5 signposts to rethink the future of purchasing
The Corona crisis was also a shock for many purchasing departments, revealing weaknesses without mercy. Such as overlong supply chains, virtuously interwoven across the globe. Or overly administrative procurement processes – with media breaks that are extremely hindering for work from home. Or single sourcing suppliers in Italian restricted zones. This revelation can now be seen as an opportunity to turn weaknesses in purchasing into strengths. But how? To this end, we look at five guides to rethinking the future of purchasing.
1. Making purchasing more agile
Everyone is talking about agility – and purchasing also needs to be agile in order to be able to react quickly, flexibly and competently to unforeseen events. To achieve this, it is above all necessary to create strong anchors in decentralized locations that are controlled by centrally coordinated purchasing. Experience has shown, that purely centralized purchasing is dysfunctional and detrimental to rapid adaptation. The inclusion of purchasing in task forces is necessary at various levels. In crisis situations, companies are required to adapt quickly to the changed situations. A balance must be found: Between centralized control, for example via merchandise category management, on the one hand – and qualified decentralized implementation with decision-making authority in day-to-day business on the other.
2. Accelerated digitizing
While working from home, administrative processes with paper and manual media breaks are no longer timely. It’s time for digitalization. Purchasing is no exception: The consumers are to be directly integrated with e-shops and e-catalogues, and the electronic workflow is needed for the necessary approvals. Suppliers must also be connected electronically. In detail, multi-channel purchasing looks like this: The purchasing cart is filled by the users from negotiated e-catalogues/shops. Via the electronic approval workflow and a transaction platform, the orders are sent directly to the supplier, where they are placed in the picking process without manual intervention. And the requisitioners receive the goods at their workplace on the next working day.
Scheduled goods from the ERP will also be transmitted electronically to the suppliers. Shipping notifications and invoices must be received electronically and processed automatically. The benefits are generally acknowledged and digital processes have been postulated for 20 years now. Unfortunately, they are being implemented only very hesitantly, even though budgets are in themselves manageable. Even the interface to the document managing ERP system can be implemented relatively easily. In their own interest, companies should now promote digitalization in purchasing by making initial investments. The challenges lie more in the necessary adaptation of processes to digital workflows.
3. Building resilient supply chains
The supply chains of some companies are probably “resistant” – minor changes and fluctuations simply bounce off them. But like a clay jug, they are only stable until the pressure exceeds their resistance. Better would be “resilient” supply chains: This refers to the ability to react flexibly and dynamically to unexpected disruptions. Resilient supply chains can also deal with shocks elastically or adaptively. So how can supply chains be made “resilient”?
That starts with sourcing strategies: First, international plants should be supplied from the continental region. The key words here are localization and nearshoring. Intercontinental supply chains for hundreds of individual parts should be avoided. Single sourcing situations are also not ideal. The trend is once again more towards dual or – even better – multiple sourcing with close supplier integration. If a supplier fails in one country, the company is at best protected by alternatives, because redundancy was built up in time – if possible, across different countries.
Finally, wherever possible, modules or components should be sourced rather than individual parts. In this way, granular supplier support is delegated to sub-suppliers, and the delivery of ten components is easier to manage than the delivery of 900 individual parts from all over the world. Taken together, such measures offer a strengthening of supply chain resilience – and help to strike a new balance between efficiency and resilience.
4. Create sustainability
When it comes to sustainability, a problem can still be observed in many companies: Their own contribution is not important. Others could make a greater contribution. With such justifications companies try to justify passivity – climate change, social responsibility for working conditions, CO2 footprint or organic food will remain dominant issues. A strategic approach to building competitive advantage is therefore recommended. Examples of this would be: Recyclable packaging material, procurement of sustainable raw materials directly at the source, food from organic farming, innovative suppliers for e-mobility or supply chains that are transparent for the consumers. The purchasing department is familiar with innovation scouting – now it is also important to find new ways in sustainability. Without seriously questioning oneself and one’s own supply chains, one misses out on the considerable opportunities that the trend towards sustainability is opening up. Sustainable supply chains are also demonstrably more resilient.
5. Recalibrate risks
Making your purchasing department crisis-proof means weighing up not only the opportunities but also the risks when making important decisions. Risk-based thinking and action permeate the purchasing and procurement processes, and critical events are reassessed, or the risk is recalibrated. The crisis has shown that suppressed or latent risks will have to be weighted more heavily in the future and one must also be prepared for unlikely “black swan events”. But how can the purchasing departments now react proactively? Here, too, the principle applies that companies are generally better equipped with more resilient supply chains – even if a “black swan” appears.
Playing against time: Those who act now will benefit
Looking at the approaches presented, it becomes clear that buyers have many opportunities to emerge from the crisis stronger than before. Some measures can be implemented immediately, others need a long-term step-by-step plan – but they all have one thing in common: Now it is essential not to waste time initiating them. After all, the next unforeseen event does not even need to occur to test resilience again – many experts believe that the corona crisis has not yet been overcome either. It is therefore necessary to dare to make changes, implement them in manageable sprints, learn quickly and scale successful approaches. For this purpose, more responsibility can easily be delegated and exercised. If you want to prepare your purchasing department for a second wave, you should start now.
Author: Dr. Stephan Hofstetter, Partner Kloepfel Consulting
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Gerrit M. Schneider
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