By Mediacy Mudekwa
Just a few months ago, none of us would have imagined that our world would come to a standstill. The very things we have always taken for granted are now nearly impossible to do. Travel, gatherings or even a visit to your favourite restaurant may be many days away.
As some governments begin a phased and cautious approach to re-open the economy, we have to consider just how vulnerable and unpredictable these times are. The life cost of this pandemic is staggering, with confirmed cases currently at more than 6.4 million globally. Recent studies have made it clear that these figures are an under-estimate.
But what has been the true cost of this pandemic to the economy? How has this pandemic affected procurement, especially from a risk perspective? How can procurement come to the party and drive organisational strategy in the face of turbulence and vulnerability?
Effects on the economy
The COVID-19 crisis holds significant implications for business. The pandemic is causing a slowdown in world trade and is a major disruption to global supply chains. A weak response to the pandemic from the Trump administration has sparked panic and an even slower global recovery. South African companies that have built markets on the back of global trade networks have been left vulnerable. These companies have had to look for alternatives to China as a global supplier, making basic commodities expensive for the ordinary man on the street.
Consider also the impact on small businesses. A survey conducted by Statistics South Africa (Stats SA) has revealed that 42.2% of the country’s businesses have indicated that they have run out of financial resources to continue operating during the COVID-19 outbreak. This means that 7.5 million small businesses are in danger of closing down owing to coronavirus.
The impact of COVID-19 on small businesses is immediate and many will fall through the official safety net. While government (from Labour to Small Business Development and Tourism) has introduced COVID-19 lockdown relief measures, the paperwork is a nightmare with some already indicating that the measures will benefit only a few.
In short, we are heading for a massive recession that even the strongest may not survive.
Procurement and supply chain implications
A March survey conducted by the Institute for Supply Chain Management noted that nearly 75% of companies reported supply chain disruption, in one form or another, owing to coronavirus-related transportation restrictions. Other figures from the survey included the lack of any contingency plan for almost half of the companies in case of a supply chain disruption leading back to China. Well over 50% of companies reported experiencing sudden, unexpected delays in receiving orders, a problem compounded by a supply chain information blackout from China.
The impact on ongoing operations: most procurement processes have been delayed or cancelled because of COVID-19. Procurement should take this opportunity to advise their organisations on what actions to take and what alternatives are out there. Supply is king and this pandemic has shown how critical and strategic procurement and supply chain should be.
The impact on procurement staff: a work-from-home approach as well as travel cancellations are necessary measures to contain the spread of the virus. But these in themselves pose big challenges. The heightened attention on procurement processes for critical goods and services puts added pressure on staff and other counterparts. It is harder to find the right solutions given the unprecedented global crisis as well as to manage team dynamics under tight deadlines and remote work conditions. We are all having to react to a rapidly-evolving situation.
How can procurement come to the party and drive organisational strategy in the face of turbulence and vulnerability?
Procurement, now more than ever, should work around the clock with government counterparts and other co-operates on needs assessment and the design of faster, more efficient arrangements to jump-start post-COVID-19 project implementation. There is a lot to grasp here. We are facing many challenges, such as market availability, border closings and government co-ordination. Procurement should be on top of this and must become the information hub for organisations, all while managing the day-to-day activities of ongoing projects. By now, procurement teams should have a back-up plan for broken supply chains and should be advising on how restrictions and delays that affect their suppliers must be managed.
The immediate approach should focus on aspects of health during the pandemic. Facilities should be equipped with adequate tools to reduce infections while the economy re-opens. Procurement should drive organisations’ economic and social responses. Another focus should be on stabilising small businesses and to make them pandemic proof. Tools should be designed to specifically deal with disruptions of this magnitude. These tools can be further refined by considering lessons learnt. Tools may include contract adjustments that make it easier to source and pay suppliers. The use of technology, data collection and analysis should be optimised to provide proactive support and assistance to organisations and, of course, suppliers.
Have a contingency plan
Granted, organisations may never use contingency plans but it is important to have one as this pandemic has shown. Contingency plans will help to reduce losses and to prevent organisational panic. The European Union (EU) explains turbulence risk as “turbulent business uncertainties…hard to predict and measure, associated with large-scale projects that emerge from a range of unforeseen events that lead various actors in the whole process to re-assess their priorities or change their expectations”.
If well-documented, a contingency plan becomes a risk mitigation plan: if risk is well-identified, a roadmap and a risk mitigation strategy (including a contingency plan for alternative action) will help to deal with unwanted eventualities. This will build confidence in procurement teams and drive strategic value when executing strategy.
Risk mitigation strategies go hand-in-hand with policies and controls. Best-in-class supply chain organisations integrate risk mitigation methodologies into their sourcing decision processes. This is a complicated subject that we can only touch on briefly here but, in short, these organisations are adopting sound methodologies that include:
– Identifying all risk elements
– Determining the probability of a risk event occurring
– Assessing the financial impact on the sourcing decision if the risk event actually takes place
– Prioritising risks for monitoring and prevention
To further unpack how procurement can drive organisational strategy in the face of turbulence and vulnerability, join us for the 14th annual Smart Procurement World Indaba in November 2020. Jonathan Hughes, Partner at Vantage Partners, will be giving a keynote address on The Next Big Trend: The Stay-Home Economy – Which Industries Will Be Winners? Also of interest is the presentation by David Salters, Director of Procurement at Greenview Group, that will be looking at What Coronavirus Has Taught Us About Supplier Management and Global Sourcing.