4 fundamentals to supercharge procurement teams in the new normal
In what’s become our new normal, category and commodity managers, procurement directors, chief procurement officers, and others in the procurement and sourcing departments joined virtually for ProcureCon Indirect in late July. The theme of the event was “Coping with New Procurement Realities and Applying Lessons from 2020” with many of the sessions focused on procurement’s role in reopening post-COVID, cost savings, building resiliency in the indirect supply chain, and best practices to reshape procurement.
Thinking back on the various speakers, 4 fundamental points stood out to us because they each tie into how procurement teams can optimize their procurement processes, achieve cost savings, and provide value to their organizations with an intelligent spend management tool.
- Procurement teams need to be more flexible
- Save costs to survive this pandemic
- Build resiliency in your indirect supply chain
- Enhance your procurement model with digital transformation
Procurement teams are more important than ever before, while at the same time they’re being expected to do more with less. Times are tough for every business around the world and this is an opportunity for procurement teams to steer their organization by creating value in economic uncertainty.
Procurement teams have had to go virtual and a majority of people are still working from home, which means there may be changes to how things get done. For example, contract negotiation, which has typically involved some degree of in-person interaction, is now forced to go completely virtual. As more companies continue working remotely, a supplier marketplace helps streamline supplier management as well as the negotiation process.
As suppliers are adjusting to altered supply chains, new demand priorities, and more, it’s also important for them to remain flexible with the changing necessities. Concurrently, organizations need to be flexible with their suppliers, continue building good supplier relationships, and not shy away from paying their minority suppliers to help them keep afloat during this pandemic. Helping suppliers during this pandemic can help build positive relationships between suppliers and companies. They can establish long-term contracts with each other so companies can benefit from discounts and suppliers will have long-term security.
With demand for many products (aside from PPE) plummeting during this pandemic, it’s important for organizations to keep their costs in control to continue operations during this crisis. Companies might have to cut costs in some places and also invest more in PPE and sanitization of their premises to ensure safe working conditions as their employees return to the workplace. Procurement teams may have a hard time finding items like masks, gloves, or disinfectant wipes unless they use a reliable marketplace to fulfill their PPE needs. For companies to reduce costs efficiently, they need to know where exactly they are spending and how they can save without hampering their business.
According to McKinsey, “indirect spend has been growing by an estimated 7% per year globally” since 2011. Even so, many organizations fail to give indirect categories the attention they deserve. Indirect spend could be a category where companies can save most of their money. For instance, a spend analytics tool with line-level granularity can not only provide organizations with dashboard visualizations to show where exactly they are spending the most but will also provide them with actionable insights into savings opportunities.
Indirect spend has become increasingly more important as companies need to start supplying sanitizers and PPE, which oftentimes, depending on the type of organization, wasn’t a cost previously.
All companies are fighting for the same resources. Hence, building supplier relationships has become more critical.
In his session, Hector Molina, Indirect Procurement Leader at Schneider Electric said, “Risk mitigation and resiliency have elevated significantly post-COVID-19 and added a significant and important dimension to the role that indirect professionals play in our respective companies.”
To build supply chain resilience, procurement teams should start by dividing suppliers into essential and non-essential suppliers. This will give the procurement departments a better understanding of where risk lies and having proper visibility can help identify risks such as unforeseen supply imbalances.
To improve relationships with essential suppliers, organizations should negotiate better terms and early payments. Look at the long-term and help small suppliers who will struggle during the pandemic while also building trust with the supplier. Building supplier relationships can also help leverage suppliers’ knowledge of the market and understand changes in the industry.
COVID-19 has completely changed the global procurement model and transformed the supply chain. With a majority of the employees working remote, procurement teams need a digital source-to-pay software that can be used from any part of the globe, and even across multiple locations.
“COVID could be the black swan event that finally forces many companies to rethink and transform their entire global supply chain model,” predicts Charles Moran, Customer Success Leader at Amazon Business.
Procurement trends over the last few years have leaned towards digital advancements and automation. In today’s labor market, companies need new solutions and tools to attract talent. As more millennials become customers and employees of the company, they will expect more automation from the company. Digital procurement tools can also allow companies to uncover item-level analytics and can capture spend leakage, purchase price variance, early payment discounts, etc.
A study by McKinsey & Company found that “digital solutions in procurement can unlock as much as an incremental 3-10% in annual cost savings.” Procurement teams need to modernize procurement and embrace digital solutions. Businesses need to understand the impact on future demand and this risk can be understood by having more visibility into spend with the help of a spend management or spend analytics tool.
To sum it up, organizations need to be more agile to adapt to this new normal. Building supplier relationships, cutting costs, and improving resiliency in the supply chain are some of the ways procurement teams can help deliver value to their organization. Adopting digital technologies and automation can also help the procurement department through these uncertain times.
Sign up for one of Xeeva’s live product demos today and see for yourself how an AI-powered spend management software can help your procurement team find new saving opportunities!