We hope you are in good health both mentally and physically in these strenuous times. As experts in the Technology Industry, we have evaluated a few key points for the early procurement of technology, listed below are a collection of solutions we have on offer. We have kept in mind the need ensure that this pandemic does not put a halt on all innovation taking place in the technological field.
As the Covid-19 pandemic continues to ravage populations and economies around the world. There are glimmers of hope, such as slowing infection rates in Italy and Spain, and the opening of factories in China, but a true end to the crisis is not yet in sight. The total costs, in terms of human lives, ruined businesses and GDP impact, are still just projections in the array of charts presented daily by statisticians and data modelers. There are, however, already some clear lessons for the leaders in technology procurement. Some are too late to help with the current crisis but worth noting to prepare for the next one. Others may still be applied to help businesses better manage the effects of the crisis.
Technology Procurement Goals
Before diving into specifics, it is important to note the effect the crisis has had in highlighting the importance of all technology procurement leaders ensuring their objectives are balanced. Of course, the cost has, does and will always matter. It seems obvious for boards to turn to the procurement of technology at every chance they get to protect the bottom line in the face of tremendous top-line pressure and uncertainty.
Naturally, supply continuity is critical, with global IT function facing unprecedented disruption. As financing and cash flow are uncertain, cash is once again king and tech procurement and payable accounts leaders are being asked to forecast and preserve cash wherever possible. To maximize the impact of these and other objectives, the procurement of technology should play a role in determining how all spend and all suppliers are managed. Spend under management is key.
Companies with the foresight to have defined a balanced set of technology procurement objectives are in a far better position to achieve these objectives. A recent Forrester study on Effective Procurement Performance Measurement found that advanced technology procurement organizations measured and assessed performance based on more strategic objectives than less mature organizations. Some 46% of advanced tech procurement departments, for example, had bonuses tied to KPIs on supplier risk performance and other disruptions, versus one-third of less mature organizations.
Those that paid lip service to many objectives but measured and rewarded information technology procurement heavily on cost are at a competitive disadvantage now. Effectively addressing differing – and potentially competing – priorities is not just a matter of attention. It requires different skills and knowledge among the staff, supplier relationships, procurement processes and technology. Teams can’t establish that overnight. Companies that maintained zero-sum, hard negotiation relationships with suppliers cannot suddenly reset those in a more collaborative mould. Those that selected more rigid technology that is good at driving standard process efficiencies but less suited to enabling analysis or connecting stakeholders, or doesn’t address all spend, will struggle to scale efforts.
The Bigger Picture
Some lessons regarding managing the risk of procuring technology may still help in the near term as companies struggle to reconfigure their supply base to an evolving pandemic. First, category managers should look to investment professionals and take a broad portfolio view of risk. In a financial portfolio, it is quite possible to have two higher-risk investments that deliver lower overall portfolio risk than two lower-risk investments would, because of risk diversification (for example, where one increases in value when interest rates rise while the other decreases).
The same applies to suppliers. Having alternate, “low”-risk suppliers do not effectively mitigate risk exposure if all are subject to the same risks, such as being based in the Wuhan region. Many companies are facing disruptions because they did not account for this possibility of being subject to the same risk, instead, focusing on assessing suppliers individually.
The answer is not necessarily onshoring or near-shoring, despite much discussion about these as better approaches. Pulling your resources out of China and into your home country sounds great, except when the virus peaks in your country while Chinese factories resume operations. Whether for the next crisis or optimizing changes to weather the coming months, tech procurement leaders need to ensure a level of diversification in their supplier portfolio for specific goods.
Look beyond what you see
Too many organizations were surprised by supply disruptions caused not by their suppliers, but their suppliers’ suppliers. As more business has been outsourced and their vulnerability becomes longer and more global, the vulnerabilities have grown and become harder to assess. A recent paper by Dun & Bradstreet found that while a not excessive 162 of the Fortune 1000 have one or more Tier-1 suppliers in Wuhan, 938 have one or more Tier-2 suppliers in the region. Hence, companies’ actual exposure is drastically greater than a Tier-1 supplier analysis would indicate. When assessing the risk of a specific supplier or the portfolio of alternates, it is critical to consider the second and third tiers.
Procurement leaders must ensure they have the processes and systems to support doing so at scale. The key is 360-degree supplier visibility, which must include lower-tier suppliers if organizations are to truly understand their exposure to various scenarios or be able to conduct effective contingency planning.
While taking a collaborative approach with stakeholders and suppliers is increasingly accepted as the best approach, I still see many procurement organizations resorting to the old ways – beating up suppliers. “We are under financial stress so you need to help us out by dropping our contracted prices, and accepting later payment.” I see the same from some suppliers – for example, that price-gouging on ICU ventilators as a result of the spike in demand. That type of short-term, zero-sum approach may generate a temporary gain – but at great cost. Collaboration is the option that we are forced to choose in lieu of the repercussions. It is, however, best to prepare for the ramifications of the same.
In this crisis, as in most, the entire sector is suffering. To effectively address the key goals in an effective, sustainable way requires a collaborative approach – thinking of customers and suppliers as partners. Collaborate on payments based on who has the greatest cash flow challenges. Look at overall margins throughout the spectrum and negotiate temporary price adjustments in return for future business, considering the relative financial stress of each party. Be sure to engage the business to understand priorities and challenges before having those discussions with suppliers. Once the crisis passes, reward those customers/suppliers that took a collaborative approach. That is how procurement establishes a company as a customer of choice, which will minimize your risk of supply disruption the next time demand outstrips supply, as is a common scenario for many items today. Innovating often requires sacrifice, in this case, the need to avail and procure technology supersedes the loss that one might incur if they collaborate on payments.
In this crisis, the procurement of the latest technology is having to get more done and do it faster than ever before. Digitization is the way forward, it has begun to prove useful in the healthcare sector. People are beginning to turn to digital alternatives to medical care that are now becoming slowly unavailable to them. Digitization is quite simply a must. It enables the agility that proves to be critical in a crisis, freeing capacity by automating tactical activities, improving access to insights to make faster, better decisions and scaling collaboration across more suppliers and internal stakeholders. For example, as tech procurement teams now scour contracts to see where force majeure conditions apply, digitization can save endless hours by automatically identifying such contracts. Assessing supplier exposure to the evolving market conditions can be done en-masse via embedded questionnaires. Manual, paper-based processes that were a nuisance before now mean some employees working at home cannot do their jobs.
Unfortunately, digitization gaps are not going to be fixed in a matter of weeks, given the need to evaluate requirements, assess and contract with a vendor and then implement. But it is a must, sooner or later, for the majority of organizations that are woefully behind. A 2019 Forrester study on Executing a Successful Digital Transformation found that 76% of leaders have digitized less than half of any source-to-pay process while 43% had digitized less than one-quarter.
Mind the gap
The crisis has also emphasized the significance of the gap in performance between procurement leaders and laggards, which is having a major impact on their organizations to cope. A Forrester study conducted just before the crisis exploded beyond China, Effective Procurement Performance Measurement, revealed stark and wide-sweeping contrasts in performance in areas critical to managing the crisis. Procuring technology efficiently also acts as a cushion to failing economies across the world. The unprecedented crisis has seen the world react differently except in the aspect of utilising all the technology at their disposal to control the spread.
Only 53% of Procurement organizations reported that collaboration with suppliers occurs regularly and drives tangible incremental. Breaking this down by maturity found 93% for advanced organizations versus only 16% of beginners. As far as reviewing supplier performance regularly, the results were 97% versus 17%. For proactively monitored contracts for risk, 94% compared with 16%. Some 91% of advanced organizations managed all spend via category management and strategic sourcing processes in contrast with 16% of beginners.
Higher levels of planned investment and a greater focus on addressing obstacles indicate this gap is only set to increase. Less mature procurement organizations are increasingly putting their organizations at a competitive disadvantage. Their businesses are paying the price today and will pay a greater one in the next crisis if this doesn’t change. This is also not a quick fix, but a crucial one.
Technology Procurement leaders are in the front lines today, and understandably scrambling to help their organizations & community to cope with the Covid-19 crisis. I’d like to salute you all. Your exhaustive efforts are helping not just your business, but your employees, suppliers and customers. Apply those lessons you can to better manage the rest of the crisis. Once the dust settles and you have a moment to catch your breath, act aggressively and quickly if your organization is not among the minority of advanced ones. Address the people, process and system shortcomings to narrow the gaps with more mature competitors. IT procurement is strategic as it is a responsibility. If the procurement is done actively, it is easy to ensure the smooth transition of the global markets from a period of turmoil to gradual normalcy.
We are all depending on you & are helping all of our Customers with Technology & providing supervised solutions to emerge out of this situation without severe affliction. This Pandemic has made us come together to rally our greatest strength, the human spirit, Through all of this, we are re-emphasizing what is most important ‘Our Customers, Our Team Members & Our Communities.’
‘Do-not let the Covid-19 crisis cripple your progress in Research & Innovations.’