During the period of shock that came with the start of the health and economic crisis, procurement departments had to tackle the most pressing issues and give priority to business continuity. As the crisis drags on, procurement departments must go back to basics to ensure the company continues to remain profitable and to preserve its ability to grow in future.
More specifically, procurement departments can put five strategies into practice to provide stability within the company:
- Maintain budget headings
- Review suggested prices as standard
- Make use of force majeure clauses in contracts
- Don't take risks with data security
- Keep digital tools up to date
Strategy no. 1: Track excess costs
Businesses are under an unprecedented amount of pressure with a limited view of what comes next. For this reason, businesses must try to keep a steady cash flow and maintain their ability to access their resources very quickly.
In such a precarious situation there are still opportunities, and it falls upon procurement departments in particular to secure the budget by being extra attentive to hidden costs.
There are a lot of pitfalls that are a potential risk to budget headings: emergency purchases, simplified processes and crisis logistics.
Procurement departments must therefore work as a team to increase checks and precautionary measures.
Strategy no. 2: Stick to the fair value principle
A number of changes can affect how procurement departments normally operate:
- Substituting regular suppliers in established supply chains.
- Listing new items in response to a change in the business model.
- Adapting to new health and safety policies, including working from home.
But no matter the urgency or innovation, the purchase price, the payment terms and the logistical conditions should always be reviewed.
Being strict about listing is good practice and a real strategic requirement in times of uncertainty.
Strategy no. 3: Take note of force majeure clauses
The procurement process needs to be completely flexible when it comes to market volatility. For long-term supply contracts, there are clauses that allow varying stock quantities depending on the specific situation.
This leads to the third strategy for procurement departments dealing with a crisis: Revisit contracts to identify if there is any room for flexibility between the original order and the amount to be delivered.
It is vital to maintain relationships with the most strategic suppliers in times of uncertainty. But this should in no way prevent procurement departments from invoking freely negotiated clauses when they are favourable to the company.
Strategy no. 4: Strengthen cyber security
Working from home and reorganisations driven by urgent situations may have disrupted authentication and decision-making protocols, while the current climate has seen a spike in cyber attacks.
Procurement departments must therefore make everyone, including key stakeholders, aware of the challenges of cyber security. Companies can use contractual data and strategic details about the supplier network to differentiate themselves and as a way to stay ahead of the game.
Strategy no. 5: Keep up with digital transformation
Most procurement organisations have a digital transformation programme in place, which is a recognised key performance indicator for procurement departments. While there are a lot of other new priorities to think about on top of the more conventional procurement tasks, it is important to continue updating the digital tools available to stakeholders.
In fact, digitalising procurement departments enables them to keep going in a crisis:
- By facing current challenges, such as saving time when reviewing contract clauses or making remote working secure.
- By addressing future challenges, such as expanding the company's product range with new innovations.
In conclusion, adopting good strategies during a crisis is about both applying best practices rigorously and optimising conditions for recovery.
To find out more about how procurement departments must adapt to current and future requirements, watch this video posted by Julie Dang Tran, Managing Director of Manutan France: How has the buying profession changed?