For several months now, COVID-19 has continued to wreak havoc across our lives and economies. While the long-term consequences are still difficult to assess, the current crisis has already taught us some lessons for the future. These lessons, inspired by an article from Procurement Leaders, can help us better prepare for future crises.
Establish a balanced set of objectives
A recent study by Forrester found that the most mature companies from a procurement perspective measure and evaluate their performance based on a wide range of strategic objectives.
For example, nearly half of the most advanced procurement departments surveyed had introduced bonuses tied to key performance indicators such as supplier risk and supply chain disruptions. Companies that had set a large number of objectives but only rewarded their employees based on savings are now in a difficult position.
However, a balanced set of objectives cannot be established overnight. Cost- and negotiation-oriented procurement departments may require a little more time to focus on collaboration and analysis, which have become priorities during the COVID-19 pandemic.
Maintain a comprehensive overview
To minimise risk, companies must have a comprehensive overview of supply chain risk. For example, having a portfolio of low-risk suppliers doesn't always reduce exposure to other risks, such as all of your suppliers being located in China. Many companies saw their supply chains broken or disrupted because they had assessed their supplier risk based on individual suppliers, without taking into account the bigger picture.
However, ensuring that products are made entirely in France would not be a viable solution either, as the virus could become more prevalent in France. The key is to diversify the supplier portfolio.
Pay attention to the details
Many companies were surprised by supply disruptions caused not by their suppliers, but their suppliers' suppliers. With companies increasingly reliant on outsourcing, as well as building ever larger and more complex supply chains, new weaknesses have arisen that can be difficult to evaluate.
Dun & Bradstreet highlighted this fact in a recent document "Business Impact of the Coronavirus": While 51,000 companies worldwide have at least one tier-1 (direct) supplier located in one of the Chinese regions affected by the virus, 5 million companies have at least one tier-2 (indirect) supplier in one of these regions. Therefore, exposure to risk far exceeds analyses carried out on tier-1 suppliers. From now on, procurement decision-makers will need to maintain a 360° overview of their suppliers, both direct and indirect.
Procurement and logistics departments are currently on the front line when it comes to helping their company maintain its business activities, as well as supporting their colleagues, customers and suppliers. Going forwards, procurement departments will need to learn from these three recommendations in order to better manage the current crisis, but also, more importantly, to prepare for future crises.
