The novel Coronavirus that emerged in the Chinese city of Wuhan has now spread and affected more than 200,000 people across the globe and has been officially declared a pandemic by the World Health Organization. The virus outbreak is leading to a severe impact on the global economy. Major institutions across the world have cut down their forecasts for the coming financial years and are now hinting at an upcoming global recession.
While many companies gear up for the worst imaginable scenario, the procurement department plays a vital role by helping reduce spend and improve performance within tight budgets. Also, with multiple vendors impacted with the pandemic globally, procurement teams are struggling with business continuity while ensuring minimum risk.
As major research firms throw light on this topic in the times of crisis, a short-sighted plan to cut costs can be harmful in the long run. An example of the same would be executives reaching for the most readily available option – indirect spend – to reduce overall spends. Some indirect spend categories such as Human Resources, Information Technology, Facilities Management gain importance as most corporates facilitate work from home and ensure safe facilities and a cleaner, disinfected work environment in the face of maintaining business continuity. It then becomes necessary to identify the right spend categories that can be optimized for long-term gain and business stability.
Cost-cutting, thus, needs to be focussed on spend categories that will least impact business continuity at times like these, such as travel and entertainment, certain logistical expenses, etc. Identify negotiation opportunities, manage budgets tightly, identify and release cash trapped in services that impact the balance sheet, and manage selling, general, and administrative expenses – all spends and activities that can help you achieve a better long-term strategy.
Some businesses, in such times, lose critical business while some find their opportunities and leverage the situation in their favor. From critical talent to new avenues in vendor network, emergencies like this can prove to be an excellent opportunity to take a step back and improve existing processes and look for alternatives while doing so. Post the crisis, as businesses return to their ordinary proceedings, this downtime can be leveraged to invest in digital procurement solutions and transform their global procurement and supply chain model. An easy-to-use solution that should help optimize processes, reduce maverick spending, and automate tasks to help reduce FTEs and enrich job roles.
For an immediate action against COVID-19 procurement and legal teams working on identifying opportunities to mitigate contractual risk exposure and prevent consequential damages should be investing in technology like Zycus’ Merlin A.I. Suite. The suite has multiple contract management BOTs, one of which is the Force Majeure De-Risker BOT that helps identify Force Majeure or termination clauses in your enterprise contracts. This BOT can help mitigate contractual risks as worldwide legal experts have said that coronavirus is likely qualified as a Force Majeure event.
China, being the most affected country in this pandemic while also being the largest exporter of goods in the world, has caused a significant dent to the global supply chain. Supplier management teams need to balance their act of risk mitigation between negotiation and supplier support for critical suppliers unable to deliver. While businesses must safeguard themselves against a probable economic downfall, it is necessary to help uplift the overall community on which the organization is ultimately dependent. Supplier management teams can help build a strong supplier community and help those in need leading to better long-term relations and gains.
The best way forward would be to rely on emergency plans in place by organizations such as expected natural disasters, economic turmoil, etc. While pandemic may not be a pre-planned possibility in the organization’s disaster management handbook, relying on strategies for similar affecting disasters such as Hurricanes, earthquakes, labor strikes, terror attacks, etc. should help save the day. Some solutions that may already be in place include:
a. Demand management: Identify and track demand sources to help manage stocks and allocate the required services beforehand. Use central databases and collaborative tools to facilitate the same.
b. Supplier management: Leverage tier 1 supplier visibility and plan alternative locations and suppliers in case of emergencies. With the help of supplier management tools, ensure the entire supplier database and activity information is accessible to make optimal and informed decisions.
c. Labor management: Use work from home and alternate labor sources, prep for a time when the pandemic hits the organization, if not already, and business continuity is critical. Enable work from anywhere with digital and mobile solutions for essential tasks wherever possible.
d. Logistics management: Track information and determine locations, ports, and transportation facilities that are at risk of disruption and plan for alternatives or setbacks accordingly.
e. Communication: Communicate steps to all internal and external stakeholders to avoid misinformation, rumors, and drastic decision making. Make use of digitalization solutions to keep all stakeholders in the loop.
f. Finance management: Facilitate virtual collaboration between finance and procurement with software solutions that are easy to use and have higher adoption.
Protect all employees first. Making safety and wellbeing of the employees in the department and otherwise must be a priority. Enabling people to socially distance and quarantine themselves while working from their locations should help retain critical talent in the organization.
Work from anywhere can be enabled with integrated software solutions that allow controlled visibility, access, and workflow management enabling business continuity and efficiency.
Whichever vertical your company belongs to and from whichever part of the world, COVID-19 is bound to leave an impact and, most probably, a negative one to your business. While holding the crisis at bay is out of option, companies CAN gear up for the aftermath and ensure a steady re-growth.
Bain’s research shows that a “wait-and-see approach” is the worst way forward. It is time for businesses to gear up and move towards a procurement organization that adds value and helps bring business back to normal.