Re-evaluate your long-term supply strategy
Once the tactical situation is under control in terms of reallocating budgets, optimizing prices with current suppliers, and ensuring stable supply, it’s time to look ahead at your long-term supply set-up. Disruptions in supply chains such as steel and logistics have shown which suppliers hold firm under pressure and which ones don’t, as well as which suppliers prioritize your business or not.
Many European packaging producers have recently been prioritizing customers buying high-end products, cherry-picking to enhance margins while consumers order increasingly online. Revelations such as these have been painful for many companies and have taken up a lot of energy over the past year. But as supply and demand catch up with each other in various industries over the coming quarters, it’s also time to broaden the perspective and think long-term based on the latest learnings. Procurement should analyze the current situation together with other departments in the company, such as logistics, production, finance and the specialist departments.
The pandemic has made it clear like never before that processes in the company are interlinked and that a stable supply chain is at least as important as cost-effective procurement. In some areas, this will mean spreading supply among more suppliers and countries to lower risks, while in others, spending may need to be consolidated.
After the pandemic, companies cannot simply dust off the plans for 2020 and pick up where they left off. The past year has speeded up several pre-existing mega-trends, such as remote working and sustainability. As a result, the demands on products and suppliers are also changing, which calls for multiple fundamental changes for companies if they want to survive in the future.
As an example, companies should dovetail procurement and product development more closely. The earlier procurement knows which innovations the product development team is planning, the better it can take this into account when looking for a suitable supplier and thus reduce costs. And involving the right suppliers at an early stage of product development can shortcut finding cost-efficient solutions.
This is also a good time for CPOs and CFOs to reflect on the overall strategy, targets, and measurements for the procurement departments. Some of the recent lessons could be built into steering procurement’s function and potentially the operating model vis-à-vis the business. The case for looking beyond savings and also accounting for total costs, supply chain security, risk exposure, and sustainability is as strong as ever. And ensuring these targets are mirrored in production and supply chain, for example, can help smoothen transitions between suppliers.