procurement risk management in post-covid-19 world

It would be an understatement to say that the sudden onset of a pandemic has challenged supply chain and procurement organizations across the globe.  Aside from securing emergency orders of critical supplies and services, many organizations have had to cope with a rapid move to online sales, planning, sourcing and managing critical contracts and projects, along with ensuring the wellbeing of staff, clients, and contractors working on site.

Although these challenges are far from over, organizations are now moving into a recovery and stabilization phase as they look towards the future.  What can we learn from this experience, and how can we manage other such unforeseen risks that may arise?

When COVID-19 emerged in Canada, The Procurement School set up a free online Community Discussion forum to help procurement professionals stay connected and to brainstorm real-time solutions that leveraged the group knowledge.  Rather than provide a rehash of the many academic paper on risk management during crisis, we will draw on some of those real-life discussions to impart some of the strategies, observations, and lessons learned that have emerged.

As procurement professionals know, procurement risk management begins with establishing the context and then assessing risk through identification, analysis, evaluation and treatment.  Few had the luxury of such a reasoned and pro-active approach to the unforeseen risks brought on the by the pandemic, so we can only view this historic event with the benefit of hindsight.  It may, however, be time to plan for future disruptive events leveraging what we have learned from COVID-19.

Some of the most common risks that have been highlighted include:

  • Inability to access PPE and other critical supplies in a timely, and ideally a cost-effective manner.
  • Disruption to ongoing supplies and services being delivered under established contracts.
  • Shortage of internal staff due to illness, absenteeism and/or vulnerability.
  • Sudden move to all procurement related activities being conducted in an online environment.
  • Virtual team management, communication, and vendor management.
  • Continuity of ongoing customer/stakeholder relationships and contacts.

Of course, there are many other specific industry-dependent procurement risks such as shortage of critical pharmaceutical supplies and the impact on human health, logistics related to rapid national or provincial distribution of pandemic-related goods and services, and severe restrictions or outright prohibition on cross-border movement of people and goods.  Each organization is unique and must assess and create risk treatment strategies for its key vulnerabilities that have emerged.

The common risks identified above fall into three main categories: securing a reliable supply of goods and services in emergency situations, coping with increased costs of many goods and service components of contracts, and managing internal and external processes remotely.

Securing Reliable Supply

The first and most basic procurement principle of cost-effectiveness essentially flew out the window early on with organizations scrambling to secure PPE, and those with just-in-time ordering processes were the first casualties.  Organizations that did have long-term contracts for such essential items quickly found that suppliers were simply unable to deliver on their commitments, the prices skyrocketed due to global demand, and many offshore products arrived with questionable efficacy, creating additional risks.

Some brands began only offering their more popular products, as suppliers have found they could not support the full product line.  Reorder points had to be recalculated as replenishment times dragged out, and logistics stepped up to play a bigger role in many operations to secure new supply routes. 

As most of us have seen firsthand, Amazon’s marketing and distribution skills took advantage of companies that could not pivot fast enough, leaving smaller local companies struggling. As supply chain management practices have had to adapt, considerations around just-in-time ordering versus stockpiling began hitting C-suite discussion tables as organizations looked towards the potential for future uncertainties. 

The Value of Multiple Sourcing

It quickly became apparent to most procurement organizations that reliance on a single supplier exacerbated the risks.  While in the moment not much could be done to increase the pool of suppliers, many organizations are now moving towards vendor of record or corporate supply arrangements with multiple suppliers in key areas.

While price commitment is normally a prominent element of this approach, there is a recognition that longer term contracts for key commodities are best tied to some independent commodity or consumer index.  Suppliers too have learned lessons from COVID-19 and are reluctant to make long term contractual commitments without the flexibility to adapt to changing conditions.  For locked-in pricing they typically will only agree to a short-term commitment. 

There is also an increased emphasis on supplier diversity as part of the new sourcing strategy to ensure resilient supply chains.  Regional strategies are complementing global strategies. Organizations are weighing the risks and benefits of each approach in the context of their unique procurement needs, and many are re-assessing their category strategies. 

Another key lesson that has emerged is the value of collaboration and group purchasing arrangements.  A small municipality that can onboard to a provincial government contract, or a large GPO contract, has a far greater chance of obtaining critical in-demand goods, perhaps even at a reasonable price.  An obvious market reality is that big players have a priority position with suppliers, particularly during times of shortage.  By leveraging already-established arrangements with multiple suppliers, smaller organizations can begin to protect against fluctuating demand and pricing.

Increased Costs

Related to the above supply chain instability, many procurement organizations have seen the increased cost of critical products such as building materials, chemicals, and PPE either delay or sideline key projects.  This has been exacerbated by service-related changes to the way things have historically been done.  For example, installation and maintenance projects may take longer to accomplish due to limited access and limited number of workers allowed on site.  Increased health and safety requirements, such as installation of plexiglass in classrooms and other common areas have added to the budget uncertainty around costs.

Managing Remotely

This aspect of the pandemic had the biggest immediate impact on many organizations.  Some were quite well positioned going into 2020, with established and robust digital procurement and communication tools already in place.  Others who were less prepared were forced to pivot essentially overnight, and they experienced the most disruption to existing project and procurement rollouts. 

For the most part, construction projects seemed to be initially relatively unaffected, until supply cost increases and delivery issues began stalling progress.  Many other ongoing procurements were halted, delayed, or sidelined entirely in the chaos of trying to re-imagine existing processes.  Everyone became quickly proficient with tools such as Zoom and Microsoft Teams, and e-procurement implementation projects in progress were accelerated in many instances.  

Suddenly virtual site visits, proponent meetings, and online team evaluations – whether through established tools or less formally – became the norm.  Staying in touch with the internal team through virtual meetings faced hidden challenges such as lack of engagement and inability for procurement leaders to hear the ‘early warning signs’ of procurement challenges through the usual watercooler chat and casual office drop-ins.  Extra effort was required of leaders to ensure regular one-on-one check-ins and to assist with troubleshooting on the fly. 

For those returning to an office setting, absenteeism continues to prove challenging as vulnerable employees choose to stay home and employers embrace their duty to accommodate. A blended approach of at-home and in-office workers has become the norm for many workplaces.  Creative ways for virtual hiring and onboarding have emerged to balance the increase in early retirements, although potential budget constraints and reduced revenue have thrown additional uncertainty into future planning for a lot of organizations.

Conclusion

As with all procurement activities, it is best to capture lessons learned for consideration during your next procurement planning process. If you are looking for specific tools and strategies for effective procurement planning that incorporate many of these ideas, then PSPP 201 may be a great next step in your professional development.

As many procurement teams are recognizing, an eventual ‘return to normal’ is not necessarily a desirable end result.  Much can be learned from the unexpected acceleration towards virtual procurement and team management, and many of the tools, processes and pivoting strategies that emerged during COVID-19 will contribute to more stable, resilient and adaptive procurement organizations in the future.  As Shrek would say, ‘change is good, donkey’.

Maureen Sullivan is Director of Education at The Procurement School.

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