Procurement leaders must urgently spearhead a campaign to help their businesses endure the coronavirus recession and lay a solid foundation that maximizes future business opportunities. This article outlines how procurement teams can formulate effective Cash Management, Supplier Management, Risk Management, and Spend Management Strategies that help mitigate the effects of this (or any future) crisis.
Cash management is critical to a company’s survival. CFOs and CEOs are depending on procurement teams for strategic advice during these trying times of the coronavirus recession. To do this, procurement leaders must execute strong programs in supplier management, risk management, and spend management that help businesses navigate the inevitable economic uncertainty over the next two years.
An unprecedented number of market segments are experiencing serious cash management challenges as a result of the Covid-19 epidemic. As in any downturn, companies are relying on Procurement and Finance teams to find immediate ways to preserve their cash supplies.
Although cost savings and reductions continue to be a primary focus for procurement teams during the coronavirus recession, now more than ever procurement leaders are stepping into a much more strategic role in the organization.
Additionally, the following 3 critical areas provide procurement leaders an excellent opportunity to add immediate value: supplier relationship management, risk management, and spend management.
Supplier Relationship Management
Many organizations are experiencing global shortages of critical products key to keeping their businesses afloat.
Those companies with positive, well-structured relationships with their suppliers will be more successful in securing the resources they need. The deepest and most effective relationships enhance opportunities to develop creative and innovative solutions. Companies with basic transactional supplier relationships will be pushed to the back of the queue. Detailed spend analytics can help procurement leaders identify important insights and answer critical questions that help formulate effective supplier relationship management strategies.
Here are some useful supplier relationship management questions to ask:
- Have you identified your company’s key suppliers?
- Do you have peer to peer relationships between your respective boards?
- Do you have a structured process in place for managing the relationships?
- Do you pay on time?
- Do you have valid contracts with key suppliers?
- Do you focus too much on cost in your tender processes?
Many of the top C-suite agenda items will be supply chain related.
Procurement teams are in a strong position to take the lead and proactively identify potential supply chain risks and develop functional mitigation plans should any of these scenarios materialize. For example, the most effective teams will take steps to monitor the financial health of key suppliers and act promptly to address issues as they arise.
Some valuable risk management questions you can ask:
- Do you know where your input goods are made and produced?
- Do you know who supplies the raw materials?
- Have you documented the logistics route (if ports / airports were closed)?
- Do you have contingency sourcing options for key items?
- How quickly could you activate your contingency sourcing plan to avoid other early movers getting there first?
As the effects of the crisis become more potent, CFOs will be rallying their teams to quickly reforecast company revenues on a shorter daily/weekly basis. Internal budgets will be cut. Strong processes will be needed to tighten up approval and avoid excess spending. In this environment, specifications will need to be challenged as (normally) untouched areas of expenditure will suddenly be open for additional scrutiny. Teams will need to become more innovative in developing ideas that reduce costs and support a leaner operation.
Consider the following spend management questions as they would apply to your organization:
- What are my payment terms with key suppliers representing large payments?
- Are suppliers using agreed-upon payment terms?
- Where do you have leverage to delay or split up large payments?
- Do you have a process to challenge discretionary spend?
- How can procurement be involved in the budget setting process?
- What changes could be made to travel and expenses and P-card policy?
- What individuals, business units, and cost centers are responsible for maverick and rogue spend?
- How do we control and reduce tail spend?
Covid-19 is proving to be a challenge unlike any other business leaders have experienced before.
While many procurement teams feel undervalued and underappreciated in their work, this crisis marks an excellent opportunity to exhibit leadership and earn the respect they deserve. Driving the agenda forward with urgency is critical to how well the organization weathers this storm, ultimately resulting in more effective procurement teams and a stronger and more strategic foundation for the organization.
If you don’t yet have an efficient spend analytics solution, consider Suplari. I’ve been working closely with the Suplari team and have found their approach to be truly innovative and different from anything I’ve ever seen in the past. The Suplari team gets you up-and-running quickly — which helps you address these very-near-term and specific opportunities. And they’re able to grow with you through your transformation and maturation as a procurement leader. Learn more about Suplari’s special offer to new customers here: https://www.suplari.com/suplari-coronavirus-recession-offer/
Jordan Jansen is an experienced supply chain and procurement executive working with large enterprises like Boeing, Microsoft, and Deutsche Bank, and private equity backed companies like Savers and the Cosmopolitan of Las Vegas. Jordan also serves as an advisor to Suplari and Market Dojo.