How has COVID 19 affected the procurement process for organizations?
Tags: Industry, Disruption, Covid 19, Software, Procurement

The unforeseeable crisis of Covid-19 has heavily impacted the world economy and continues to do so. From FMCG to manufacturing, retail to hospitality, every industry has been affected by this virus.

Procurement and supply chain management is an integral aspect of all the industries. The world halted the procurement process to build a financial cushion. However, the healthcare industry was at an all-time high need. From masks, gloves, sanitizers, PPE kits, beds, to oxygen cylinders, respirators, and other medical supplies.

The pandemic has taught us many things at a humanity level, and a few too in industrial working aspect. It shall also help an organization plan strategies based on terms, and tiers level procurement, and supply chain management. Keeping in mind all the unforeseeable events, and the possible impact on the economy and industry. It shall enable industries to become resilient in terms of planning, finance, employment towards potential unfavorable events.

5 reasons impacting the procurement process.

People rapport- The lockdown era has reinstated the human touch above all value in everyone. The procurement process now requires a more evolved ecosystem between suppliers, external partners, and internal customers. Furthermore, the procurement heads now need to build a rapport with their base system. It needs to be more communicative, and understanding. There needs to be a trusting and dependent rapport in inter-organization and intra-organizations. Rapid cost-cutting- Due to the sudden hit of lockdown, many organizations were immediately required to cut down costs, absorb the maximum level of liquid money, and in the process, employment was drastically impacted. With limited workflow and higher expenses, companies slashed down employee salaries or downsize themselves. Border sealing and shortage of import-export- With countries, and states all imposing border sealing, it made raw material procurement impossible. Apple’s majority of iPhones assembled in China. When China sealed its borders, it heavily impacted iPhone sales. Hence, the lack of import and export due to unavailability of transport lead to a drop in sales. Demand-Supply impact- With high demand, and limited supply, there is price inflation in the market. The market is a self-regulating body, that is, it balances itself back to normal. Staff and workers are under immense pressure to produce high demand products. Prior to unlocking, small and medium suppliers were in a fix, as they were in a dire need of liquid cash, but were not able to supply. Lag time and high cost of production- About 50% Lag time refers to the delay in the ideal time required. When normally, a product might be supplied in 5 days, it would now take 25. Suppliers are required to incur higher expenses in order to follow governmental guidelines.

Therefore the industries pan world are recovering and shall continue to do so for a few coming years. In meantime, certain steps are necessary to be undertaken for immediate recovery in the procurement process.

3 steps to stabilize the procurement process.

Assess and secure supply chain- Organizations need to do a readiness and risk assessment with their respective suppliers. According to an Accenture report, dual sourcing efforts to reduce reliance on one supplier failed to consider the possibility of disruption across multiple geographies. Therefore, procurement heads need to plan and diversify supply chains and suppliers in multiple geographies. Manage workforce- Before setting targets and starting the process, it is of utmost importance to keep your staff and workers’ safety as a priority. In addition, an organization should be willing to understand the mental and psychological state of its workers. Optimize inventory and funds diligently- Among the primary procurement process steps for optimization is to reassess your inventory. to scale back capital and boost profits, an increasing number of companies are turning to their inventory quantities to make sure that they’re holding inventory at an appropriate real cost. Despite what many business owners believe, inventory holding costs constitute a serious portion of the entire cost of an item. By some estimates, up to 60 percent of the value of an item held in inventory for 12 months is that the result of holding costs, including insurance, warehousing, taxes, and more. For this reason, optimizing your inventory presents a superb opportunity to spice up your bottom line. The key’s to forecast accurately by ensuring that you simply order merely enough inventory to hide demand. Therefore, demand planning is one of the key procurement process steps to optimize.

Procurement disruption in Industries

Fast Manufacturing Consumer Goods (FMCG)- The FMCG sector was quick to adapt to the evolving demands due to the pandemic. According to the National Retail Federation, there were 65%+ retailers in China that were expected to be hit by a production halt by March-end. Automobile- China surpassed the US as the number one car-producing country in terms of volume. Automobile vehicles require the procurement of various parts from countries. In 2019, Germany ranked number one in terms of exporting automobile parts. COVID 19 resulted in auto dealers being unable to deliver during the lockdown phase. However, 30–45 days of finished goods inventory, were heavily discounted post-lockdown. Technology- China supplies more than 50% of the global demand for technology. The pandemic caused a 12% decline in smartphone production, and 16% in smartwatches. While laptops, smart speakers, and PC reported a major decline in productions. Tech giants’ recovery faster compared to the financial, or automobile industry.

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