The last major changes to procurement and their operating models could be seen during the financial crisis of 2008.
As with any global crisis the revenue streams of many multinational companies begin to dry up and margins get squeezed, procurement is seen as a key factor in preserving organisations’ reputation and profitability.
In 2008, the wave of change led to many companies outsourcing key aspects of their procurement functions in order to try and reduce risks, manage costs and increase productivity. Other procurement functions started the journey towards better data management and data analytics.
As COVID-19 continues to cause disruption across the world, we are beginning to see the next wave of change for procurement. Unlike the 2008 financial crash this time the shift is more towards automation and AI. This enables companies to survive during uncertainty and ensure business continuity. While COVID-19 is ongoing, businesses can build new capabilities and ways of working that deliver continued value to customers, partners and shareholders.
Wake-up call for procurement leaders
Due to the scale of the global pandemic traditional procurement operating models have been proven to no longer work. In the past, crises were often limited to specific countries or regions, meaning businesses could turn to suppliers in a different location. This COVID-19 pandemic is widespread global so the impact is affecting B2B and B2C services as deeply as their core supply chains all over the world.
The priorities of procurement leaders and their teams have changed rapidly from running sourcing processes and negotiating contracts to partnering with business leaders so that they can quickly understand leaders’ requirements and bring in new suppliers to ensure short- and long-term continuity of the business.
Services firms, such as those in telecomms, are seeing an increase in demand as global workforces move to more remote working practically overnight. We are also seeing long-standing implications on how companies and employees work, making the ability for businesses to quickly secure suppliers to meet new or spiking requirements and supplement internal capabilities more critical than ever. Utilising AI-powered Smart Sourcing, one leading Fortune 100 company was able to immediately find a supplier to design and deliver distributed, remote training in multiple languages for its regional operations. In this case, the ability to shrink the time from the scoping to selection of the supplier by 75% while reducing cost by 46% provided the company exactly what it needed.
New changes have created new challenges for procurement:
- Working with a largely remote workforce of procurement teams, business stakeholders and suppliers who are quarantined or ordered to stay at home
- Finding new ways to work with service suppliers around the world who are unable to work on-site or affected by the same restrictions, likely a network of suppliers across multiple countries and locations
- Identifying new service suppliers in categories that are unchartered territory, such as health and safety services for employees affected by the pandemic
- Executing risk-mitigation plans to ensure disruption is minimal across the value chain, with alternate suppliers who can step in when one supplier is affected
During the global pandemic, many leaders are using the opportunity to invest in new capabilities that will provide immediate relief while delivering sustainable value indefinitely. One global aerospace firm recently sourced a COVID-19 crisis management service supplier in approximately nine business days, from initial concern about the pandemic to award and agreement. The traditional weeks-long sourcing process simply would not have been an option when needing a supplier who could begin work almost immediately to ensure business continuity.
Additional opportunities for sustainable capability investment include the following:
- Operationalising capabilities for agility and quickly adapting to different situations
- Adopting processes and systems that provide immediate information access and visibility for all stakeholders
- Improving and streamlining execution of workflows and key tasks from management throughout the workforce
- Promoting cohesive, cross-organisational collaboration and communication across all business functions
- Building reliable, self-service business processes that can be run securely and safely from anywhere
High levels of disruption spark innovation
COVID-19 has highlighted the ability of individuals and businesses to adapt. For example, global isolation efforts aimed at curbing the spread of COVID-19 have led to people modifying the way both business and personal communications are conducted. Digital alternatives such as Everbridge, Zoom and Dropbox are seeing spikes of enormous proportion as business leaders, employees, workers, trading partners, students and people of all demographics are utilising new technologies to stay connected and operate in different ways.
Procurement is no different. ‘Business-as-usual’ approaches are no longer enough for procurement functions if they are to continue operating effectively and achieving the right results. Team members are hungry, willing and wanting of the changes that automation and AI can bring as they have come to expect the same immediate, user-friendly experience at work as they have in their personal lives.