The coronavirus outbreak thrust procurement and supply chain to the forefront of many companies’ long-term strategies. SM held a round table to ask procurement experts if there were any upsides to be gleaned from the chaos, and if this prominence can last?
Participants
Lucy Harding, partner and global head of practice, procurement and supply chain at Odgers Berndtson
Lorraine Copes, procurement consultant and founder of Be Inclusive Hospitality
Wael Safwat, head of procurement for North America at Black & McDonald
David Medori, chief procurement officer at William Hill
David Loseby, director of procurement at Rolls-Royce
Nick Wildgoose, director at Procurement Advantage
Nick Hyner, managing director Europe at State of Flux
What was the view of procurement prior to the pandemic?
LH: “The view of the procurement function has always varied by sector, depending on how ‘core’ it is considered. In certain industries where it may have been considered as non-core, I certainly think its role in the supply chain – and enabling businesses to serve their customers and employees – may not have been truly understood until the crisis. Then supply chains became disrupted and organisations needed to secure supply for manufacture, as well as mobilise a remote workforce and secure PPE for employees to allow businesses to continue to operate.”
LC: “It has been a rarity to see a CPO within an organisation in hospitality, which I think is telling of how procurement is viewed versus other functions. If I were a CEO and understood that a function within the business is able to affect business reputation through risk management, customer satisfaction through supply chain management, and profitability through cost savings, they would play an integral part in all top-table conversations held, irrespective of the company size.”
NH: “Like any corporate function, the view of procurement is influenced by factors such as the traditional ‘cost saving’ label, the role the business wishes it to play, and how the leadership judges success. But I would say the business view of procurement can be undervalued. Management and business teams still view third parties and the related spend as a tactical area to minimise cost rather than an ‘extended enterprise’.”
Do you think the understanding of procurement and supply chain has changed?
WS: “The pandemic created a fantastic opportunity to shed light on the strategic role of procurement and supply chain. Not only in managing risks and ensuring business continuity but also as the architecture of value creation and the gate-keeper who enables business innovation and suitability.”
DM: “Risk management in knowing the supply chain and supply continuity in the pandemic has been a focal point for a lot of companies. However, the cost impact has only been amplified as most companies have had to manage cash flow and save more cost for businesses to stay alive when we have had lockdowns and no revenue or minimal revenue coming in.”
DL: “The role we have played this year has pivoted, and procurement has delivered not just demand management, but also working capital improvements and risk management, as well as providing critical thinking to projects. All this on top of the traditionally expected cost savings. However, some businesses still take the approach that ‘it’s in my budget so I should spend it’ rather than appreciating that preserving cash is the lifeblood of organisational sustainability. In addressing demand management, we have been successful but need to be careful we don’t inadvertently garner the title of the ‘procurement police’ as a consequence.”
How has the function demonstrated its value to business leaders?
NW: “Procurement has been shown to deliver value in a variety of ways. From ensuring that critical supplies or services continued to be received despite the challenges due to the virus, sourcing new critical materials like PPE or replacement suppliers, or initiating supply chain financing options to help relevant suppliers.”
WS: “Shifting the focus from being process-centric to more customer-centric was critical. This enables procurement to gain more business buy-in. The ability of procurement to influence and engage in a collaborative manner has resulted in delivering business strategic objectives. One of the most critical success factors that procurement can leverage is the deep knowledge and understanding of its partner ecosystem and the supply markets.”
LC: “I think that how value has been demonstrated has not changed to pre-Covid, but I do think the priority of value-driven procurement has changed. To navigate challenges in the last year, procurement has needed to be agile, reactive and creative, all of which are not foreign to the procurement function, but now to a greater degree. Price of course remains important, but the supplier landscape, and trading environment changing dramatically has meant that it is more equally sharing the spotlight with other areas, which I think is a positive.”
NH: “What this volatile period is showing is that those suppliers that you may have seen as strategic did not perform and others outperformed. Factors that drive segmentation may have changed and should be revisited. Also note that your segmentation to manage suppliers needs to be aligned with how you deal with them commercially – tactical to strategic. For those that are no longer strategic, these may be the right suppliers to approach more ‘directly’ for cost cutting as they are now more tactical to you.
How has procurement performed in response to these testing conditions?
DM: “Procurement has had a very positive impact through the pandemic with the main measure being financially, which has been critical and a necessity. Also ensuring a robust supply chain with minimal risk is in place and further strengthened through the pandemic. However, the working days have been very long due to increased workloads. Managing one’s own time and resilience has been tough, but with great leadership has been a lot easier.”
DL: “In indirect procurement alone we have returned 25 times the value of the cost of the department this year, so the case for procurement has never been stronger. The speed with which we shifted priorities to manage cash, enacting the business continuity plans, re-setting contracts collaboratively with suppliers, and the team’s discretionary effort – in spite of furlough and reduced hours working for a period – has been second to none. On the flip side, from a performance perspective, there has been the universal issue of learning to adapt to a new working idiom that is industry-wide, from which we have learned a lot.”
NW: “Procurement has shown itself to sometimes be lacking in terms of its risk management skills; for example, an understanding of risk dependence of sub-tier suppliers to supply end customers, having enough proactive understandings of financial failures of suppliers, having an appreciation of cyber risk in a supply chain context. In the worst cases this has led to a total or substantial failure of the relevant business. In the best cases, procurement has shown the agility to support the survival or even the improved performance of a business where it was in an industry sector that was doing well under the coronavirus customer requirements. The more advanced procurement teams – from a digital perspective – have been able to use digital twin models of their supply chain to predictively assess various potential disruption scenarios in respect of Covid and hence take appropriate risk mitigation measures.”
NH: “Aspects that worked best according to our research were how organisations used the relationship management structures and roles and responsibilities they had put in place to facilitate the communication and information sharing, and how this was combined with collaboration and team working. Conversely, aspects shown to be most wanting were the absence or effectiveness of risk management processes, the ability to use technology to access and share the information necessary, and the ability to manage performance under these unique circumstances. The inference here is that people stepped in when processes and controls were found lacking.”
What can procurement do to retain and build upon this enhanced reputation?
LH: “Continue to focus on the needs of their businesses, and continue to be collaborative and innovative with their suppliers. Continue to be easy for their businesses and suppliers to engage with to get things done quickly but responsibly.”
WS: “Investing in building capabilities, skills sets, business partnership, digitisation and diversity and inclusion. Procurement must be perceived as a trusted business partner and the go-to resources. The focus on innovation, and how to enrich both customer and business experiences, should be at the centre of procurement’s value proposition to all stakeholders.”
DM: “Continue to be at the forefront with all the key and critical core spend. Ensuring that procurement is leading the commercial envelope while driving innovation from the supply base will ensure the function goes from strength to strength. This isn’t just saying it but doing it and comes from the dynamic and engaging procurement teams out there.”
NH: “Procurement needs to put itself at the centre of getting value from the supply chain. This could be by maximising its role in transformations, embracing C-suite-led initiatives – such as diversity and sustainability, which have significantly risen in profile and require more structured activity across the supply chain. Also to maximise the skills of teams. With teams working remotely it’s even more important that people understand what is being asked of them and that they have the skills and experience to carry these out.”