The Strategic Rebirth of Procurement

Procurement leaders need to cultivate a much broader skill set in order to adapt quickly as new challenges arise.

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The spread of the Coronavirus disease (COVID-19), despite its serious damage, may actually help to cure a stubborn and long-standing organizational dysfunction – a sickness present in companies throughout the world. 

The procurement professionals who specialize in securing needed supplies for their organizations tend to be seen by their colleagues as order clerks rather than as strategic partners. The easy availability of competitively priced materials and parts for producing goods or performing services is largely taken for granted. Procurement’s job is seen as simply placing the orders so that the company’s higher-profile functions and revenue-generating divisions can fulfill the organization’s mission and receive recognition for it. The real value that strategic procurement can bring to the organization’s work isn’t widely understood, so it isn’t always attained.

But, the blight of COVID-19 has undermined some of the longstanding assumptions that people have held regarding the availability of commodities and component parts. Supply chains have become broken and scrambled. Familiar vendor relationships have become estranged. Scarce commodities have suddenly experienced huge demand. Price gouging has become widespread. And, the turmoil has attracted scammers who see real opportunity in the ensuing chaos. As a result, the authentic value of the procurement function has taken a much higher profile.

Twisted chains

The nation’s web of public and private labs is struggling to increase testing, but that they are up against unprecedented demand and a hugely complex supply chain that can’t turn around on a dime. They’re competing with one another – and with states – to get the specific supplies needed for their testing instruments.

The article goes on to say that companies selling the testing machines are usually the ones who also make the chemical reagents needed to carry out those tests. So, labs are often limited by brand. If the maker of their machine is out of the reagent, there’s nowhere else to turn. They compare it to printers: if you buy an HP printer, you need HP cartridges.

There are also “open” systems, which some labs use to avoid being tied to a particular brand of reagent.  But, while open systems are compatible with a variety of reagents, they also require more steps by technicians before the specimen goes into the analyzer. Of course, there are other products needed to process tests as well. They include reagents, swabs, cartridges, pipettes – all of which are in high demand not only in the United States, but also around the world. Add to that the scramble for ventilators and masks, and it’s easy to understand how medical supply chains can quickly become overwhelmed.

Consumer product vendors are having their own supply chain issues. As recently as early March, Americans spent half of their food money on meals consumed away from home. But, when schools and restaurants shut down, the demand for supermarket goods skyrocketed. However, the food items consumed by institutional foodservices are typically secured through different supply chains than those that retail grocers buy from. Switching over isn’t easy and shortages of various items – frequently compounded by panic buying and hoarding – often follow.

Other examples of supply chain stress are available in practically every industry. Automakers are heavily dependent on components sourced from other companies, frequently overseas, which often include links in the chain that have become damaged from the COVID-19 pandemic. Electronics producers depend on complex chains of suppliers whose operations are subject to sudden disruption. And, other events, in addition to pandemics, can affect suppliers: natural disasters, political unrest and labor issues, as well as transportation problems can each impact the timely arrival of needed supplies.

All these examples of disasters and emergencies have high enough profiles that most people are aware of them along with some of their effects. But, there are also more garden variety supply issues that procurement professionals face every day which are far less visible. For example, in many organizations, different business units buy similar products from multiple suppliers instead of consolidating their purchases to benefit from economies of scale. Procurement staff can see that, while the rest of the organization can’t. Procurement professionals are also in a position to hedge or even eliminate risk before it impacts the organization.

Mitigating supply chain risk

To position their procurement function to deliver the value it is capable of, companies are turning to the concept of Smart Procurement. In it, company personnel are outfitted with e-procurement platform technology to collect insight into every aspect of the purchasing process and the players involved.  Using it, staff can not only identify opportunities, but also root out such bad behavior as human trafficking in the supply chain. They can ensure that their organizations aren’t funding conflict minerals or supporting guerilla groups. Smart procurement enables the use of best practices that help to avoid buying products from corrupt companies or countries. And, security checks can be run on suppliers, making sure not to become a victim of fraud, cyber intrusion or financial damage that could put the organization out of business. Procurement has emerged as the stopgap for a whole range of third-party risks.

What it all means is that procurement leaders need to cultivate a much broader skill set in order to adapt quickly as new challenges arise. And, an integral part of that skill set involves improving personal leadership both for the procurement staff – who may be facing daunting new responsibilities with unfamiliar tools – and for the organization as a whole. 

Technology has become a key enabler of business continuity for all corporate functions, including procurement. It is technology that is now enabling companies to keep employees productive with remote working and virtual events. Automation has become essential because paper-based work is impossible to do from home in a way that complies with corporate policies and regulations. Beyond that, a lot of paperwork is unnecessary – there’s no longer the need to stuff vendors’ checks in envelopes. And, paper records in someone’s file cabinet at the office are now inaccessible. Once the pandemic subsides, automation should be top of mind for every executive, and digital transformation will be understood as an essential initiative. The skills that procurement leaders are developing through this ordeal will prove to be indispensable moving forward.

All of us should come out of this stronger than ever. We’ll be better able to apply lessons we’ve learned to creating more supply chain efficiencies and cost reductions. And, we’ll be better prepared to handle future crises because of what we learned. We’ll accelerate digital transformation, and at the same time, become more personal with our employees, suppliers and partners. We will better understand one another, and work together more effectively whenever the next crisis hits.