As economies begin their transition to the next normal, crisis management is evolving into recovery, with a few signs of growth starting to return. Our conversations with procurement leaders have identified a common theme: of newfound energy to apply hard-won lessons learned from an extraordinary time. These executives’ new focus is on reimagining the procurement function so that it can lead efforts in the great reset to follow.
We spoke with about 160 procurement leaders from across the Asia–Pacific region to learn more about the themes shaping their efforts for recovery, now and into the future.
Procurement leaders were close to unanimous in agreeing that a reimagination of the procurement function will be required, both to succeed in recovery efforts and to transition to a new operating model that’s fit for the next normal. As summarized in Exhibit 1, five central themes are top-of-mind for the survey respondents:
Almost half—46 percent—of procurement organizations report having lowered their cost-reduction targets as a direct result of the COVID19 pandemic, while only 28 percent say they have raised targets (Exhibit 2). Respondents cite a wide range of reasons, including resource redirection to boost supply-chain resilience, financial difficulties among suppliers, and major shifts in both demand and supply volumes.
The adoption of new technologies may compound zero-basing’s impact, as at a telco that recently embarked on a technology-enabled journey to reduce the cost of its contact centers. Costs indeed fell by almost half, while customer experience improved significantly. That success is leading the company to pursue end-to-end digitization by deploying chatbots, voice bots, and self-serve capabilities that could virtually eliminate the need for customers to contact the company.
Beyond a focus on cost, companies with advanced procurement functions know that supplier collaboration offers opportunities for both parties to boost revenue and profits. Indeed, companies that innovate regularly in partnership with suppliers can achieve higher earnings growth (by up to 10 percent). Not surprisingly, then, 88 percent of respondents told us that they either have started, or plan to start, joint-innovation programs with their suppliers. While procurement leaders report focusing mainly on process, service, or product innovations with their suppliers, some collaborations encompass business-model innovation. Vertical integration opportunities are also emerging to open previously untapped sources of value.
In our research, 69 percent of procurement leaders told us that they consider digital and analytics solutions to be even more valuable in the next normal than they are today, with greater potential to increase procurement’s effectiveness (Exhibit 4). These technologies can help identify new savings opportunities, deepen supply chain transparency, and enhance resilience, while facilitating more-collaborative remote-working models.
As organizations reimagine for the next normal, procurement functions can use this time to create a digital roadmap laying out the route to a procurement function of the future. Beginning with an assessment of the digital and analytics capabilities required along the end-to-end source-to-pay process, procurement leaders can identify the points most requiring enhancement, and then prioritize the most relevant use cases.
A global technology provider that adopted digital and analytic spend solutions is already realizing these benefits. Prior to the COVID-19 pandemic, it was facing cost pressures to meet its aggressive targets, while data was fragmented across platforms, owners, and business units. These challenges were exacerbated by complex market dynamics and the wide-ranging impacts of the pandemic on spend categories. Additionally, long-tail spend components weren’t even being considered for optimization because of the high manual effort required to include them.
Implementing a digital solution took the company’s spend cube to the next level. Thanks to CXO-level sponsorship, procurement leaders were able to build a balanced, cross-functional stakeholder team (including end users), who made quick progress by validating a detailed data-source landscape. Once the data were incorporated into the revamped cube, users could tailor their own cockpit-style views of category insights presented from multiple, intuitive angles. For tens of thousands of individual components, specialists could now easily identify savings opportunities corresponding with changes in procurement-volume data, including estimates of potential impact from supply-chain disruptions in specific countries and regions. Suppliers’ performance metrics were now transparent as well, enabling better-informed trade-offs.
With this menu of insights generating actionable recommendations, the company now enjoys automatic analysis of 100 percent of its spend categories, including its long tail—all of which is now available to procurement specialists engaged in negotiations. Decision-making processes are now twice as fast as before, despite the company’s pandemic-driven transition to remote work.
Our respondents reported worrying decreases in employee satisfaction among their procurement teams as a direct result of the COVID-19 pandemic. Some 43 percent of procurement leaders witnessed a significant decline in morale and 49 percent reported a drop in productivity due to remote working.
A major logistics player needing to deliver higher-complexity procurement projects without adding staff found a solution by developing an “agile procurement pool” under a virtual co-location model. Between 40 and 50 percent of pool staff were strategic buyers, with big-data analysts, cost engineers, negotiation experts, and other specialists providing additional capabilities. By allocating resources dynamically as needed, the agile pool provides flexible project support. Cost reductions have been substantial, but the more important impact includes improved cross-divisional and -regional sharing of knowledge and best practices, stronger team morale, and better talent attraction. The ability to move between many different types of projects has turned the pool into a magnet for young professionals and high performers.
The past year has surfaced new challenges and exposed weaknesses in key procurement processes: the survey found that 86 percent of procurement leaders observed capability gaps in their procurement process (Exhibit 6). This finding suggests that core capabilities likely need to be reinforced, through measures such as better coordination with business units to drive procurement efforts while teams are working remotely. New processes may also be needed, such as for embedding joint-innovation programs with strategic suppliers.
The needs have intensified in crisis. For example, when face-to-face negotiations become online meetings, procurement professionals need to prepare even harder, paying closer attention to small details that can easily get lost in unstable internet connections. Accordingly, a multinational corporation with hundreds of procurement professionals worldwide deployed an interactive, digital procurement-training platform whose curriculum included exercises on negotiation basics, remote communications, and COVID19 specific communications, such as tips on conveying empathy via email to suppliers going through hard times. By providing a wide range of resources on tactics and case examples, the platform equipped the global procurement team with a set of negotiation and influencing skills that proved essential for virtual discussions with suppliers.
Over the next 12 months, as business recovery becomes the priority for many organizations, procurement leaders can take stock by asking a few questions to evaluate how ready their function is for the next normal.
As companies globally face a challenging transition to the post-COVID next normal, it will be tempting for procurement leaders become either too conservative in their value-creation expectations, or too aggressive in trying to create value without the right enabling operating-model elements in place. If history is any indication, it will take parallel efforts, both in creating new sources of value and in reinvigorating the operating model, for procurement to thrive.
This content was originally published here.