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The pandemic has forced business operations to adopt more ad-hoc and reactionary strategies toward supply chain planning, production, spend management and risk mitigation. This reactionary approach is not the most efficient strategy as it doesn’t align functional data to supply chain or spend management goals.
Fast-tracking policies during an economic downturn will inevitably have a lasting impact on your company overall, specifically, your supply chain. Especially as this type of “non-planning” could actually be costing businesses more in the end, when budgets are already stricter than typical.
As we approach restarting the economy, procurement has already proven their principal relevancy in central decisions around supply chain production, agility and resilience. Making the question at hand, how can procurement effectively create a proactive supply chain plan while harnessing innovative spend management practices and balancing stakeholder demand?
COST CONTAINMENT DURING ECONOMIC RESTART
One of procurement’s core goals during a challenging environment will be cost containment. 80% of CFOs surveyed in May said they are looking to implement cost containment strategies as a result of the current pandemic (PwC’s COVID-19 CFO Pulse Survey). Meaning procurement can expect stricter cost controls on any activity that requires a lot of resources - time and money – and should approach spend management collaboratively.
Effective price reductions can be found through proactive supply chain planning. For example, if there are specific OEM solutions required to maintain production, procurement should plan a month (or longer) in advance. If purchasers plan, they can reduce logistics costs by using the slower but more budget friendly and efficient option of ocean freight. This more proactive purchasing strategy will help secure the right solution at the right rate without experiencing further supply chain disruption due to lack of inventory or product shortages.
COLLABORATIVE SUPPLIER RELATIONSHIP MANAGEMENT
Supplier relationship management can be tricky when supply chains are operating in a typical environment. However, there is an extra layer of complexity when operating in an atypical environment with characteristics of unexpectedly low demand and high risk, combined with limited resources.
Procurement can impact essential company finances outside of the typical category reduction expectations by taking on a more strategic and proactive role in supplier relationship management. That increased emphasis will result in better supply chain resilience and agility, which according to 72% of CFOs will make their company better as we launch into phased reopening (PwC’s COVID-19 CFO Pulse Survey). To foster a more collaborative supplier relationship management strategy, procurement can lean on their GPO — members of GPOs benefit from being viewed as a “customer of choice” by supplier partners, as the GPO buying power translates into strategic importance to suppliers.
While procurement balances the financial needs during an unstable environment their GPO can help proactively identify suppliers that will provide a competitive price and optimal lead times for the most critical and challenging needs- like personal protective equipment (PPE), which will prove vital when stakeholder demand is higher or lower than forecasted.
The GPO Role in Supply Chain Planning
The current crisis clearly represents an opportunity for OEM, safety, and facility management purchasers, but it also provides an opportunity for innovation and collaboration with suppliers, trusted partners (like a GPO), and stakeholders. Pulling on typical price reduction levers while exploring “outside of the box” programs to balance stakeholder demands will help procurement lead recovery within their company.
A key collaborative tool for procurement will be their GPO, who serves as an extension of their purchasing team. Prior to the pandemic, procurement teams were already resource strapped. The increase in demand for some, or extreme decrease for others, and the unique needs associated with addressing the pandemic has accelerated the necessity for procurement to contain costs, satisfy stakeholder requirements, and mitigate supply chain risk. The GPO model is built on the premise of combining group spend with flexibility and agility, which in turn increases speed to savings (aiding in cost containment efforts) and opportunity for innovation. This model helps procurement identify strategic areas to save important resources like, time and money, to optimize spend management while reducing supply chain risk. In this manner the GPO acts as a catalyst for innovation and a “secret weapon” for supply chain planning during, and post disruption.