There has never been a spotlight on procurement and supply chain like there is right now. The COVID-19 pandemic is impacting every industry across the globe, hurting supply chains and shifting business priorities. In the US alone, (53%) of “manufacturers expect to experience a change in operations as a result of the spreading COVID-19 outbreak.” These changes include anything from limiting in-person interactions due to social distancing mandates, to managing for worker absences, to emergency sourcing masks and medical supplies.
For many organizations, the biggest challenge they are facing is cash—profits are down, cash flow is tight—and right now, cash is king. As companies are looking to tighten the belt and cut budgets in anticipation of the COVID-19 getting worse (before it gets better), and the resulting economic downturn, what are the immediate steps procurement can take? What should you do if you are a procurement leader operating in this new normal?
Our Head of Strategy, Erin McFarlane, shares six actionable best practices to help procurement professionals with cost savings during this pandemic.
- Review planned expenses
- Review capital budgets together with your finance and corporate planning departments. Ask yourselves, what capital projects can or should be put on hold?
- Review terminating contracts. Ask for discounts or evaluate cancelation policies. Keep in mind that many contracts automatically renew at 60 - 90 days and vendors or suppliers will absolutely be enforcing this as they experience higher churn rates. Vendors and suppliers will reduce your fee rather than lose you as a customer, if you ask.
- Pay attention to your payment terms. Cash is king! Vendors who are willing to accept longer terms are valuable.
- Add oversight and approvals
- Whatever your current p-card limits are, consider lowering them. P-card spend can spike during critical periods, when you may not have the staff to provide oversight.
- Increase executive oversight on PRs and POs.
- Increase review of contracts in flight, paying special attention to force majeure clauses and (you guessed it) payment terms.
- Enforce P2P compliance. “I forgot to create a PO” is not a valid excuse right now.
- Create a fast lane
- Be careful that added oversight/approvals don’t impact critical needs.
- Allocate a budget and a team (if you haven’t already) to address critical sourcing needs. Consider including finance, legal, risk, audit, and IT/IS to rip down the red tape.
- Send urgent crisis-related needs to that team who can evaluate the best approach and use a risk-based decisioning criteria for exceptions to process and policy.
- Payment terms matter
- Consider broadly pushing your payment terms (Net30 standard to Net45) on new POs to non-contracted suppliers.
- Ask about payment terms in all negotiations—do not assume!
- When in doubt, source it out
- Many things you think are single-source, aren’t. Sourcing is inarguably the best way to deliver substantial savings to the bottom line.
- Sourcing doesn’t mean you have to switch suppliers—it means you have leverage and competitive data for negotiation. Use that to your advantage.
- Take care of your vital suppliers
- Create an offshoot of the fast lane and identify the suppliers who are critical to your business operations.
- Don’t contribute to their hardship—be e a partner to these suppliers whenever possible.
- Multi-source key supply chains to allow for instability and business change.
COVID-19 is going to continue to disrupt supply chains for the foreseeable future, so it is important to have a plan in place now. By using these practices, procurement can start to make an immediate impact and help their organizations with cost savings to keep the momentum moving forward.