As much of the world takes tentative steps to return to some type of normality in the shadow of COVID-19, procurement’s role is quickly evolving. The past three months have seen our profession help guide our organizations through uncharted waters, securing supply through unconventional means.
Now the dust is settling and our focus can shift to the medium and long term. For many companies (although not all), that means saving money.
Expense reduction is a topic we have covered extensively at Art of Procurement over the past few months in preparation for precisely this moment. You can find our library of resources in the Expense Management section of our newly relaunched website.
Expense management is a priority right now for good reason.
For years now, cash has been cheap. And while it has led companies to invest in new initiatives such as supply chain finance, no one wants to lead their enterprise into a recession with mounting debt.
In a 2019 article published in the Harvard Business Review, Kevin Laczkowski and Mihir Mysore looked at companies that were resilient during the 2008-2009 recession to study what they did differently than their competition. It probably comes as no surprise that a rapid pivot to expense management and reduction were key.
Resilient companies saw the same revenue loss as other companies did, but they were able to absorb the impact because they had more margin to work with. They were also more prepared to make further changes, and made those changes swiftly, ahead of other companies. This perpetuated their advantage and allowed them to preserve customer loyalty and make fewer moves that would have to be reconciled or undone once economic conditions improved.
Now that we find ourselves in another economic downturn, it is time for procurement to shine.
At the same time, this opportunity actually represents a double-edged sword. Procurement has the spotlight, but we are not immune to broader organizational pressures to reduce or maintain headcount. We will have to embrace new approaches to managing enterprise costs without growing our headcount. We are going to have to work SMARTER and HARDER at the same time.
I believe the next 6-12 months will determine the future of the procurement profession.
We have to use this time wisely. Fast forward to 12 months from today: how do you want your impact between today and June 2021 to be viewed? Will procurement be seen as an aggressive cost-cutter or as a trusted advisor that helped the business meet financial and operational goals?
Although we are in a downturn, we can not say that today’s economic challenges are exactly the same as the 2008-2009 recession. In the past, companies drove labor efficiencies by outsourcing to low cost countries. A number of those roles ended up coming back when the good times returned. Today we are seeing increased investment in RPA instead, meaning that once a job is automated, it won’t be coming back.
The same lesson applies to how procurement is viewed internally. During the recession, procurement was in high demand, but we weren’t needed when the good times returned because leaders associated us with a single value proposition: savings. Technology enabling AI assisted sourcing, negotiation, and contracting is already on the market, making investments in procurement headcount a tough sell.
While we need to deliver expense reductions now, we must also maintain procurement’s position as a trusted advisor to the entire business (not just the CFO). When we are seen as enablers of business strategy, our impact directly impacts the health and future prospects of our business. As we see in the consulting space, teams that align their impact with the top line will receive greater investment than those associated with the bottom line.
Assuming that expense management is a top priority in your organization, how will you deliver savings that stick while maintaining and strengthening your relationships across the business?
Here are our suggestions to help you #TakeAction
- Deliver savings using creative strategies rather than automatically turning to the old volume leveraged buy or supplier rationalization approaches.
- Keep big picture, long term objectives front and center in all projects, positioning cost reduction efforts against the competitive landscape and client perceptions of value.
- Choose your words carefully, talking about the choices procurement facilitates in terms of all the value opportunities they create, not just focusing on the quantitative results of the effort.
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