A Procurement Manager’s Guide to Crisis Management
- Source to Pay
COVID-19 brought chaos to supply chains and procurement teams around the world. As the prospect of a vaccine begins to show a light at the end of the tunnel, some procurement managers are beginning to hope for a return to normal.
However, as we start looking toward the future, it’s important to learn from what 2020 brought and to prepare a more robust procurement crisis management plan. Otherwise, the next time disaster strikes, whether it’s a pandemic, natural disaster or something else entirely, you’ll find yourself in trouble all over again.
Developing your Own Plan and Leading from the Top
Strong leadership in a moment of crisis is invaluable. In procurement, that’s no different. We wrote back in 2017 that one of the key skills for procurement managers in the future would be the ability to quickly make decisions based on clear data. We saw that come to fruition in 2020, as companies who were able to make agile decisions were better able to navigate the changing market.
It’s incumbent on leadership to develop an effective plan that covers the necessary business goals and clearly outlines priorities for the immediate, medium, and long term so that the procurement team can act quickly and effectively.
However, don’t try to please everyone with your plan. As Bill Franklin, Head of Finance at Discover Global Network said in May, another key part of responding to a crisis is having the vision to say no to some requests and prioritize others. This decision making will keep your team focused and able to execute against your plan.
Adapting for Your Industry
Ultimately, there’s no one size fits all solution to crisis management. If there were, there’d be a whole lot less confusion when disaster strikes. Instead, it’s important to consider the specifics of your company’s vertical or verticals and consider any nuances. In the case of COVID-19, the medical and pharmaceutical fields had to respond completely differently than manufacturing or transportation. As you develop your crisis plan, make sure to consider the different possibilities and keep your options open based on the specifics of the crisis.
Essential Crisis Management Steps
The first step in an immediate crisis response is simply setting expectations. This is where a procurement manager needs to clearly establish their authority and unite the team around common guidelines. By issuing specific, unambiguous rules, you not only put an immediate stop to unnecessary spending or off-contract purchases, but also inspire a culture of savings.
What exactly these rules look like might vary based on your organization. We spoke with some smaller teams who responded to COVID-19 by altering approval rules such that all new purchase requests had to be approved directly by the CFO. This cut down on the number of low priority or frivolous requests and instead created a culture of austerity. Larger organizations might not want so many requests coming to the CFO, but instead lower the cost threshold for certain approval steps or limit specific categories in order to minimize small-dollar spending. Whatever you choose to do for your organization, the important thing is that you are decisive from leadership down.
Another major step for procurement managers is leading an effort to diversify sourcing options and revisit existing contracts. By asking your team to spread spending across more suppliers, you minimize the risks posed by one vendor becoming overwhelmed or having one supplier failure derail your entire supply chain. Revisiting contracts will allow your team to ensure that expectations are being met by vendors and to identify any clauses that allow you to change or terminate contracts due to the crisis situation. Both can potentially save the team significant amounts of money early on in a disaster situation and build a more solid foundation moving into mid-term decision making.
One of the most important medium-term strategies that you can put in place in your response plan is building a more agile approach. This not only applies to agile decision making in response to the unfolding crisis, but also in the tools and programs you implement to emerge on the other side. By the mid-term stage, chances are you have a pretty good idea of what damage has been done and how you’re mitigating it, and you have a decent idea of how long the situation could last. As you make plans for the future, it’s important to take an agile approach so that you can quickly get up and running with new tools, methodologies, or processes that will help you get back to normal.
In some cases, this might mean ramping up production or services that were slowed during the disaster. Pent up demand might mean your suppliers are suddenly struggling to keep up. For others, you might be ramping down new categories or suppliers that you had to establish to stay afloat during rough times.
Long term goals related to crisis management typically come into play once things have stabilized and there seems to be a clear path to recovery. It’s now that you have to begin to prepare for the next potential disruption.
One key area to focus on is removing data silos and increasing transparency across your organization. It’s only with up-to-date, accurate data that you can make quick decisions during a disruption, so clear data is essential. It falls to management to foster a culture of transparency and build processes and policies around data sharing and integrity. Integrating external data sources, like third party risk management systems or partner data, can also play a role in building a more robust information structure.
Once you have your data sorted – or at least a plan in action to get there – you can start building a stronger plan for the future. Once again, this starts from the top down, but it also can’t be done in isolation. Gather input from your team on what they saw from the front lines. Take into account the different perspectives within your organization. Remember, good leaders are always listening.
Get a Full Crisis Management Checklist
JAGGAER is proud to help our clients through the COVID-19 pandemic with all of their source to pay needs. This is only a partial list of steps that you will need to take to lead your procurement team through times of crisis.