COVID-19 continues to impact the world economy while businesses across the globe are still grappling with supply chain disruptions.
With supply chain shortages, border restrictions, and partial lockdowns in provinces and cities with significant coronavirus outbreaks, how can organizations weather the impact and future-proof their business?
Let’s review some of the short- and long-term strategies that Canadian businesses can implement to manage procurement and supply chain risk during COVID-19.
Procurement and supply chain disruptions
From aviation to electronics or pharmaceuticals to food, no industry is immune to COVID-19.
According to an Institute for Supply Management survey, 20% of global companies are planning or have begun to reshore or nearshore some operations because of supply chain disruptions. And an HSBC report finds that 29% of companies globally are diversifying their supply chain to work with more suppliers, while 22% of Canadian firms are doing so.
While it’s unclear when the pandemic and the recession will end, what’s certain is that the operational impact from COVID-19 continues to affect the domestic and global supply chains. To help companies handle these challenges, we have identified three key risk areas for many organizations.
- Labour capacity: A struggling or diminished workforce struggles to meet increased demand impacts capacity, while temporary reassignments to crisis task forces eclipse day-to-day operations. To maintain business continuity, companies will need to identify their mission-critical functions and establish their minimum service thresholds.
- Supply chain exposure: Relying on suppliers located in affected regions, as well as cost, scheduling, and shipping delays due to lockdowns and border closures can leave the supply chain at risk. To mitigate this risk, companies will need to diversify their supply chain to ensure a steady cadence and continuous flow of products and services.
- Fraud and compliance: There is an increased risk of procurement fraud, non-compliance with internal procedures, relevant regulations, and legislation during the crisis. Organizations of all sizes will need to perform advanced procurement and contract analytics to ensure compliance and reduce business risk.
Procurement and supply chain resilience
Working through COVID-19 requires creative strategies to enable on-the-ground decision-making and provide leaders with access to up-to-date information. Mitigation plans for crisis-related risks must be practical and accessible, allowing employees to make smart decisions quickly. A multifaceted approach that addresses your organization's specific challenges will help determine the best way of managing the supply chain and ensure its resilience.
In formulating a response strategy, organizations need to consider the following:
- Position procurement and sourcing as a strategic tool to mitigate supply chain disruptions
- Identify and implement alternative sourcing strategies for essential products and critical services
- Adapt internal control systems to accommodate process changes
- Assess supplier relationships to improve efficiency and productivity
- Develop a go-forward plan for procurement modernization to address supply chain resilience
Liquidity assessment and planning
Ensuring there is sufficient liquidity to weather the storm is one of the steps in assessing your company's preparedness. Businesses must evaluate and monitor their expenditures and preserve cash flow during a crisis. Ideally, every business should evaluate its expenses by type and vendor. As part of this analysis, it’s essential to consider each of the following:
- Enhanced payment terms: Negotiate payment terms with vendors through a procurement process or a proactive dialogue with your vendors.
- Prioritize spending: Consider whether the expenditure is necessary and can be minimized or delayed.
- Re-procurement: Determine if a better price or terms can be obtained through executing a new procurement or vendor selection process.
How BDO can help
Crises are challenging to navigate because there is often no precedent from which to draw knowledge. Our Procurement Advisory team can help guide you through the uncertainty that comes with the COVID-19 crisis, and improve your procurement and supply chain resilience.
Our comprehensive approach is to develop effective procurement and supply chain strategies, and deploy resources and plans that allow for a fast and cohesive response to the threats facing your organization's procurement and supply chain.
Ian Brennan, Vice President, Procurement
Harry Lake, Partner, Consulting