Collaboration with suppliers, decentralisation and mapping supply chains are three ways organisations are managing the lasting impact of Covid-19 on their procurement operations, a conference was told.
Angela Qu, senior vice president, chief procurement officer for Lufthansa Group, told delegates at the CIPS Virtual Conference 2020 the organisation had worked closely with suppliers to manage costs throughout the first few months of the pandemic.
Speaking as part of a panel on redesigning procurement and supply chains for the future, she warned that the “crisis is not over for the aviation industry”, as it will take around two years to adjust to the new normal, leading Lufthansa to adopt a new approach to procurement.
Qu explained: “We have recently launched a zero-based spend approach to work with our service companies, together with our internal product management design department to look at what is the minimum we need to keep the plane in the air.
“We're looking at all sorts of categories from crew hotels, uniforms, lounges, customer services call centres. We've looked at all possible categories and worked with our suppliers to look at what we can do to reduce overall costs, reducing the costs for suppliers and at the same time reducing our operational costs.
“Everything is done as a very mutual agreement. We don't play the big guys on the market who say, 'You have to do this and that for us'.”
Qu added Lufthansa’s approach had paid off with its suppliers, and going forward the airline will continue collaborating with service providers.
Sopan Shah, chief procurement officer at InterContinental Hotels Group, said the pandemic had accelerated plans to switch to a “federated model” of procurement by the end of the year.
“It meant our procurement team which was predominantly based outside of London, in the US and in Shanghai, would instead be based in 14 countries by the end of this year.”
Shah said the dramatic change would “drive an element of decentralisation” and allow the firm to be closer to its suppliers and supply chain, as well as to its hotels.
“We want to be closer to our franchisees and our hotels so that we can better service all of the aspects that we need to. Maybe by driving growth, helping them sign new hotels and opening new hotels or driving profitability from an operating costs perspective. Maybe it's having a more resilient, responsible supply chain by working with more local suppliers, more small-owned businesses, minority-owned businesses and LGBTQ businesses.”
The project allowed the firm to move a lot faster, but also presented challenges in the form of communication, Shah said.
“Technology is a great enabler as is collaboration through proper data, through leveraging the technologies from ML [machine learning], AI [artificial intelligence] to RPA [robotic process automation] activities to really build a foundation that is a global operating system for our procurement organisation, but allows us to be very local,” he said.
Andrew Forzani, chief commercial officer at the Ministry of Defence (MoD), told delegates the MoD’s initial response to the pandemic was to ensure supply chains could keep working in a responsible way, but six months on it had to identify the lasting impact on the defence sector.
Prior to the pandemic, the MoD had a ‘prime contracting model’ where its prime suppliers would be expected to manage the supply chain and manage supply chain risks, Forzani explained.
“What we started to understand, actually before the pandemic with the UK exiting the EU, was that it wasn't enough just to manage the prime and to manage the prime well. Frankly, they were struggling to manage their own supply chains and some of the security and resilience issues,” he said.
Forzani said when the pandemic hit, it was difficult to answer questions on resilience issues in the supply chain, and whether supply chains could stop working in the coming months.
“We needed to understand some of the risks and issues at multiple tiers and we need to work with the primes to try and manage that risk, because ultimately the risk comes back to us,” he said.
“What we started to do was to work with the primes to really get transparency across supply chain mapping, trying to map down to multiple levels and tiers, and working in a way that we share that across suppliers where we've got common mid-tier suppliers, which does raise commercial confidentiality issues,” he said.
“It really tests collaboration across the sector as well. But we've had some really good conversations across the industry on a multilateral basis, to say as much as possible if we can share our mapping and share our concerns, you might find that we share a whole number of mid-tier suppliers that we are worried about, that are vulnerable, that we're all relying on. Until you get a defence-wide picture you wouldn't know that.
“We've never worked in that way with industry. It's been very bilateral stovepipes, programme by programme, supplier by supplier. We're in the foothills of that whole conversation.”
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