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From managing uncertainty in demand and supply, to having clear visibility of accounts in real time, to determining whether a supplier’s very existence is at risk, freeing up liquidity is both an opportunity and a challenge right now. “In response to the Covid first and second waves, survival can depend on ability to act quickly,” Spend Matters notes in a new report.
“Procurement is a critical area that many business leaders are prioritizing to free up cash and better manage their liquidity position,” it adds, “because understanding their supply networks provides deeper visibility into spend.”
6 Steps to Take Now
Here are six ways procurement can leverage these strengths and help their organizations work through the financial implications of the ongoing pandemic and economic uncertainty:
- Find smaller projects that can yield long-term positive impacts. Enno Arne Lueckel, VP at scoutbee, says a good place to start is in spend volume, with a focus on potentially reducing purchases or stop buying items completely. “While this may seem like an obvious choice, the types of spend and the approach to reducing it can be different,” Lueckel tells Spend Matters. “For direct spend, demand varies with inventory levels and companies should flex the spend to the new requirements.”
- Assess your current inventory. This can help you identify stock that is saleable and help you make quick, incremental improvements to cash flow. Lueckel cautions that decreasing spend volume may not always be an option as is the case of discretionary and operational spending. “In these instances, companies should look for obsolete practices that can be cut down,” he adds.
- Then, find ways to “creatively” reduce inventory levels. Holding inventory requires a lot of cash, regardless of the levels, so making sure you consistently achieve the correct levels is key to your cash flow management and protecting your business. “Generally, it would be advised to find a level that suits both sales and procurement,” financial process automation solution provider SoftCo advises, “where customer satisfaction is maintained and [where] excess, expired stock is kept to a minimum.”
- Look for price reductions. Now is a good time to talk to your suppliers about potential price reductions, or to start shopping around for alternate sources that may be able to offer a better discount, terms or overall deal. “Price reductions can come by negotiations with existing suppliers or sourcing new ones,” Lueckel tells Spend Matters. For example, working with an existing supplier can help produce quick returns, but sourcing new suppliers or supply options may be even more opportune.
- Work more closely with your suppliers. Make sure they understand your company’s current situation and the challenges it’s facing, and vice-versa. SoftCo advocates for revisiting the criteria set out when sourcing them and then reestablishing those agreements to ensure both parties are protected during the period. Key points to consider during this exercise include lead times from receipt of order to delivery (i.e., if you are waiting to receive stock in order to bring cash in your cash flow will be affected); min/max order quantities (bulk orders come with discounts but small orders may be more appropriate if cash is tight); and supplier return policies (can you return products that are not selling/expired/out-of-season?).
- Don’t stop there. Focus not only on freeing up liquidity today, but also on ensuring that the newly-implemented processes can be both repeated and maintained over time. “This is what we call future-proofing your procurement organization,” Lueckel adds, “to be a valuable player and leader inside [of] the business.” For example, SoftCo advises that once you’ve established new conditions with your suppliers, be sure to monitor their performance in order to maintain your cash flow. “Conduct regular performance reviews and contract reviews,” it says, “in order to get the most competitive rates.”
