Three ways the pandemic changed procurement

posted by Stephen Day
24 May 2021

Since perhaps the Second World War, no event has been as disruptive to global supply networks as Covid-19.

Over one year after the initial wave of the pandemic, leaders in the procurement field are still engaged in an extended campaign to overcome the challenges their own businesses and those within and around their supply base are facing.

Originally, broken links in upstream supply chains were the most significant and immediate problem for many companies, but downstream issues quickly became prevalent as well, as Covid affected not only businesses, but families, communities, and social institutions.

Throughout the pandemic, procurement has changed. It hasn’t gotten easier, but the challenges have shifted and new opportunities have arisen. As supply chain experts and executives look to guide their companies forward, it’s vital to consider both the current climate and the direction trends are taking.

Following are three areas in which changes have already occurred and in which procurement leaders should prepare now for continued change in the future.

1. Exposed fragile supply networks

Short-term reality: The decades-long pursuit of lower bottom lines by procurement departments introduced gaping holes in supply ecosystems. Contingency plans, where they existed, were often too slow, too narrow, or too resistant to scale. Connectivity has helped to bridge many gaps, allowing companies to interface with one another and with downstream customers, but adopting digital solutions isn’t always possible for suppliers with pressing, short-term capital needs.  

Long-term outlook: The standard for leaders in procurement going forward will be to not only understand the risks that exist within source markets but also those that belong to individual suppliers. Modern procurement is not about just purchasing; it’s about collaborating with suppliers to address challenges and expanding contingencies to apply to the broader supply base.

Bottom line: Supply chains will become increasingly transparent, supply contingencies will broaden and deepen. 

2. Added financial pressure

Short-term reality: Global economic slowdown means reduced availability of funds, which are the one thing every business needs most. Fiscal policies are dominated by extreme caution, and many suppliers are still not fully on their feet. As a result, supply networks are still experiencing a high level of volatility.

Long-term outlook: Restricted cash flow is likely to be a persistent problem as the supply ecosystem recovers. Procurement will have to practice precision spending, become even more adept at identifying substitute suppliers, and manage internal operations on a tight budget. Early adopters of automation for manual tasks will recover financially sooner and be an increasing choice for supply chain leaders.

Bottom line: Procurement-led innovation in both products and processes will take a front seat in the race to rebuild.

3. Emphasised human capital

Short-term reality: Covid-19 has forced procurement, along with most other departments, to become people-focused. To an unprecedented extent, managing supply chains has become synonymous with managing human resources, and companies that took a multi-functional approach early on are rebounding more quickly.

Long-term outlook: Remote work and digital communication will continue to dominate company practices, and these will duly inform procurement operations. Procurement leaders will increasingly learn to prefer suppliers who offer vital support structures to employees and who have a reliable methodology for strategically upskilling workers.

Bottom line: Suppliers who fail to demonstrate a high level of commitment to internal customers will gradually fall out of supply networks, replaced by human-centric companies.

Learning as we go

An updated paradigm for procurement has arguably been necessary for many years. A global disruption like that brought on by the pandemic is just the type of kick-starter that was needed to highlight not only the weaknesses but also the strengths among those companies which already embraced new modes of supply management.

The challenges being faced now will ultimately prompt companies to grow, reduce fragility within supply networks, and highlight the importance of procurement.

☛  Stephen Day is CPO at Kantar.

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