A handful of finance and procurement executives from across several industries recently discussed the impact the Coronavirus disease (COVID-19) pandemic has had on their departments and the learnings that have informed their planning for 2021. The panel’s views were telling, and while the last few months have been a test for many, it seems most will be able to take valuable lessons from the crisis, which will enable them to future-proof their organizations through investment in effective and relevant digital transformation projects.
Here are six ways procurement leaders are managing the new supply chain risks of the “New Normal.”
An experience shared by all was the need to radically reassess alternative sourcing. Generally, many businesses had a plan in place for redundancies in mission critical sourcing, but the COVID-19 crisis laid bare the risk of a lack of geographical diversification.
Perhaps, unsurprisingly many businesses had a heavy dependency on sourcing from China. With the sudden, and unforeseen shutdown of national borders, starting in early 2020, many supply chains were disrupted, as many alternatives were, in some way, connected to Chinese manufacturing or raw materials.
The most prominent learning was an urgency to develop flexible supply chains that are decoupled from a single country or region. This applies to both primary suppliers, as well as to their downstream supply chains, who may also be prone to simultaneous interruptions.
End-to-end visibility of diversified supply chains
Discussions among executives told of a “China-plus-one” strategy. With a handful subsequently discovering that the raw materials offered by their “plus-one” party were also from China. In effect, diversification had failed as a strategy, due to a lack of transparency throughout the supply chain network.
Another point of view was introduced regarding the importance of visibility through the logistics of a supply network. The organization in this case was caught unprepared, as there was significant inventory in transit when the crisis hit, so it was extremely challenging to put the movement of orders to rest, in response to disappearing demand.
The importance of well-managed data that provides a complete view of supply chain dependencies was clear. Manually maintained, disaggregated data has proven to be an ineffective way of mitigating this type of risk during a regional crisis.
This highlighted the growing value of having integrated data platforms across your organisation, practically mitigating many of the risks involved in erroneous manually entered data or data duplication, while offering real time data visibility.
Supplier data management
As businesses looked for ways to cut costs during the pandemic, many found they lacked any leverage in negotiations due to an unclear historical relationship with their suppliers. Especially when data about their spend with that supplier is not readily available. This lack of readily available data placed a huge burden on ad-hoc data analytics, during a period when most organizations were constrained by analysis resource availability.
One scenario was shared where hurried analysis was carried out on the transactional history with a particular supplier, and the firm in question realized that their terms were highly disadvantageous. However, having a set of analytics available during renegotiation allowed that buyer to exercise leverage and reposition their relationship, which lead to significant savings.
The big lesson from the recent crisis is the importance of having supplier data available when you need it. That data must also be structured in a way that can be readily analysed and acted upon. A view echoed in a recent study of senior executives by Interos, which found that 91% of businesses felt that a streamlined way of continuously monitoring their supply chain would have helped their business to be more resilient against the disruption caused by the pandemic.
Managing new channels
An experience shared by many leaders was an unanticipated shift to new sales channels. This was reflected in a pivot to different addressable markets, as well as a marked jump in demand for e-commerce delivery. A common concern was the increased pressure on profit margins in these new channels.
One party spoke of a trade-off between maintaining market share and margins in sales. This was viewed as a compounded challenge for many organizations, who had to strike a balance between sales opportunities, which required rapid adjustments in supply chains, while managing operating efficiency.
Making clear the importance of having available integrated supply chain data during a pivot to new distribution channels. Where legacy linkages are disrupted through shifts in demand, there are unique challenges in procurement and supply chain management to create new delivery networks. This underscores the value of data management platforms that can be called upon, on demand, to reengineer both supply and sales channels with rapid delivery.
Integration within organizations
A perspective echoed by several sectors was how the crisis exposed disconnects in data management between organizational departments. In particular, the relationship between procurement and supply chain management structures.
One account highlighted the gap in transformational evolution between departments. Where procurement had undergone digital transformation in advance of the supply chain division. As that business entered its crisis management phase, the value of the more advanced state of transformation with procurement became clearly visible to top management.
Procurement management was subsequently given a lead role for interdepartmental digitization. It is not enough for one corner of a corporation to undertake digital transformation, while other departments, with inherent inter-dependences remain left behind in their maturity evolution. As an organization finds itself navigating turbulent patches, the gaps are laid bare when departments are not synchronized in their platforms and data management regimes.
Data-driven capital allocation
The new environment for corporate investment tracks several angles – how the crisis has shifted spending priorities toward technology; the enhanced importance of seeing a return on investment (ROI) and the zero-tolerance for failure to deliver. Several leaders echoed the rigorous requirements introduced for solid data analytics, when planning for project funding.
With one executive explaining how all new projects within his business now require ROI calculations, and how many within his organization were unfamiliar to this process. There is also a high threshold for certainty when allocating and managing corporate investments. The return must be aggressive, the delivery must be measured, and there is no margin for error.
Underlying this learning is the demand for quality data at every stage of funding. There is now greater demand for quantitative analysis over qualitative projections, which needs to be supported by thorough background data and forward projections. This requires enterprise-wide integration for a data lake that can be called on demand, with powerful business intelligence dashboards.
While remote working did not relate directly to the general thread of data technology, there were some strongly held opinions expressed about the work from home environment that most corporates are currently getting used to. There is no doubt that contemporary collaboration and communication technology have enabled work practices that were impractical a few years ago, but is it at the expense of substance and quality?
What about comradery, support, mentoring and training? There was a consensus around the group that the virtual office has highlighted the value of physical structures and travel. The breakdown in a delineated personal and professional life has led to notable drops in efficiency. The leaders agreed that even our discussion could have delivered a deeper level of value had everyone been free to sit around the same physical table to share their insights.