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Business continuity in ANZ: 4-ways in which procurement can help!

By Mahak Khushalani
In Sustainable Procurement
Apr 7th, 2020
0 Comments
1029 Views

The concept of business continuity is really important in these times. Even as Australia and New Zealand continue to battle the novel coronavirus COVID-19, the economic impact of this pandemic is starting to surface.

According to a recent study by PwC, the COVID-19 is slated to reduce Australia’s GDP by $34.2 billion, and contract the GDP by 1.32%[i].

For New Zealand, both ASB and ANZ banks have predicted a 5% to 6% contraction of the GDP[ii].

There are several factors to this level of impact on the GDPs of both countries.

Some of the major areas of impact are: 

  • Disruptions to the supply chain affecting both imports and exports
  • Decline in labour inputs due to the containment measures being adopted by both the countries 
  • Increased Government spending on healthcare and 
  • The predicted decline in consumer spending as the threat of potential job losses increase 

Ensuring business continuity in these difficult times is a challenge for every organization, yet these times present a perfect opportunity for procurement to be quick and agile in adopting unique methods – backed by technology. This helps organizations save costs and free up cash flows to help counter this dire situation.

Here’s what procurement teams can do to ensure business continuity:

1. Identify the “Force Majeure” clause in contracts

  • The director-general of the World Health Organization declaring COVID-19 as a pandemic[iii], the classification of COVID-19 as a force majeure event holds true. With disruptions caused to the supply chain, suppliers are bound to face difficulties in adhering to contractual terms. This, in turn, impacting businesses serve their customers.
  • Organizations can invoke the force majeure clause in their contracts to either delay their contractual obligations or also go to the extent of terminating their contracts. This will help them cut costs, free up cash flows, and shift their focus towards key contingency strategies to help overcome the challenges caused by the pandemic. While this might seem a simple solution to the current crisis, a major roadblock is a fact that every organization has hundreds of contracts with multiple suppliers and vendors, and each contract has thousands of lines to go through.
  • Finding all the necessary terms to enact the force majeure clause can be a tedious and time-taking activity, choking up manpower and cash flows in the process. The need of the hour calls for businesses to adopt tools-powered by Artificial Intelligence-that can scan through all these contracts in breakneck speed, and highlight terms that can be classified under the force majeure clause.

2. Mitigate supplier risk

  • Australia and New Zealand have a major trade agreement with China. With the Chinese market almost shut for two months, and with a majority of tier 1 suppliers based out of China, businesses in ANZ had to scramble for options elsewhere. Even if some organizations had their tier 1 suppliers based locally, tier 2 or tier 3 suppliers were based out of China, and with imports curbed, businesses were left with no other option but to wait and hope for things to turn around.
  • In this case, businesses can have a global pool of suppliers ready to turn to in case of emergencies such as the current time. We can measure supplier risk in parameters such as financial risk, operational risk, and geographical risk. In this case, executing both these tasks manually can be daunting and prone to errors and time-consuming.
  • What organizations need is an automated supplier management tool that helps keeping a pool of suppliers handy while evaluating risks, ensuring compliance with the shortest possible turnaround time.  

3. Analyse every spend

  • Measures to cut costs are already a common theme for businesses in ANZ and across the world for  the coming two quarters. Organizations are expected to review their major spend categories. Hence, it is possible that some mission-critical spends may be put on hold. However, a lot of organizations miss out on off-contract and maverick spends. If organizations can analyse it correctly, they can create that additional buffer required to fund mission-critical tasks. It also helps to maximize savings at the same time.
  • There is a reason why most off-contract and maverick spends are missed. This is because there is no concrete way to keep a check on all such spends. Manually checking each contract for the exact terms isn’t possible and is prone to oversight.
  • What can bail out organizations in such a scenario is a combination of a best-in-class spend analysis solution-which helps in categorizing each expenditure and an A.I. powered contract metadata extraction BOT that will help in reviewing all contractual terms by going through each line and highlighting all key contract terms. This will help in curbing maverick spends. This helps to defer payments to non-critical spend categories.

4. Ensure requisite checks for payments to be made

  • There are organisations that rely on manual or archaic procurement systems. They often end up releasing payments to vendor and suppliers based on their past experience and goodwill. Therefore, they fail to look over on hard facts and process adherence. In times like these, every cent counts. Hence it is necessary that organizations follow a ‘No-PO No-Payment’ policy. Stringent checks by the procurement team, aided by eProcurement software, will help in adherence to this policy.
  • For vendors who need to be paid on priority and qualify the above criteria, the accounts payable team can use eInvoicing software that will help in quicker turnaround. A majority of the workforce in ANZ is now working from home. Therefore, it has become impossible to send and receive paper invoices, currently. 

Conclusion:

As the pandemic continues to spread, no one knows when things will get back to normal. Hence, businesses and economies need to find a workaround to function and counter the gloom of a global recession. Fortunately, digital technologies and tools have enabled a large part of the global workforce to continue working. This is possible by working from the confines of their homes.

Since, Businesses have to adapt to the new normal and continue to function, they need to look at software and tools that they may not have used in the past. So, the procurement team is no exception! Hence, it is more important that procurement teams come up with unique solutions, aided by new-age technologies like Artificial Intelligence. Finally, this helps to counter the disruption caused by COVID-19!

Analysing spends, extending payment terms, invoking force majeure clause, avoiding off-contract spends, and only releasing payments against purchase orders are some of the key steps that procurement teams can take. Modern-day procurement solutions that can be hosted on the cloud are easy to deploy and cut the implementation timelines. This offer a perfect solution to the current day crisis at hand. 

  [i] https://www.pwc.com.au/publications/australia-matters/economic-consequences-coronavirus-COVID-19-pandemic.pdf 

[ii] https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12320466 

[iii] https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19—11-march-2020 

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