COVID-19: Hibernate to reboot your business

Procurement Transformation

There are businesses out there today who have gone through procurement transformation and are booming, but even for them, it’s business not as usual. Look at health, childcare, logistics, grocery or government, the list goes on but there are supply chain superheroes everywhere dealing with new and different challenges by the hour.

Conversely over recent days, across the world many sectors have simply ceased to exist, gone into hibernation. So for some, today’s challenge is about dealing with unprecedented demand, but for others, it is dealing with a complete, and forced shutdown in demand. They have simply stopped trading in their customers’ eyes.

So at the front end, everything stops, and yet behind the scenes, there are supply chains often accounting for up to 80% of revenues. A single source agreement, mapped to the 2nd or 3rd tier in the supply chain could increase threefold, or tenfold, there are no hard and fast rules.

There are supply chain heroes here too, doing the unthinkable, helping the business to hibernate, whilst at the same time preparing it to bounce back.

There is no playbook for this, but since Proxima is helping a small number of our clients through their procurement transformation journeys, we thought we’d share our experiences….

What is the context?

1. There will be competing forces at work. At this time companies will have one eye on sustaining the supply chain, but another on cash. There will be cash flowing out of the business and a focus on the cash needed to get up and running when the time comes. You need to understand all competing forces.
2. This will be a difficult balancing act. This is going to involve working very closely with other business functions (and suppliers). Finance will be focussed on cash, operations will be planning shut down and startup and suppliers are critical to both. You’ll likely be updating daily because things will change daily.

Analysis

1. Quickly segment the supply base. An easy approach is based on criticality to the business/nature of the supply market and deciding upon the treatment of each segment. But you also need to consider a few other factors, such as suppliers with outstanding spend commitments or receivables, and those that might be critical to a re-boot.
2. Take stock of the impacts on suppliers. What are they saying? A lot of traditional risk monitoring tools will have proved to be inadequate, or perhaps a better description would be not fit for this purpose. You need to think about what measures you can take to understand live information – news is critical, noise is distracting. Get talking to suppliers, have a look at any supplier intelligence platforms/ news feeds.
3. Be careful not to create a monopoly market situation. When segmenting suppliers, remember that even those providing commodities could increase market power as options become limited due to inevitable supplier failure. Ensure competition still exists on re-boot.
4. Review contracts to ensure exposure is minimized during hibernation: are there minimum volume commitments that can be stored in the meantime (either physically or virtually?); how many have a termination for convenience? Do you need to do a further impact assessment based on the re-boot plan?

Service Model and Re-boot

1. Is there a skeleton service required? If your business is supplying to key workers do you want/need to run a skeleton service? If so what’s your plan to make that happen, which suppliers are needed and how can you collaborate safely and ensure that there are: 1) contingency plans, and 2) enough liquidity (and government aid) in the chain?
2. Start the internal day one plan. What will we need on day 1 to get back up and running? Vital supplies and services need to be ready to push the button and what is your strategy to get them; do you have stock? Do you depend on fresh ingredients? What sort of service will you launch? Is it seasonal? Work with your teams to make a checklist and launch plan.
3. Be prepared for co-opetition then competition. In these unprecedented times, it may be necessary to co-operate with competitors (co-opetition)to ensure critical suppliers stay in business. Check the rules and see how you can work with competitors to support each other, critical suppliers and SMEs. This is not only good business sense, but there is a chance of long positive and negative reputational impact.

Communication

1. Communicate with your customers. After all, they are what got you this far. History shows that firms that market well through a crisis tend to come out the other side in good shape. What can you do to thank your customers, and make them want to come back? There is a balance between profiteering and brand loyalty. Your goal should be to engage with customers in a way that cements their affiliation with your brand.
2. Communicate with your suppliers. You may need suppliers to be bought into your launch plan and ready to spring into action, perhaps even before you. And so close communication is key now, and throughout the crisis. Co-operation means that you will be open and communicative over the coming weeks. If the world is about to change, there is also an opportunity to re-think business models.
3. Communicate with your team. Let’s face it, we are all a bit scared. It might be about paying the bills, it might be about spending all day with the children (!), but good leadership means good communication, now is a time when teams are made.

Do the procurement thing!

Now it’s time for the day job. It’s good to understand the relief that governments and buyers can provide to suppliers at this point, most of these will be around cash and subsidies, which may impact the collective ability to survive. You will need to have constant discussions (internally and externally), review and action contracts to ensure exposure is managed through hibernation and you successfully complete your procurement transformation.