The impact of Covid-19 on procurement risk management strategies

PL Staff

Procurement Leaders is connecting the community on key themes that truly matter to the function, enabling knowledge to be shared and best practice to be implemented.

Through Procurement Leaders’ online Ideas Exchange events, CPOs and procurement excellence leads from different industries came together to share their experiences and challenges they face in terms of managing threats and the impact of the Covid-19 crisis on traditional strategies and frameworks.

Throughout the call, participants had no shortage of opinions, ideas and questions. Here are four takeaways from the discussion.

A new world order in Procurement

Although Covid-19 may be a unique black swan event, it might not be long before the next pandemic, climate catastrophe or the next economic downturn unfolds.

Although hard to predict, CPOs on the call acknowledged the disruption procurement their teams currently face is largely due to the historical focus on cost savings. One conceded: ‘Procurement has no one else to blame but ourselves for the leaner operations and tighter margins, and simplified sourcing. Shifting away from those old ways of working is imperative, and that will probably keep the function busy for the next 20-odd years.”

Diversifying the supply base to ensure supply continuity will start to outweigh the cost benefits of single-sourcing. Diversification is the new paradigm and procurement teams must strive to expand their supply bases, regionalise operations and find alternative ways of moving goods.

Risk is best approached collaboratively

Allowing different views and expertise to be pooled together to address shared challenges or projects helps identify hidden risks and craft effective mitigation plans. Some attendees said they follow a cross-functional approach where, for a given product, teams from operations, IT or sales work together to map out any associated risk, effectively turning the problem on its head and working backwards from the solution or objective they seek to achieve.

Working cross-functionally also presents an opportunity to redistribute responsibility and accountability for risk management across the organisation – and not just in procurement – while ensuring all teams focus on those risks that matter to the organisation.

Map out value, not spend

Similarly, looking collaboratively at the supply chain through the lens of value-adding as oppose to spend will help mapping out critical suppliers much more accurately.

One example on the call was quite enlightening. Think about any skincare product and the foil underneath the lid: although this represents a small sum on the balance sheet, it is a vital part of each product.

Each stakeholder will approach spend decisions with a different purview, and cross-functional decision-making helps take all considerations into that decision-making, but also ensures that all stakeholders understand (and endorses) the decisions made.

There’s no point having a Ferrari if you don’t know how to drive it

Technology is going to be a huge enabler for procurement teams that want to operate more effectively and efficiently. It is crucial, however, that CPOs choose the right solution providers to meet the needs of the organisation. One participant summarised how technology is not always a silver bullet for procurement teams. For example, nothing stops you from buying a very expansive new car, but some may have to ask themselves: “What’s the point of it if it stays parked in your garage because you don’t have a driving licence?”

Equally, with technology in procurement; not only do you need to assess the market to see which vendor will best fit your needs, but you also need to train your team on how to use it, ensuring they feed it the right data.

In these uncertain times, it was inspirational to see and hear the ideas and thoughts come across as strongly as they would have at a live event.

By continuing to engage virtually at Ideas Exchanges like this, we can generate the quality conversations that help you stay at the forefront of evolving procurement practices as the landscape changes, making it a more permanently relevant factor in driving value for your business.

Learn more about upcoming virtual networking opportunities.

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