Metrics that Matter; and Then Came COVID-19
Looking at economic metrics year over year is a good way to gauge the state of things and how things change over time. For instance, using metrics like unemployment rate, interest rates and the wider stock market indexes helps us gauge the health of the economy at any given point in time and gives us insights into the underlying factors that were impacting business and the wider economy during periods of growth or recession.
For supply management and procurement professionals, these metrics have focused on identifying cost savings, but economic and wider business trends have often impacted those “metrics that matter”. Best-in-class organizations have led the charge to identify ways to redirect resources to meet the wider needs of business stakeholders. They have done this by improving how procurement organizations look to identify savings or manage addressable spend to hit procurement performance targets.
The means to achieve procurement’s goals has been driven by a number of trends that have pushed procurement to look at newer ways to contribute value. Some of these over the past decade have included increased investments in Cloud/SaaS technologies, addressing supply chain diversity and sustainability, or more recently, adopting digital transformation initiatives that align with wider business goals. But in the blink of the eye, things can change.
COVID-19 forces businesses to address their own agility
Despite economic adjustments that are showing positive signs, no one could have predicted a soaring unemployment rate from 3.5% in February to a high of 14.7% in April or the initial nosedive of major markets in March. While economic volatility is driven by several factors that can create bull and bear economies, economic cycles can generally be anticipated or planned. But even in this digital age of big data and growth in predictive AI, COVID-19 has taught us a harsh lesson in the importance of agility – how do you adjust for things when they aren’t even on your radar?
As we’ve all experienced this year, what we once thought was important or planned has completely shifted in the interest of self-preservation and continuity. On a personal level, vacations have been canceled and going back to school has become a slippery slope from state to state, county to county. For businesses, the conference circuit has completely shut down and for all but what is considered essential, any travel or visitation to the corporate office has been on hold.
Moreover, a recent WSJ article demonstrates how the pandemic has displaced sales at U.S. businesses. With the exception of areas like those related to e-Commerce, Finance, Health Care, or Consumer staples (such as cleaning supplies and PPE) many other industries have slipped into the red with the largest quarterly declines in a decade while others are even less fortunate, being forced into bankruptcy.
Ardent Partners assesses how the pandemic has changed priorities
As a purveyor of procurement trends, Ardent Partners has been following the world that impacts procurement for close to a decade. In their annual Procurement Metrics that Matter report, we can glean how this recent crisis has impacted procurement organizations in 2020. Taken from a study of over 300 respondents from a variety of industries, the 2020 Ardent Partners report found that 60% of those surveyed describe the impact of COVID-19 as significant to extraordinary.
Based on the COVID outbreak in 2020, 49% of CPOs indicated improving internal collaboration and communication as their top agenda. While not called out in the study, this shift may reflect the acceleration to a remote workforce where the need to improve access to information, approval processes, and mobile accessibility may not have been fully addressed.
Collaboration and communication ranked even higher than pursuing a digital transformation by adopting new technologies or enhancing existing ones (41%). The implication is that areas like AI are important, but getting the basics right, like approving purchase orders and making decisions regarding suppliers on the brink, is critical. In this regard, real work is needed to improve risk with only 34% of all businesses claiming to have an active supplier risk program in place.
Where does procurement go from here?
As we look at the changes that portend what’s left of 2020, procurement is most certainly looking to continue to adjust to a world focused on cost-centric measures. In this regard, Ardent anticipates in the second half of the year, that sourcing and sourcing volumes are expected to increase dramatically as new concerns of prioritizing cash, increasing savings, and improving supply chain visibility have become the top three CPO concerns, post COVID-19 outbreak. These are three areas we have also observed here at Corcentric.
Optimistically, we may look back and ponder on the impact of COVID as a one-time event, but the lessons of vulnerability that have been learned will likely stay with us for a lifetime.