As the COVID-19 pandemic ripples throughout the world economy, transforming lives in ways many never thought possible, businesses across the globe, continue to face unprecedented supply chain disruptions.
With supply chain shortages, new border restrictions, large-scale layoffs and virtual lockdowns in cities with significant coronavirus outbreaks, how can organizations weather the impact and future-proof their business?
In this article, we identify 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, pharma and food, no industry is immune to COVID-19.
According to an Institute for Supply Management survey, almost 75% of companies south of the Canadian border experienced disruptions in their supply chains as a result of coronavirus-related transportation restrictions. Surprisingly, 44 percent of the companies did not have a plan to deal with this kind of disruption. The proportions in Canada are very similar. Supply Chain Canada's open survey recently reported that 70% of respondents had seen disruptions to their Supply Chain by COVID-19.
While the overall economic impact of the pandemic is unclear, what is certain is that there will be several more months of operational impact from COVID-19 throughout the domestic and global supply chains. To help companies prepare for the unknown and be better prepared for future challenges, we have identified three key risk areas for many organizations.
- Labour Capacity: this can be impacted by a workforce that is diminished or stretched to meet increasing demand and temporary reassignments to crisis task forces that 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: this can be impacted by reliance on suppliers located in affected regions, and cost, scheduling, and shipping delays due to lockdowns and border closures. These problems can be magnified due to the cascading impact on your suppliers’ supply chains. 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: this can be impacted by increased risk of procurement fraud, and 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 will require 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 ensuring 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 relationship to improve efficiency and productivity
- Develop a go-forward plan for procurement modernization to address supply chain resilience
Liquidity assessment and planning
Ensuring that there’s 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 by the vendor. As part of this analysis, it is essential to consider each of the following:
- Enhanced Payment Terms: this can be negotiated or obtained by vendors through a procurement process or by proactive dialogue/agreement with your vendors.
- Prioritize your Spending: is the expenditure necessary and can it be minimized or delayed?
- Re-Procurement: can a better price or terms be obtained by 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. BDO’s 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.
Services we can offer include:
- Procurement outsourcing or assistance
- Analyze and assess supply chain or vendor risks
- Negotiation terms with suppliers or vendors
- Assess expenditures by vendor or type and develop efficiency strategies
Ian Brennan, Vice President, Procurement
Harry Lake, Partner, Consulting