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COVID-19 has put a tremendous strain on the world’s supply chains, at times halting manufacturing while shutting down airports and seaports, interrupting delivery of raw materials and finished goods.
“At the pandemic’s onset, procurement departments switched to crisis-management mode to help companies alleviate disruptions,” McKinsey points out in a new report, “including sourcing personal protective gear for employees and helping smaller suppliers manage their cash flow.”
Now, as they prepare for the post-COVID world, the same procurement departments are looking for new ways to work smarter, better, and more efficiently. In “Reimagining procurement for the next normal,” McKinsey says that for procurement to lead the way, “companies will want to reimagine not just what the function does but also how it operates and which new capabilities it will need.”
Five Ways to Reimagine Procurement
According to McKinsey, procurement could gain the most by focusing its strategic initiatives in five key areas: strengthening supply-chain resilience, zero-basing the design of category value-creation strategies, investing in supplier partnerships and innovation, accelerating adoption of digital and analytics, and transforming to an agile operating model.
“By proactively making these changes, procurement leaders can not only counter some of the worst effects of the crisis,” it says, “but can also set themselves up to prosper in the future.” Here’s a brief explanation of each step and the role that procurement can play in making this prosperous future a reality:
- Strengthen supply-chain resilience. Global, interconnected supply chains face a range of challenges, including climate change, the rise of a multipolar economic system, added geopolitical risks and the risk of mass health-care events. “In the past several years, at least one company in 20 has suffered a supply chain disruption costing at least $100 million,” McKinsey points out, noting that companies with complex supply chain networks (i.e., automotive and technology manufacturers) are particularly vulnerable. “The time is right to do a thorough assessment of supply chain risks and manage them more thoughtfully,” McKinsey says.
- Zero-base category strategies and value creation. At the onset of the pandemic, some of the most dramatic value-pool shifts occurred in commercial real estate and oil and gas, which were among the sectors most affected by forced shutdowns. “To capture or regain the potential value the shifts created, procurement leaders may need to completely rethink their strategies for the affected categories,” McKinsey advises. For instance, some procurement organizations can minimize risk exposure by structuring contracts to build in performance incentives.
- Invest in partnerships and innovation. Connecting with partners that have an existing infrastructure or complementary service can make it faster and easier to adapt to a changing environment. For example, in Australia, in the immediate aftermath of the crisis, supermarkets in need of extra personnel to handle a sudden surge in sales contracted with thousands of airline workers who had been sidelined when airlines downsized. And, an Indian grocery chain rolled out home deliveries by partnering with a local ride-sharing company rather than taking on the cost of buying its own truck fleet.
- Accelerate adoption of digital and analytics. Procurement leaders have talked about digitizing procurement for some time now, but COVID is accelerating those conversations. “The rapid adoption of new ways of working that the pandemic necessitated forced companies to accelerate the shift to digital,” McKinsey says. “As remote work becomes the next normal, digitization can be an important enabler of effective collaboration across functions.”
- Transform to a future-ready operating model. To lead in the next normal, procurement departments need to transform how they operate and collaborate with internal and external stakeholders. “Procurement can drive an organization’s pandemic recovery efforts,” McKinsey concludes. “Forward-looking companies will go a step further and completely reimagine what the function looks like to enhance the value that it can deliver. Investing in stronger, future-ready practices and capabilities will pay off in the short term, and help organizations emerge stronger and better prepared for any future crisis.”
