in the hope that some information could be gathered. With tens of thousands of suppliers to manage, the effectiveness and timeliness of this activity is severely reduced.

Conversely, a single supplier information management system that manages the end-to-end lifecycle of supplier relationships and built on supplier data management foundations will enable rapid and efficient communication with the right contacts at the right supplier unit, while simultaneously delivering genuine business intelligence to support the critical decisions that Boards will be taking.

Going through this process is also beneficial because it is likely to identify existing vendors that your organisation is working with who could potentially fulfil your needs, stopping you from spending time onboarding a supplier that isn’t needed. When you already have a supplier base in the tens or hundreds of thousands, it’s easy to forget that existing vendors may meet your requirements.

If a new supplier is needed, it should not be complicated for the supplier to onboard or conduct business with the organisation. Suppliers have to invest heavily to work with organisations, but if these costs can be reduced through effective supplier relationship management, it creates a winning situation for all parties. This will be underpinned by data, as organisations will need to look at digital avenues to achieve these efficiencies, for example through automation that simplifies processes.

Introducing automation for manual tasks also means that procurement can focus less on functional processes and put more resources into strategic initiatives, such as enhancing supplier relationship management in order to become the ‘customer of choice’ for suppliers, creating wider value for the organisation, or driving more innovation.

Towards the new normal and lessons to learn from COVID-19

The fall-out from the initial response to the coronavirus pandemic still has a long course to run, as organisations move from reactive modes towards establishing new models of working, in what is being termed the ‘new normal’. What is certain, is that things will not return to how they were before.

Procurement teams need to take this moment to push forward with the transformation of procurement into a non-siloed, strategic pillar for the organisation that owns the relationships with suppliers – and facilitates the business conversation between the company and its suppliers, throughout the whole organisation – while learning the language of the boardroom, namely shareholder issues.

HICX estimates that most businesses over $1B in revenue already rely on third parties to generate 50% or more of their total economic value, making it more important than ever for companies to treat their supplier relationships as a board-level concern. It starts with accurate supplier data and requires evidence-based decision making.

Any gap in accessing information introduces risk, so the next steps should be:

  • Streamline the supplier onboarding process by establishing a single entry point that enables self-service for the supplier and captures relevant data from the supplier. 100% of suppliers should be onboarded through the single entry point.
  • Integrate the onboarding process into a supplier master data management strategy to ensure data excellence.
  • Use data to build supplier relationship management engagement programs at scale, engage with board issues and report on metrics such as risk, compliance and performance.

Taking these steps is the only way to ensure better preparation for the next global crisis, whether it’s a viral pandemic or recession.

As Forrester explains in its report Collaborate to Win, “in leading organisations, the procurement function has evolved to deliver greater agility, innovation, and efficiencies through strategic collaborative processes. Collaboration isn’t only about reducing risk and saving money, which is more important than ever; chief procurement officers (CPOs) and procurement teams also need to work seamlessly with internal stakeholders across business units, and with their entire network of suppliers, to create new products, react quickly to unprecedented changes in demand, and prepare for the intensely competitive markets that will exist while economies recover.”

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