Thought Leadership

Supply chain in the new normal: Why Procurement must take the lead

Procurement needs cutting-edge digital tools to deliver on its new mandate to ensure organizational survival and resilience in the COVID-19 crisis and beyond.

When the COVID-19 pandemic sent global supply chains into disarray, many procurement teams found themselves elevated to the boardroom almost overnight. Many businesses scrambled to gauge the financial risks to their suppliers and their ability to navigate new restrictions. Manufacturers dusted off neglected lists of secondary suppliers as they grappled with production delays and parts shortages. In the case of food and critical supplies, the social ramifications extended far beyond impacts on business solvency. For example, a recent report from the University of California, Berkeley shows that over 15,000 essential workers could have avoided contracting the coronavirus in California had medical facilities not faced a shortage of personal protective equipment (PPE).

So often underutilized and undervalued by the businesses they support, the procurement function has swiftly emerged as an essential enabler of strategic agility in the wake of the crisis. As a process that impacts cash, cost, and growth, companies are seeing the benefits of involving procurement earlier and more deeply across a variety of business decisions. As companies settle into their new normal, it is imperative that the scope of procurement does not become limited once again. Companies that fail to heed this message are putting 40% of their profits at risk. Now more than ever, companies must embrace emerging technology and its power to reshape performance and control over supply chain management.

Procurement gets its due

Procurement touches upon nearly every aspect of business performance. Yet many leaders have failed to grasp its importance and few organizations accord sourcing leaders with the power and prestige of other C-suite positions. For years, global supply chains grew more sophisticated, enabling ever more efficient just-in-time production. With so many supplier options to choose from, managers tasked procurement teams with optimizing processes and costs.

Now more than ever, companies must embrace emerging technology and its power to reshape performance and control over supply chain management.

As a result, the uptake of innovative, disruptive technology has been slow. In fact, many purchasing officers and category managers in 2020 still rely upon personally vetted contacts and manual processes. In contrast, their colleagues in marketing and sales have long had sophisticated digital tools at their disposal. Misinterpreted as a support function, many organizations failed to see how procurement can drive business growth and innovation.

Fortunately, procurement’s profile has begun to rise in recent years as more companies have explored strategies to address climate change and prioritize socially responsible sourcing. But the US-China trade war and the outbreak of the COVID-19 pandemic represent turning points, exposing the inflexibility and vulnerability built into many production models. In response, organizations are now looking to sourcing leaders to diversify supplier bases and plan for multiple future scenarios. Now is the time to invest and equip procurement teams with the tools and resources to deliver on these heightened expectations.

Sourcing new routes to value extraction

Alongside an increased recognition, new digitization and automation are set to reframe procurement’s place within organizations. In fact, the role of the department has always evolved in tandem with supply chain trends. Today, AI and big data applications can support teams to take on additional responsibilities in strategy, innovation and risk management. The modern procurement officer is a knowledge worker, generating actionable insights with ease – on issues such as liquidity, efficiency and risk from live verified data.

More than ever, in the context of post-COVID-19 supplier impacts, companies should examine overdue investments in digitizing their supply chains and leveraging innovative technologies like advanced data analytics. AI can deliver results simply not possible with any amount of manpower – for example, global supplier search at scale – transcending regions, languages, biases – in hours rather than months.

Sourcing leaders must be empowered with decision-making capabilities and have the right skills to engage their teams throughout the procurement lifecycle, while their teams are given the time and resources to realize their potential.

Such technology can bring game changing results to the field of procurement, where teams today can typically spend 80% of their time on lengthy research and only 20% of their time on strategic tasks like negotiation. By implementing AI-driven solutions, teams can flip this ratio and use high value human skills to unlock value across the organization. Put simply, AI will not replace procurement teams but engaged, enabled, and skilled procurement teams using AI will replace those who don’t.

Procurement drives resilience

When the impact of the current COVID-19 crisis fades, will companies learn long-term how intrinsic and critical sourcing is to both survive and thrive? Technology can play a key role in ensuring companies establish structures and teams for continued success.

When well implemented, technology can permanently transform how procurement departments function and operate within organizations.

By delivering 360-degree insights and verified data, automation and analytics will bring better ways to support everything from supplier management to contracting, spend management and auditing. These gains will enable teams to work proactively, providing the space to build stronger internal and external relationships, engage in more transparent negotiations, and preemptively mitigate financial and reputational risk.

However, technology cannot drive value gains on its own – As Proudfoot CEO states ‘great things happen at the intersection of people and technology.’ Sourcing leaders must be empowered with decision-making capabilities and have the right skills to engage their teams throughout the procurement lifecycle, while their teams are given the time and resources to realize their potential. For many companies, this transformation will require a shift in perspective toward managing supply chains for long-term success. It also means taking responsibility for sourcing decisions at the highest levels of the organization.

There will be undoubtedly more uncertainty on the horizon, from deepening geopolitical rivalries to the destabilizing effects of climate change. Reverting to yesterday’s business-as-usual is not an option. Instead, success will increasingly be driven by resilient supply chains and the progressive, collaborative professionals that manage them.

Posted on November 10, 2020

By Proudfoot Team

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