COVID-19 has turned out to be a historic marker between the first and second phase of globalization. The first phase consisted of long-spanning, global supply networks and focused on low costs. Given the global impact of the pandemic, the second phase will likely lead to a regionalization of supply chains and supplier networks, near-shoring of manufacturing and value generation through robust supplier networks.
Consequently, today’s procurement organizations will have to transform in terms of their governance, people capabilities, processes and technology. The emergence of COVID-19 has led to an immediate demand and supply crisis, forcing companies to resize their cost base to cope with revenue drops. Moreover, many firms are seeing increased operational costs due to necessary health and safety measures. Since 50% to 75% of an enterprise’s operational costs are directly influenceable by their supply chain and procurement set-up, this important function can help with raw material availability, optimize cost of goods sold (COGS) and Selling, General and Administrative (SG&A), and help with cash-flow generation via improved payments terms. Consequently, chief procurement officers (CPOs) have a unique opportunity to shape and design the emerging supply chains, and take the lead in these efforts.
To provide end-to-end supply network transparency, enhance supplier collaboration and improve cost efficiency, procurement organizations should continue investing in digital transformation initiatives. These include process automation, investing in platforms to create a seamless data flow, and predictive analytics for improved forecasting of supply and demand.
We have listed key questions, CPOs should ask themselves, as they respond to the after-effects of COVID-19:
- Do you have end-to-end supply chain visibility, including critical suppliers beyond tier?
- Are you prepared for a second COVID-19 wave or a similar supply chain crisis?
- What is procurement’s contribution in generating additional savings for your company?
- How do you gain better control of procurement spend to continuously deliver value for your company?
- How can procurement establish a closer relationship with other business units and become a key contributor to the budgeting process?
- Will your procurement operating model change due to the consequences of COVID-19 and if so, how?
In the next post you will find an offer of three major recommendations on how chief procurement officers can approach these questions and thus can successfully navigate the next six to nine months of the COVID-19 pandemic.
The views reflected in this article are those of the authors and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.