Dive Brief:
- Procurement leaders are split between prioritizing cost reduction and actions such as process automation, improved supply chain collaboration and digital skills training that will support recovery and competitiveness after COVID-19, according to a recent Forrester survey.
- After the pandemic resolves, there will be more competition among surviving firms for the expected reduced demand, according to experts from Forrester and Ivalua discussing the survey in a webinar Wednesday. As a result, businesses will need to have solid relationships and visibility in place with their upstream partners, they said.
- To navigate current and future uncertainty, Forrester recommends firms invest in software solutions that allow for real-time, more centralized collaboration and information-sharing, internally among procurement teams and externally with supply chain partners. Otherwise, “hoping suppliers see the email and respond to it” in time to manage potential disruptions poses additional risks, Duncan Jones, a vice president and principal analyst at Forrester, said on the webinar.
Dive Insight:
Digital transformation and investing in high-quality supplier relationships require firms to choose between saving cash now in the midst of the coronavirus pandemic and leveraging their reserves to prepare for an uncertain economy in the near future.
“A lot of our clients are in what we call survival mode … [seeing] 30%, 50%, even 80 or more percent drops in revenue, and they’re having to scramble to save cash wherever they can,” Jones said, “and there are others who are actually in growth mode just struggling to keep pace with new demand.”
In recent years, many companies have pursued off-shoring procurement teams as a cost-saving measure. However, Jones said it is possible this has had a negative impact on the procurement’s ability to be better integrated into the overall business, as respondents to Forrester’s survey cited geographic and timezone gaps between procurement teams and other business units as their foremost obstacle to collaborating effectively.
There are instances, however, where spending on digital efforts upfront pays off in the long run. Cimpress, a custom-branded products company with globally distributed procurement teams, faced similar geographic challenges throughout 2019.
An internal review of its processes found overlapping supply requests among business units and supplier onboarding challenges that better communication could improve. After implementing a centralized procurement analytics platform and investing in digital skills training for its employees so they could effectively use the system, the company achieved an 11% cost savings over the course of a year.
In addition to internal communication issues, Jones also noted changes to consumer demand patterns have caused firms to significantly adjust orders. This has affected suppliers, which have then had to change delivery dates to adjust internal operations and with their vendors.
All of the back and forth required to ensure these processes happen smoothly often takes place haphazardly over email, in document transfers or via phone calls. Without an effective means of keeping track of all those conversations, Jones said, these efforts have often not been effective and have even driven stock-outs downstream.
In fact, a lack of mechanisms for effective collaboration, particularly virtually, was the second biggest obstacle respondents cited, after geographic separation. This challenge has also been exacerbated by the coronavirus outbreak as more employees are working remotely and travel restrictions prevent in-person supplier meetings and relationship-building.
This is set to become an even bigger problem for procurement teams as the world begins to recover from the pandemic, the report cautions. “We are expecting supplier risk to come back really quite forcefully when the immediate aftermath of the pandemic is waning,” Jones said.
Having collaborative tools in place can help with supplier development and put clear guidelines in place to maintain product quality and inventory levels could be critical for firms as they look to maintain continuity and resilience in their supply chains moving forward, he said.
Preparing for a post-coronavirus economy could involve procurement managers having to make the case for going with more expensive vendors in addition to investing in digital collaboration solutions, Alex Saric, chief marketing officer at Ivalua, said on the webinar.
“Seventy-seven percent [of respondents] said cost still dominates supplier choices,” he said, highlighting a disconnect between entrenched cost-oriented behaviors and stated supply chain agility and resilience goals. It is important that leadership understands this cost-benefit balance of having a stronger, higher quality supplier relationship and maintaining margins, he explained.
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