Pressure on public sector procurement, right across the world, has never been greater.
Speaking to social housing, health and care buyers and suppliers in the US, Europe and Asia, it sounds like they are all juggling similar problems. Shortages of critical items, vulnerable suppliers in crisis, demands to shorten supply chains and a rise in contract disputes all top the list.
The coronavirus health emergency has put huge stress on public services and this, combined with rapidly rising unemployment, has meant that all eyes are on procurement to help preserve the bottom line.
But the pressure doesn’t stop at cost savings. Public buyers are managing unprecedented sourcing demands as well as the cash flow woes of at-risk suppliers, many of whom need payment and performance relief.
As the scale of the economic slump becomes clear, there will also be an expectation that public sector procurement can lend a hand in supporting communities, alleviating poverty and creating social value.
Amid the damage this pandemic has wreaked, there are green shoots. I’ve never known procurement to have such a high profile across the media and in boardrooms. In my sector – social housing – I see buyers battling every day so colleagues have the protective equipment they need and it feels like procurement’s critical business role is finally being recognised.
So, what’s the best way for public buyers to embrace this visibility and demonstrate their strategic value – not just their ability to locate goods and hammer suppliers down on price. And how do they achieve this while also coping with the daily demands of the crisis?
1. Don’t let cost dominate
Over recent weeks, buyers have been criticised for taking a hard line with suppliers, trying to reduce prices or introduce tough new terms. This may come from the financial stress they are under and the fact that for too long, procurement teams have been judged on the contribution they can make to the bottom line and little else.
With a global recession looming, this focus on savings won’t abate. But procurement’s new-found profile offers a chance to explain the importance of maintaining value for money rather than reverting to lowest-cost procurement. During a downturn, this is more important than ever and procurement managers must make the case for a holistic approach going forward.
2. Focus on the here and now
Supply markets across the globe are changing rapidly, prompting buyers to gaze at their crystal ball to forecast peaks in demand and shifting supply sources. The problem is that geopolitical risk around Covid-19 is a living beast. Trying to predict the future is important but it can’t distract from managing challenges here and now. Strong communication and relationship building with your supply chain must be the priority; it will ensure that your organisation is first in the queue as the economy opens up.
3. Be open-minded
One common theme for public procurement globally is the pressure to buy locally. Social distancing has put more attention on using local suppliers to minimise movement of goods and people. But there have also been calls from many countries to reduce dependency on imports and increase the sufficiency of national supply chains. This comes from a desire to increase supply chain resilience but it is also driven by economic nationalism, which is gathering pace.
Procurement teams must stave off any pressure around localisation and make well-considered decisions that are right for their organisation. Localising supply chains isn’t a magic bullet, particularly when it comes to manufacturing. Post-pandemic, there may be more emphasis on local sourcing, but a one-size-fits-all model isn’t the answer.
4. Get ready for the future
Covid-19 is speeding up change in procurement. In the not-too-distant future, resource scarcity, increased regulation and large vendor dominance will force procurement professionals into proving their relevance to suppliers. Being seen as an important customer will become an art form and many of the skills that have been honed during this crisis – innovation, collaboration and data handling – will help. Anyone who wants to stand out in procurement must sharpen their capabilities in these areas.
In the public sector, procurement people are often seen as pen pushers on the periphery, sourcing products, policing spend and trimming prices. But this crisis has shone a spotlight on just how central the procurement function is to business longevity. It’s time for buyers to step forward, stand firm and make the most of these difficult times.
☛ Dan Gibson is a procurement consultant at Procurement for Housing