Procurement leaders have a unique opportunity to play a proactive role in managing strategy, risk planning, and reducing spend to help provide much-needed flexibility in this time of high uncertainty and potentially, recession. At Suplari, we’re ready to help support procurement and finance teams as they strive to come out of this crisis stronger than ever.
Supplier risk is changing rapidly and spending fluctuations are at an all-time high, but significant opportunities to reduce spend and renegotiate contracts are emerging as well. Procurement teams are in the driver’s seat when it comes to helping their businesses make fast and effective decisions.
Companies that emerge from economic crises stronger must quickly identify risk and changes in spending patterns, and make strategic decisions that enable financial stability.
This article outlines 8 strategic activities you should consider right now to prepare for a Coronavirus Recession and situate your business to emerge even stronger.
1. Establish a 1-3-9 Month Plan
Act now and put together a plan to inform direction for the next 9 months. Include short term (1 month), medium term (3 month), and long term (9 month) planning horizons.
Short term efforts should focus on mitigating high-risk areas (spend, suppliers, contracts) and understanding cash flow. Most COVID projections indicate a 3-month period before new infection rates slow down and the economy starts to recover.A medium term plan should account for worst-case scenarios over this timeframe.
The health crisis may reach a peak in the next 3-4 months, but the economic impact is likely to last much longer. A long term plan should look at renegotiating contracts to adjust for the 9+ month outlook. Aim to create financial flexibility that might allow you to take advantage of potential opportunities either during the downturn or as we exit a recession.
Money that will no longer be spent in highly impacted categories like marketing events or travel could be allocated to more critical projects. We asked Procurement executives which categories were best to scrutinize in a downturn — they identified travel, facilities, office suppliers, marketing, professional services, and IT as categories needing the most scrutiny (see diagram).
2. Mitigate Supplier Risk
During major events, organizations must institute better and more sophisticated risk segmentation, dividing the procurement supplier base into distinct risk tiers.
The largest suppliers in terms of spend do not necessarily pose the largest risk. Companies should continuously reassess supplier risk by asking questions such as:
- Are any of your suppliers at risk of bankruptcy?
- Are there any global or geopolitical issues in your supply chain that could disrupt supply?
- Do you have systems and processes in place to regularly evaluate and monitor your most important suppliers?
- Have you embedded risk evaluation into new supplier on-boarding?
Creating stronger links between the lines of business and the procurement function also ensures that the risk profile is in line with business strategy for recession planning.
3. Avoid Surprises by Tracking Activity & Trends
Your executive team is going to need accurate insights into changing spend patterns to effectively manage the financial health of the business.
When conditions are changing by the day, tracking month to month (or even week to week) spending changes will be critical to making tough financial decisions. Start tracking trends in spending as your business reacts to the changing circumstances. Automated insights and trend analysis can be used to show the categories and cost centers significantly outside the norm. These not only highlight current areas of focus, but can also be used to track the results of your team’s efforts.
4. Delay Large Expenses / Project Expenditures
When there is business uncertainty, the easiest decision is to delay large expenses.
Most business leaders will be able to quickly identify 2-3 projects that can be delayed. However, to do this strategically and effectively, you need clear visibility into spend trends, contract renewals, and open purchase order (PO) data.
Spend analytics and insights help drive faster and more-informed decision making.
Insights into spend trends show when large spikes occur from budget owners across the business. Contract lifecycle management reveals contracts coming up for renewal that can either be delayed or eliminated. Visibility into open purchase orders highlights committed spend by the business that might be delayed or renegotiated.
5. Plan Ahead for the Largest Contract Renewals
For each of your target categories, identify contracts renewing in the next 90 days where your company might have leverage to renegotiate on more favorable terms. Successful contract renegotiation requires rapid access to contract terms, contract renewal dates, spend analytics, and solid relationships with the key budget owners. Really lock down your procurement strategy for these contracts, especially if you are thinking of recession planning.
6. Look for Suppliers who have not been Sourced Recently
Often companies will continue to buy from a supplier for years, never revisiting to find out if they are getting the best possible terms and price. For contracts up for renewal in the next 90 days, review those suppliers who’ve been under contract for more than 2 years. Review terms and negotiate for a discount, or leverage an RFP with your supplier and two others to negotiate a better deal. This tactic has been shown to yield between 5-15% cost savings.
7. Avoid Leakage by Ensuring Purchasing Compliance
Maverick spend occurs when budget owners use a non-preferred supplier, instead of the preferred supplier with whom they’ve negotiated favorable terms, often resulting in a 5-20% higher price.
To avoid maverick spend, teams should have access to good spend analytics and categorization that highlights preferred supplier spend. A good purchase order system can also drive better purchasing processes and improve controls on requisitions.
8. Keep Tabs on New ‘Remote Work’ Spending
During the next 9 months most companies will see increased costs from web conferencing services, IT peripherals, and other remote worker services. At Suplari, we’re actively working on new insights that help identify spend coming through p-card or expense reimbursement requests to ensure leaders have the visibility they need to better understand this unfamiliar territory.
Companies that will weather this recession the best are those that act fast to shore up their cash positions and reduce spending to compensate for lower revenue.
The procurement strategy planning and decision making needed to make this happen can only be achieved with up-to-date spend visibility and insights, trend analysis, and good evaluation of savings opportunities during this potential recession. Those companies that do this well will be in a much stronger and more competitive position to take full advantage of the eventual economic recovery.
Special Offer from Suplari to help weather the Coronavirus Recession: Live in 4 Weeks. Free for 3 months. Savings identified immediately.
Think faster analytics and automated insights could help your company emerge from the Coronavirus Recession stronger?
Suplari is offering a “Four weeks to Fiscal Fitness” package with no payment obligation for 3 full months.
Suplari enables your team with the real-time visibility and savings insights you need — in just 4 weeks (or less)! No replacing existing systems or processes. No IT involvement required. No expensive, multi-month consultant engagements. Simply pull data from your systems, send it to Suplari, and start mapping your procurement strategy for recession planning and cash flow savings.
Learn more at https://www.suplari.com/suplari-coronavirus-recession-offer/.