Sun, 27 Sep 2020

4 Ways Procurement can Support a Speedy Recovery













4 Ways Procurement can Support a Speedy Recovery – The Strategic Sourceror


































The
last few months have certainly tested our ability to adapt to uncertainty. Realistically,
no one knows how long this shutdown is going to last but presumably the peak
will occur in the next 1-4 months. No matter how long the formal shutdowns
last, economic recovery will be slow once businesses begin to reopen. So how
can companies return to profitability as quickly as possible? Top line growth
will be hard to come by in the early stages, so companies must look to back-office
operations such as procurement to find creative ways to reduce operating costs.
This post will highlight 4 ways that procurement can support those efforts.
Reviewing
SOWs and Renegotiating Contracts
Spend
drift is a common outcome of old or undermanaged contracts, meaning that extra
services get tacked on over time or continue to be performed when they are no
longer necessary. With operating environments changing so dramatically in a
short period of time, companies need to be mindful of their changing needs and
be cognizant of where purchases and services are no longer required. This will
be especially true in areas such as travel, contractors, and facility services; chances are we won’t be traveling as much in the near future, and its entirely
likely that we won’t be spending the same amount of time in offices. Now is the
ideal time to review scopes of work and make sure they reflect the “new normal” so you don’t pay for services that are no longer needed.
A
robust risk assessment model should be part of any developed supply chain and
sourcing organization. Now more than ever, procurement organizations need to be
mindful of the financial health of their supply base by assessing critical
suppliers and components and assessing their risk exposure. Risk can be
assessed through a multitude of lenses – by direct spend (products or services
with the largest spend) or by profit impact (components or services that go
into finished goods with the highest profit contribution but that may not have
the highest direct spend). Understanding risk can lead to vendor consolidation
and additional cost savings. By combining purchases, you can align spend to low
risk suppliers, trading volume for price concessions all while reducing your
risk exposure.
Focusing
on Cash Flow – both yours and your suppliers
Assessing
the financial health of your supply base as part of your risk assessment can
also create new negotiation levers surrounding cash flow. Understanding your
cash position relative to that of your supply base can create negotiation
opportunities around payment terms, early pay discounts, and even supply chain
financing programs where having cash on hand takes precedent over capturing
price and margin.
Lastly,
outsourcing is a tool that allows companies to remain lean, focus on their core
competencies, and allows them to easily scale to their requirements while
relying on the expertise of a 3rd party. It will be important to
keep overhead and fixed costs low during the recovery period, and outsourced
services can be scaled to meet your requirements depending on how quickly or
slowly the recovery period plays out. In the procurement space, Corcentric can
supplement your existing procurement team through a contingency model where
savings are shared, incentivizing upside savings and minimizing your
organizations up-front costs. In the coming months, that level of flexibility
will be vital to getting back on track as we all try to return to normalcy and
get back to growing.

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