Are We Really Looking at a “New Normal” for Procurement?
Until recently, when organizations and experts talked about disruption, they were usually referring to technology and business models that effectively disrupted traditional industries. We are now experiencing a totally different kind of disruption…the COVID-19 pandemic that is changing so much of the way we conduct business in the short-term in a remote way.
But we also won’t know the wider impact in the long-term as some changes may become permanent, like fewer workers in the office and the potential of long-term disruptions to supply chains with expected global contraction of the economy and suppliers that may not weather the storm. In this regard, now is the time to look at how these changes may lead to greater opportunities for companies to optimize productivity, control costs, and promote innovation.
To address the current situation and how it impacts those in the procurement function, I recently moderated a Corcentric webinar, “Managing Disruption through Procurement Agility.” This webinar featured a panel of procurement experts from Corcentric (Joe Payne, Sr. Vice President, Source-to-Pay, David Pastore, Senior Director, Sourcing Operations) and The Hackett Group (Chris Sawchuk, Principal & Global Procurement Advisory Practice Leader, and Jonathan Fehring, Director, Procurement & P2P Executive Advisory).
Although a number of issues were discussed, there are three major topics that may signify the “new normal.”
The Importance of a remote Procurement workforce
One of the obvious changes we see is the switch to a remote workforce, especially for knowledge workers. The pandemic has created a situation where working safely means working from home. So what happens when employees in the procurement function are able to return to the office? Will they?
According to a survey from The Hackett Group, 87% of organizations in the procurement area expect an increase in remote work on a permanent basis. Before the crisis, approximately 13% of employees worked remotely; now that number has increased to 33%. The biggest concern for management: Would productivity suffer when staff worked remotely?” What the survey uncovered is that when it comes to productivity, safety, and cost, a remote workforce makes a great deal of sense.
Today’s technology enables employees to do work from home and meet the demands of the job. It’s not just access to data from wherever you work, it’s also the ability to collaborate and confer with colleagues and customers, face-to-face in real-time. So what will companies do with this realization? Smaller offices with more of the workforce working remotely? Less office locations? That translates to lower costs for organizations with no negative impact on productivity.
A New Definition for Digital Transformation
Working remotely would be impossible without digitization of processes, something we sometimes take for granted during this pandemic. Just consider the impact on business if we didn’t have the broadband access to the Internet and the mobility of computing, But companies that have taken the transformation of their operational business processes to the next level have been able to respond more quickly to the demands of internal stakeholders for managing buying demands, paying bills and supporting procurement functions as normal.
While many in business have talked about digital transformation in the context of emerging technologies like AI, IoT and blockchain for adding less-human elements to business, a new definition of digital transformations seems to have emerged just to “keep the lights on”. The Covid-19 pandemic has exposed how digital transformation is necessary just to ensure core business needs such as managing working capital, ensuring cost management and just maintaining business continuity.
When Corcentric’s customers were asked whether the current crisis would make them accelerate their digital transformation, close to 90% said yes. Digitization, besides providing visibility and analytics, simplifies complex processes. What is clear is that companies with complex organizational structures and processes would have a much slower reaction time without the support of a partner that can provide the cloud-based technology and support for managing them.
Reassessing the supplier base
One of the things our speakers found is that those companies that had strong risk programs in place prior to the pandemic handled the disruption much better than those that did not. And that risk assessment included taking a hard look at the risks within the supplier base; essentially remapping the supply chain for both direct spend and indirect spend.
Although procurement has always focused much of their attention and research on Tier 1 suppliers, many are now looking for greater visibility into Tier 2 and Tier 3 suppliers as well. Many organizations were impeded when suppliers were unable to meet their demand in areas that were once considered unimaginable to see disruption like Personal Protective Equipment (PPE) or cleaning supplies.
Where applicable, companies are also looking at whether to expand their supplier base; whether nearshore vs. offshore would better serve the organization; and even how to create better relationships with suppliers in all tiers.
What is clear is that things have changed. How a procurement team addresses that change will likely determine how that company survives and hopefully thrives as the crisis changes the business landscape. While some of these changes will be temporary, others will be permanent. Those companies that have proven to be agile; that have been able to react quickly through technology, quicker reactive and proactive measures, and a willingness to rethink how business is conducted will be at the forefront.