3 procurement steps to building a resilient business
The COVID-19 crisis has exposed massive vulnerabilities in the global supply chain. It has also shed light on the need for organizations to have complete visibility into their business spend and more agility in the procurement process. With procurement leaders at the forefront of this charge, here are three critical steps to help businesses manage through times of uncertainty: invest in the right technology, build strategic relationships with suppliers, and focus on future agility.
The performance and the risk of each supplier can have a significant impact on your company’s spend.
Step One: Invest in the Right Technology
When it comes to supply chain management, many organizations today still have disparate systems that handle the purchasing, receiving, and invoicing of goods. As a result, they struggle to understand their spend, making it a challenge to build a resilient business during times of uncertainty. To solve this problem, procurement leaders need to holistically address their spend under management by investing in cloud-based solutions. Look for technology that:
- Simplifies Your Stack: To get the most out of your business spend, the technology vendor you choose should have a single, unified, and secure suite of cloud applications for all transactions across the company. A centralized source of truth simplifies the task of gaining spend visibility and control.
- Utilizes Artificial Intelligence and Machine Learning: Choosing a solution that leverages the latest technologies such as artificial intelligence and machine learning means that procurement leaders are getting spend recommendations delivered directly to them versus needing to manually analyze the data and uncover the insights on their own. These advanced insights will allow leaders to make critical business decisions based on real financial facts and spend behavior.
Cloud-based solutions have also created the path for innovative payment technologies that provide the flexibility and scalability that global business requires. In order to better serve customers and pay suppliers, procurement leaders should consider modernized payment processes, including:
- Digital checks: Much like we do in our personal lives, it’s critical to have flexibility in how we make payments, especially during times when many businesses are working remotely. Cloud technology makes it possible to send truly digital checks to suppliers. After authentication, suppliers can then deposit the check directly into their bank account, eliminating inefficient and error-prone paper check processes.
- Digital wallets: On the cutting edge of payment innovation in the cloud is the use of digital wallets, which makes it just as easy for you to connect directly to suppliers’ preferred payment platforms as it is to make a payment to a supplier’s bank account. Connecting with digital wallets enables real-time money movement and can even be automated using a signed contract.
The right technology gives a comprehensive view of all spend across departments, regions, and spend categories; it also enables better ways to work with suppliers. This puts finance and procurement teams in a better position to make tough decisions with confidence when needs arise.
Step Two: Build Strategic Relationships with Suppliers
Understanding the health of your suppliers is critical in uncertain times; both the performance and the risk of each supplier can have a significant impact on your company’s spend. A knee-jerk reaction may be to completely halt company spending and hoard cash until the markets rebound, but that thinking is shortsighted. You still have procurement needs in order to keep your now remote workforce up and running. Instead, what B2B organizations should be doing is engaging thoughtfully and proactively with suppliers, and utilizing community data to make smarter, faster decisions. In doing so, you can quickly tell where you may be exposed to more risk, where operations are business as usual, and where there are opportunities for new short-term contracts to increase organizational agility.
In fact, procurement leaders should even consider accelerating payments or creating new payment structures that scale with the needs of their business while ensuring their suppliers have the resources necessary to continue manufacturing products.
Suppliers also want to understand where your organization stands during periods like these and how you are being impacted. In order to manage their own employees and resources effectively, they will need to know anticipated order volumes and whether those volumes could see an extreme swing one way or the other. Specifically, they need insight into how their relationship with your company will impact their cash flow.
Meeting suppliers where they are and working with them to ensure they get through their challenges is vital. After all, you and your organization will need them once we’re on the other side of COVID-19.
Step Three: Focus on Future Agility
Once you stabilize your spend with cloud technology and determine supplier risk, you can start evaluating business continuity scenarios. Was it geographic exposure that made maintaining the flow of goods difficult? How might you diversify your supplier base to address geography and other issues? As you ask yourself these questions, procurement leaders will also need to consider moving from a just-in-time supply chain to a just-in-case model, as the current crisis has stretched carefully calibrated supply chains to the limits.
In addition, organizations around the world are implementing layoffs and furloughs in order to remain as lean and profitable as possible. This means that the immediate future will need to include a contingent workforce. Companies without a unified process for contingent labor will struggle to identify who their workers are and how they are performing. The longer it takes to understand the nature of your contingent labor spend, the longer you’ll need to take action, making it hugely important that you capture these costs within the same business spend management platform as the rest of your company’s spend.
Though it may be hard to believe now, tough economic times won’t last forever. While many companies are in survival mode, the smartest procurement leaders are training their organizations to remain agile and keep an eye on what happens when the economy recovers. With increased transparency into organizational spend and supply chain risk, thanks to cloud technology, organizations can make more informed decisions about the products they buy, the suppliers they work with and the ways they can simplify their payment processes. All of which will better ensure organizational resilience, both in times of crisis and in times of prosperity.
One final note, a Gartner, Inc. survey of chief financial officers and finance leaders revealed that 42% of CFOs are not incorporating a second wave outbreak of COVID-19 in the financial scenarios they are building for the remainder of 2020. Don’t be caught unprepared, take the time now to get visibility and control of your spend so you’re in a better position for whatever might come next.
Michael van Keulen is chief procurement officer of Coupa Software Inc., a provider of cloud-based procurement and spend-management technology.