Supply Chain – The pandemic has made supply chain agility job one

The challenge posed by the pandemic and the subsequent countermeasures enacted by governments has created a level of uncertainty never seen before, and supply chain risk is part of the equation.

Imagine how difficult it is to come up with an accurate view of risk when regulations change frequently and differ from country to country. How do you evaluate your customer or supplier risk when one industry is spared by the pandemic disruption one day, but becomes harshly affected the day after? A monthly, weekly or even daily review of risks may not be sufficient anymore. This is the challenge banks are now facing, updating their risk exposure in such a highly volatile environment. It requires a high level of responsiveness to a changing environment.

Procurement teams have had to deal with their own risk source: suppliers. But not all procurement teams were equally prepared for this challenge. What has been the difference between best-in-class procurement teams and others during the pandemic? The answer is the responsiveness and agility provided by their digital footprints.

First, procurement has endeavored to rapidly identify business-critical suppliers and ensure they are able to continue providing the goods or services that are deemed critical. Think about all the services related to cash circulation, but also all the technology infrastructure behind the whole international money transaction system. This is too critical to fail.

These suppliers need to be on a strategic watchlist. Banks need to have access to all relevant information regarding these critical suppliers. Are some of these suppliers in financial distress? Are they overly dependent on one of their customers? Is there any alternate provider that has been identified? This is where access to data and insights is helpful. Supplier information transparency is the foundation for responsive procurement.

Those with actionable knowledge about their suppliers were able to quickly respond to the bank’s business continuity plan, elevating the strategic nature of procurement. Those with poor and scattered supplier data struggled to do so, which confined procurement to a second-class department. Data transparency is critical, but information must be actionable in order for organizations to be agile.

Very quickly after the fundamentals of business continuity were secured, procurement had to support another mission: ensuring the bank could serve customers online, because most could not go to physical branches anymore, while bank employees worked from home. This meant reviewing current contracts to resize internal network, hosting or IT hardware capacity. On the other hand, they had to activate force majeure clauses for services that needed downsizing like events, travel management and also on-site contractors while facilities were closed. Finally, they had to quickly source, negotiate and contract with new providers for safety and sanitary equipment as this became a prerequisite to resuming physical business activities. These sourcing actions took place in the highest competitive environment ever encountered as every organization from all over the world fought for these commodities. Only the most agile would win the race, especially the quickest organizations in adapting their payment policies to secure the highly in-demand PPE products.

Only procurement teams benefiting from an agile platform could offer such responsiveness to their stakeholders. They leverage integrated sourcing and contracting data to accelerate new business with suppliers. They adapt their payment cycles to new circumstances by accelerating payment terms to 10 days or less for targeted suppliers and support those that are at risk of insolvency or small businesses. Although the latter seems trivial, it takes the full agility of supplier data and payment engine to implement such an asymmetric payment policy.

The temptation to open all gates to accelerate business is always there, especially during a crisis. It is important to note, however, that it is in such times that fraud is prevalent. Fake suppliers, phishing attempts, unsolicited banking details modifications, payment embezzlement: procurement activities all of a sudden become a target for fraud.

Again, this is where a digital and flexible procurement tool reveals its full potential. How? By allowing procurement to adapt business processes and approval steps when increasing speed is required. It is easy for those using a platform in which approval workflows can be tailored to circumstances. However, if your tool can only support a few rigid processes, loosening the controls put the business at risk. The true power of flexibility is when the platform allows you create several processes for a certain purchasing category, a country, a supplier, or an organization. This way, you can maintain the highest level of control for most of your spend but allow exception policies where needed. This is how you can balance business speed and control.

Before the pandemic, it was the level of procurement digitization that was a key differentiator between procurement teams. On the one hand, there were the digitally advanced and on the other the digital laggards. While this is still true, the pandemic is highlighting another gap, that between the procurement groups that successfully leverage day-to-day technology to enhance business process agility and those that do leverage technology but are not able to be as flexible or agile because the technology prevents this.