What can be done by procurement and supply chain management professionals NOW and SOON to stay ahead of this challenge?
With COVID-19 still spreading across the globe, it’s clear the economic costs will have a huge impact on organisations. It was reported back in February that 94 percent of Fortune 1000 companies were already seeing supply chain disruptions due to coronavirus. (1) We can’t help but notice the vulnerabilities of a global supply chain, with procurement on the “organisational front line,” so to speak. Adapting to disruption and trying to predict risks through such actions has become the new normal.
Although at first, organisations went into an intense reactive mode, we now see some shifting from reacting to the crisis to recovering and re-purposing their businesses. Adapting to disruption and trying to predict risk has become the new normal. But, we should not lose sight of our overall source-to-pay strategy to include what’s next, and how to ensure we can be resilient on an ongoing basis. It’s not enough to simply react to these unpredictable situations, we need to be ready for the next inevitable disruption. In other words, we need to incorporate “the NOW,” “the SOON” and “the ONGOING” into our source-to-pay strategy.
In this blog, we focus on what can be done by procurement and supply chain management professionals NOW and SOON to stay ahead of this challenge
Strategy for the NOW: Strategic Payables
For many countries at the time of this writing, the worst is yet to come. In many industries, organisations are experiencing revenue reduction at much faster rates than the costs to run their business. For those organizations and their suppliers, reducing operating expense, optimizing and protecting cash flow and right-sizing bought-in cost-to-revenue, is critical NOW to withstand weeks or months of economic downturn and supply chain disruption.
There are a number of ways organizations can use “strategic payables” to increase cash flow quickly. Outsource category management of non-core suppliers and commodities: Experienced Category Leads can identify opportunities to take cost out of third-party bought-in content either as a one-time service or through continuous category management services. Outsourcing partner-run operations for such scope can effectively become a “middle office,” leaving Category Leads more time to focus on revising and implementing category strategies.
Digital middle office: Provide an integrated service desk as a single point of entry for intake and requests to automate user and supplier interaction. This will drive simplification, efficiency and compliance through transactional processes and can significantly reduce operating expense associated with manual processes.
insights: By reviewing historical spend, as well as industry pricing trends and other market intelligence through AI-based solutions, organizations can identify spend savings on both indirect spend and direct spend. Inventory optimization insights can further reduce carrying costs.
Trade payables financing: By outsourcing spend end-to-end with a service provider who works with preferred commercial integrators and supply chain financing partners, they can provide supply chain financing for earlier and debt financing for extended payment terms. This will allow organizations to optimize annual cash in as few as one to three months.
Strategy for the SOON: Optimize OPEX
Most industries are looking to further optimise their operating expenses (OPEX) soon as central in their recovery plans. A primary way to do this is to convert capital expenses (Capex) to OPEX, such as to engage a service provider, in order to increase deductions and reduce taxes for the near-term, as well as to reduce maintenance cost longer term. Other ways to affect OPEX are to optimize where work gets done; reduce risk and improve compliance; and improve the efficiency and effectiveness of how work is done, such as through automation.
The objective for the NOW and SOON phases is to gain upfront savings to fund transformation activities and ensure resiliency in the ONGOING phase.
Strategy for ONGOING OPERATIONS: Transform to deliver value and plan for resiliency
Although the near-term concerns are increasing cash flow and optimising operating expenses to “get over the hump” during the crisis, organisations should continue to prioritise transformation programs that deliver sustainable value over time. It is still crucial to re-engineer workflows to use cognitive capabilities for insights and connected experiences for longer-term advantage – we call these “intelligent workflows.” It is also crucial to curate high quality, proprietary data proactively for insights to deliver value ongoing.
Lastly, we can expect resiliency of workforces, workplaces and IT systems to get renewed attention in ensuring continuity for ongoing operations. As stated in the IBM Institute for Business Value COVID-19 Action Guide, “perhaps the most resilient course of all may be teaming up with supply chain partners to establish a coordinated crisis-support system. In these sorts of situations, partners will likely rise or fall together, and sharing information and ideas in that climate becomes highly valuable.” (2)
(1) Fortune Magazine, “94% of the Fortune 1000 are seeing coronavirus supply chain disruptions: Report,” Feb 21, 2020 https://fortune.com/2020/02/21/fortune-1000-coronavirus-china-supply-chain-impact/
(2) IBM Institute for Business Value COVID-19 Action Guide, Mar 2020, https://www.ibm.com/thought-leadership/institute-business-value/report/covid-19-action-guide