When companies are finally able to look back on the raft of changes to their business brought about by the coronavirus pandemic, many will likely point to the forced digitization of their procurement department as the most significant.
In 2020, the procurement department has kept businesses running as they’ve tackled sourcing and logistical problems, and identified new suppliers—all while keeping an eye on costs. And in the months and years to come, procurement will need to continue its leadership role, helping companies reimagine not just how the procurement function operates, but also how it provides businesses with new capabilities.
And we’ve seen this movie before. After the global financial crisis of 2008, procurement departments helped their companies rebuild by focusing on recovering from the economic effects of the recession. Today, as well as recovering profitability and preserving cash, procurement leaders need to battle shifting supply-market dynamics, change ways of working, deal with increasingly volatile demand, and de-risk supply chains to make them less vulnerable to disruption. A big part of facing these new challenges will be digitizing the procurement function.
But many companies might not be prepared to move forward with their digital transformations, even if they have made some steps over the last few months.
In May, researchers at Forrester found that procurement leaders were split on whether to prioritize cost reduction or to implement measures that would support recovery and competitiveness after COVID-19—such as process automation and improving supply chain collaboration.
Forrester warned that there would be more competition for the expected reduced demand among surviving firms after the pandemic. In preparation, businesses would need better supplier relationships and improved visibility with upstream partners. To navigate current and future uncertainty, firms need to have real-time, centralized collaboration and information-sharing internally among procurement teams and externally with supply chain partners, the researchers said.
According to a McKinsey report titled “Reimagining procurement for the next normal,” procurement departments will gain the most for their organizations by strengthening their supply-chain, investing in supplier partnerships, and—most importantly—transforming to an agile operating model by improving processes and analytics.
Digital transformation will be crucial to dealing with these new challenges. But according to McKinsey, before the pandemic, many organizations were still trapped in “pilot purgatory”—making small investments in their procurement departments but never scaling up to achieve real benefits. While coronavirus has forced companies to accelerate the shift to digital purchasing and processes, many of these solutions have been put in place with today’s problems in mind. The job now will be to mold these systems into something that meets future needs.
As remote work becomes routine, digitization will be essential to enable effective collaboration across many business functions, especially procurement. Cloud-based supplier-negotiation platforms can help procurement, operations, and legal staff prepare and review proposed contract terms, speeding up negotiations with suppliers, and reaching better outcomes.
Spend analytics—a rich source of new insights and opportunities—can counter crisis-induced margin pressures and increased volatility. E-procurement systems can keep costs in line and decrease tail spend.
Digital transformation will help procurement departments improve how they operate and collaborate with internal and external stakeholders, allowing them to scale up or down quickly to respond to sudden supply challenges. The pandemic has put the needs for these functions and skills in sharp relief.
But companies that put off developing a long-term digital road map risk falling behind their competitors. And if your company’s procurement team was lagging before the pandemic, it will be even further behind when we emerge on the other side.