Procurement Evolved: The New Characteristics of Post-Pandemic Procurement

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Procurement Evolved: The New Characteristics of Post-Pandemic Procurement

September 17th, 2021 Omer Abdullah Leave a comment

The pandemic challenged every business function to change how it operates and adapt to a new normal. For some, those changes have already been reversed. But for procurement, there’s no going back.

The COVID-19 pandemic forced virtually every business function to change how it worked, step into new roles, and adapt to extremely challenging market and operational conditions. For many of those functions, those changes – while significant – were short-term, and designed to help them weather the storm.

But, for procurement teams, the pandemic has accelerated evolution for the function – one that was already well underway before COVID-19 hit. It propelled the function’s journey from ‘back office spend optimizer’ to ‘strategic value creation all-star’. And now, there’s no going back.

Over the past 18 months, leading procurement functions have stepped up to deliver business value far beyond simple cost savings and margin optimization. Not surprisingly, their organizations want them to keep delivering it.

As a result, we’re seeing a new kind of procurement function emerge from the pandemic. It’s a stronger, more empowered function, characterized by three key evolutions:

Evolution #1: From reactive damage mitigator to proactive risk expert

Procurement has always been strong in times of crisis. But, in the past, teams have been restricted by the historical pricing, demand and trend data available to them. That retroactive insight meant that procurement teams were always looking for the best ways to react to a crisis, rather than sidestepping emerging threats proactively.

Thanks to recent advances in analytics and intelligence capabilities, as well as the emergence of sophisticated insight-delivery solutions, the crisis events of the last 18 months have given us our first real opportunity to see the power of proactive crisis insight in action.

Procurement teams empowered with these capabilities were able to identify the early indicators of major supply chain disruptions and take proactive actions to safeguard against them. They shifted between suppliers, sourced from new geographies, and rebuilt entire category strategies to ensure that their companies could continue operating as conditions worsened.

But business continuity was just the beginning of the benefits seen by these teams. Because they were able to watch these trends emerging, leading procurement teams were able to map and understand the potential impacts of each crisis on the business and provide valuable input for crisis management and risk mitigation.

Evolution #2: From supply administrator to strategic innovation driver

During the pandemic, supplier relationships have been more valuable and important than ever. At the peak of the disruption, the right relationship with a strategic supplier could mean the difference between business as usual and completely halting operations.

Leading procurement teams have been building high-value relationships with suppliers for decades, but the events seen in 2020 and 2021 were a powerful opportunity to showcase their value to the rest of the organization. As a result, organizations are now more interested than ever in the other great ways that procurement teams can create value from these relationships.

Exclusive contracts negotiated with suppliers, for example, are a valuable asset for supporting innovation. Through the contracts they help create, procurement teams can build partnerships that have a huge impact on overall business strategy, bringing new USPs into the organization.

As the first point of contact for suppliers, nobody in the business knows what’s happening with those suppliers better than your procurement team. That means they’re exposed to things like new products, new materials, new capabilities, and new offerings before anyone else, all of which can be used to drive commercial, product, and innovation strategies.

The leading teams of today aren’t just filling orders and signing invoices for suppliers – they’re partnering with them strategically. Now, businesses are waking up to the implications that have for innovation, and harnessing procurement teams’ potential as innovation drivers.

Evolution #3: From data comber to action-oriented all-star

Procurement experts can spend hours sifting through data to identify trends that might impact the commodities, markets, and suppliers they depend on. That’s admirable and has delivered immense value to businesses. But today, it’s not necessarily the best use of the procurement team’s time.

In recent years, sophisticated insight and intelligence solutions have transformed how procurement teams gather, consume, understand, and act on commodity and market intelligence. And once again, the pandemic has proven to be a powerful test of how those capabilities support teams and enable value creation in times of crisis.

At a time when every second counted, procurement teams saw immense value from those solutions and put them to use to act faster and stay ahead of competitors who were facing the same challenges and choices.

Take Nomad Foods, for example. When the pandemic first struck, it used intelligence solutions from The Smart Cube to quickly understand the potential impact on key categories and adjust its supplier portfolio to keep the business on track. But, because the team was able to act so fast, they were also able to look beyond ensuring continuity and identify an opportunity to create value and reduce waste amid the disruption.

The team identified that the closure of many restaurants and hospitality businesses would have a massive impact on many food categories and create significant short-term oversupply of many ingredients. By spotting this opportunity early, Nomad Foods was able to act before competitors and optimize its category strategy at a time when many other businesses were struggling to keep their doors open.

Numerous stories like this have emerged from the pandemic. Together they’ve helped organizations understand that the modern procurement function is able to deliver the greatest value when it’s empowered with timely, actionable insights enabled via the right tools and technologies, rather than having to generate those insights manually.

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Omer is a co-founder of The Smart Cube and leads the firm’s business across The Americas. He works with Procurement and Strategy leaders at global organizations, transforming their teams to become value-driven and insight-led. Omer has more than 30 years of management consulting, global corporate and industry experience across North America, Europe and Asia. His prior roles include A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA, and a BBA from the University of East Asia.

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Five Surprising Facts About Commodity Risk Management

July 25th, 2021 Omer Abdullah Leave a comment

Between a major global pandemic, intercontinental freight capacity shortages, and events that have ground supply chains to a complete halt, it’s been an active 18 months for those managing commodity risk.

We’ve learned a lot of valuable lessons during this period – many of which have helped us compile and create our new white paper exploring commodity risk management maturity. Inside, we explore what it takes to enable a mature approach to commodity risk management that helps commodity managers make proactive decisions and create value even when facing the most severe supply chain crisis events.

The paper looks in detail at the different stages organizations find themselves at along a maturity curve, exploring the characteristics of teams at each stage, and what those teams need to do if they want to push ahead along their journey to maturity. But, it also includes many other insights about the state of commodity risk management maturity today – several of which you may find surprising.

Here’s a quick look at five of the more unexpected takeaways from the paper:

#1: There is such a thing as too much commodity risk data

When organizations recognize the value of investing in their commodity risk management capabilities and start taking steps towards empowering commodity and category managers with greater insights, one of the most common mistakes they make is overwhelming their experts with an excess of charts and data.

Too much data can muddy the waters and make it harder for managers to identify valuable trends and translate data into actionable insights that drive value. For organizations at the earlier stages of the commodity risk management maturity curve, it’s often far more valuable to start small and work with more focused datasets.

#2: Mature CRM isn’t just about data and insights – it’s about culture too

While data, insight quality, insight delivery, and the processes that surround them are all very important factors in commodity risk management maturity, they aren’t the only factors that influence it.

Culture is also extremely important if an organization wants to reach the highest stage of maturity. In the most mature organizations, there’s a culture of respect and acknowledgment of the value that procurement teams can deliver through the strategic management and optimization of commodity risk.

In these teams, stakeholders from across the business take an active interest in the insights generated by and acted on by procurement teams. They understand that commodity risks are fundamentally business risks and can even represent the greatest commercial opportunities available at any given time – and that understanding is reflected in their operations.

#3: A huge number of organizations haven’t aligned intelligence and strategy

Commodity risk management maturity isn’t just about having the right data, insights, or culture either. To have the right impact on the organization, the insights generated, gathered, and used by these teams need to be tightly aligned to their strategic objectives.

No matter how strong, recent, or reliable insights are, if they don’t help the team move towards achieving their goals, or support the overall strategic goals of the business, they’re not going to deliver value.

That’s a huge stumbling point for a lot of teams. They’re actively gathering and using insights, but they’re not seeing the results they need. That’s a big indicator of a strategy that appears mature, but it actually still in the earlier stages of the maturity curve.

#4: Sophisticated AI and data science capabilities aren’t for everyone

Like any other data-driven area of modern business, AI and data science have incredibly powerful applications in commodity risk management. The right capabilities can help teams make the critical leap from reactive decision-making to proactive operations that keep the organization ahead of developing commodity market trends.

However, they’re not for everyone. These capabilities demand significant volumes of clean, structured, and actionable data, and some teams don’t have access to data of that quality. For many organizations, simple forecasting and traditional manual approaches to data analysis can be just as effective for what they’re trying to achieve at their current stage of maturity.

#5: There is no ‘one size fits all’ way to optimize commodity risk management

When you look at the latter stages of maturity, it’s easy to conclude that every organization should be striving to reach that point, using all the technology and intelligence available to enable proactive, value-driving commodity risk management.

In practice, however, that’s not really the case. The level of capabilities required to optimize commodity risk management is proportional to an organization’s risk exposure.

For example, pharmaceuticals companies – where the global supply of active ingredients is relatively isolated against major fluctuations and ingredient costs have little impact on the final market price of drugs – may only need fundamental commodity risk insights to see strong results.

On the other hand, in food processing or oil and gas, where margins are much slimmer, companies need deeper intelligence and stronger insight capabilities to see significant value from their efforts.

Master post-pandemic commodity risk management

Want to learn more about what it takes to manage commodity risk effectively and transform emerging threats into powerful opportunities for value creation?

Download your copy of our new white paper to discover which stage of maturity your organization is at today and get practical advice to advance your journey towards proactive, crisis-ready commodity risk management.

Archives, Global Logistics, Global Trade Daily

How to Get a Handle on Risk in Uncertain Times: 10 Important Considerations

July 7th, 2020 Omer Abdullah Leave a comment

Risk: It’s the operative word on everyone’s mind right now. Whether it’s COVID-19 or oil prices, supply chain impacts or financial market concerns, understanding the impact of macro and micro-events, assessing their impact and putting in place the right action plans to mitigate that risk as best as possible is the priority task at hand.

Here we’ll examine ten steps to consider to ensure you’re being as thoughtful and rigorous as possible in your response to risk.

1. Take Care of Your People – Hopefully, this has already been priority number one for your business after the past few weeks. How do we safeguard our people? How do we handle work from home – voluntary versus mandatory? What other flexible resourcing options do we provide – from sick leave to absenteeism considerations? What are the IT implications and subsequent human resource and capacity management concerns we need to consider and fully factor in? Err on the side of caution. Better to be safe than sorry.

2. Analyze Internal Risks – Before you can do that, you need to galvanize the right teams to be able to understand, assess and action against those risks. It’s critical to build the right cross-functional teams to be able to look at, and understand, the relevant issues to consider. This will involve finance, R&D (depending on your business) and marketing and sales. It will also involve teams like quality and sustainability leaders, as there will be implications and follow on ramifications despite your very best efforts.

3. Conduct Scenario Analyses – For critical categories, it’s important to get a handle on what alternative demand/supply options are. What are the pessimistic versus expected versus optimistic cases depending on what happens with the current situation, both in terms of the pandemic but also in terms of current and expected economic conditions? As part of any such assessment, you’ll need to score, assign probabilities and weights and adjust your thinking and actions accordingly.

4. Talk to Customers –This doesn’t tend to be the first thing people think about when it comes to procurement, but understanding the demand side implications for your business will be essential. How will demand be disrupted? Will there be specific products in your portfolio that will be more directly or severely impacted? Will this result in demand cutbacks or surges? Where will you source supply from? Can you cut back supply needs for others? How will buying patterns change – will there be channel shifts from offline to online? How does that play out in terms of critical suppliers and critical buys and requirements in the near to medium terms? Maintaining a dialogue with customers to understand their needs and issues and where all of this plays through for your team is essential.

5. Develop Plans for Strategic Categories –You’ll need to revisit your plans and the related risks around your most critical categories during a time of crisis. Make sure that these plans have been reviewed, the pressure points tested, the risk points analyzed and alternative plans considered. This could mean enhancing inventory levels (and rethinking inventory buffers based on the scenario planning we talked about earlier), assessing implications for delivery performance, gaining a view of multi-tiered supplier performance, increased inbound category visibility and more.

6. Examine Logistics Implications – By the same token, businesses must assess the logistics implications both inbound and outbound, either to make products or to ensure delivery. This has cost and timeline implications. All modes of transportation can be seen to be impacted, not least of which is shipping impacts – especially to and from China, but elsewhere, as well – whether these impacts are halts on movements, ramp downs, or the subsequently phased ramp back up. Or bypassing some of these options and going to airfreight which presents another level of cost to timeline tradeoffs.

7. Assess Liquidity – This will be critical and will call for a stronger partnership and alliance with finance. Looking at cash positions, assessing payables, and of course extending that into receivables, etc. will be essential. Add to this, talk of tightening credit markets and this makes it all the more important. Cash as always will be king if we need to endure near term instabilities, revenue disruptions, supply chain impacts, sourcing problems, and more

8. Assess Supplier Health – Part and parcel to all of this is assessing supplier health and evaluating who will be the most impacted. A clear view of your supplier segments – strategic versus mid-tier versus everyone else – is essential so you can focus your time and analysis accordingly.

For the most strategic suppliers, it’s critical to have a multi-tiered view of their supply base and related dependencies so you can adequately assess their performance and supply chain bottlenecks. This will involve structured risk analyses – looking across multiple variables beyond financials, to operational performance, to industry performance factors, to geographic and locational concerns and more. You’ll also need to identify alternate supply sources to shift production as and where needed, and as quickly as possible. Not all of this can be done at a moment’s notice. Some of it should have been done as part of a prior risk assessment exercise.

9. Think Ahead – Businesses can’t afford to simply think about today. Consider what the next three to six months look like. This is where scenario planning comes into play. It is critical to assess not only how you can react now but also how to prepare for eventualities later, when things are either fully back to normal or in some altered state based on longer-lasting ramifications from the events of today.

10. Work With Facts and Manage Emotion – Fundamentally, the most important thing you can do is to continuously monitor changes in a structured fashion. Have a programmed information collection and analysis mechanism. If we accept that the crisis is still unfolding and that the true impacts from a supply chain disruption perspective may not reveal themselves for months, we need to take tangible steps. This can be done by establishing a process to monitor other regions outside the infected areas that could be impacted. Are ports outside the infected areas being impacted through disruption or through new regulations to protect against transmission of the virus? Are suppliers struggling financially without access to the Chinese markets, jeopardizing their viability? Data will be important but data converted to relevant insight for your specific supply chain situation will be essential.

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Omer Abdullah is Co-founder and Managing Director of The Smart Cube and is responsible for managing the company’s Americas business.Omer has more than 25 years of management consulting, global corporate and industry experience across North America, Europe and Asia.

Prior roles include A.T. Kearney (North America), Warner Lambert (USA) and The Perrier Group (Asia-Pacific). Omer has an MBA from the University of Michigan at Ann Arbor, USA and a BBA from the University of East Asia.

Procurement Evolved: The New Characteristics of Post-Pandemic Procurement

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