Due to COVID-19 cost management and supply chain visibility were suddenly top of mind for executive leadership teams.
The onset of the coronavirus epidemic has accelerated the supply chain digital transformation that has languished on businesses’ “to-do” list for years. Chaos from the coronavirus has made clear that procurement & supply chain practices need to get smarter. When COVID-19 hit, supply chains across the globe nearly came to a halt. Procurement’s value became evident, as did the importance of the supplier relationships they had built. According to Accenture, 94% of Fortune 1000 companies saw supply chain disruptions and 75% had negative or strongly negative impacts on their businesses due to the pandemic. As a result of the disruption, cost management and supply chain visibility were suddenly top of mind for executive leadership teams.
COVID-19 has exposed barriers to collaboration that most companies tolerate under normal circumstances. Supply chains have been badly disrupted. Even so, the experience of the past ten months has driven home some important lessons about procurement – both strengths and weaknesses – that are likely to apply well past the time that the virus itself finally subsides. In many instances what COVID has done has been to highlight challenges which existed all along, but they were issues that many regarded as tolerable. However, as a result of the pandemic, the need for addressing them has intensified.
One of the most important issues the pandemic exposed has been that most manufacturers have only a limited view into any of their suppliers beyond Tier One. Most have little understanding of who is supplying their suppliers or those suppliers’ suppliers. As a result, they can be caught off balance, unable to promptly address the ripple effects that problems further down the supply chain can have on their own operations.
Supply chains will need to focus on restoring growth
Although the pandemic brought on some significant issues to supply chains, 2021 may see a potential resurgence of growth in 2021. With the potential for a vaccine coming in the new year, the world may be getting back to normal sooner than expected. This will likely result in a new surge in demand, which will have an impact on supply chains. One of the pandemic’s results has been to accelerate the enterprise digitization process. Transformation initiatives may now consist of smaller, quicker initiatives but in the long run, this may be the fastest way to achieve the broader digital transformation goals that many have had for years. Looking for solutions to achieve quick wins, such as automating the sourcing process or the contract management process, can drive these initiatives forward.
One of the issues that is likely to come up when looking into restoring growth will be the decision to keep supply chains at home or move abroad. Making this decision involves evaluating the reliability of your outsourced suppliers’ suppliers versus re-shoring your supply chain. Until this year, that wasn’t really much of an issue. But things have changed, although addressing the impact of such a move isn’t easy. The central idea is that a global pandemic can disrupt a company’s supply chains. So, is outsourcing your company’s manufacturing to China or other far-away countries really a good idea? Or should you try to bring that work back to the U.S. where it’s closer to home and to possibly experience less disruption? The current status of coronavirus in the U.S. and increasing tensions with China should also weigh on that decision. For most companies, the jury is still out.
Enterprises Will Need to Think Deeply about Sustainability, CSR and Diversity
With the new administration coming into office, a big initiative will be on climate change. This will bring a renewed focus on how the supply chain will work to be more sustainable. The sustainability policy of the new US government and China’s commitment to a reduction in carbon emissions means that if new regulations are passed, organizations are responsible for compliance with them throughout their supply chain. Buyers must ensure that their partners and their sub-suppliers comply with these guidelines. Creating transparency in supply chains will therefore be an important issue for purchasing organizations in 2021.
Diversity is top of mind for all boards. In a recent Wall Street Journal article, Nasdaq revealed that they are pushing to require the thousands of companies listed on its stock exchange to include women, racial minorities and LGBT individuals on their boards, in what would be one of the most forceful moves yet to bring greater diversity to U.S. corporations. This shift will continue and will shape supply chains more than it has in the past. Until now, diversity spending has largely been a public sector issue or it’s been more of a reporting obligation. It’s likely that this begins to changes in 2021 where diversity factors more into supply chain decisions.
Many changes can reduce costs or reduce risk at the same time as delivering improved CSR. And with consumers increasingly looking to brands to align with their own values, brand equity can be greatly increased by thoughtful spend management and supply chain policies.
Supply Chain Payments Will Get a Bigger Focus
As far as payments go, the B2B side of things has seen significantly less innovation over the years compared to the B2C market. However, B2B payment volumes dwarf those of consumer payments. Its time for a change. In the US, a large percentage of payments between buyers and suppliers still leverage paper checks. When was the last time you used a check at the supermarket? Of course, B2B payments come with a lot of complexity around approvals, invoices, taxes, financial systems, reconciliation, fraud, etc. In any case, expect to see this market shifting more and more towards electronic payments.
Late payments cause havoc throughout supply chains and this pandemic has shown just how reliant suppliers can be on timely payments. Unfortunately, the crisis made the problem worse. The amount of money that is more than 10 days overdue has grown 56% in France, 52% in Spain, and a whopping 82% in Italy since the World Health Organization declared a pandemic on March 11[i].
Going into next year, as companies begin to restore growth, they will need to collaborate well with suppliers and those suppliers in return will need to decide which customers are better for their business.
Vishal Patel is the VP of Product Marketing at Ivalua, a leading provider of global Spend Management Cloud solutions.