Deloitte CPO Flash Survey shows procurement strategy shifts after coronavirus disruption

Among the many changes from the COVID-19 disruption, new data from a Deloitte CPO Flash Survey found that procurement strategy is shifting as the crisis evolves and will reshape the future of the industry.

It’s no secret that the crisis has changed business roles, functions and goals. However, the pandemic has highlighted the need for procurement as a vital function in business operations. Procurement in the pandemic has been key to handling all of the complexities it faces.

Last year, Deloitte’s Global CPO Survey highlighted complexities as “customer expectations are rising, internal stakeholders are increasing their demands, markets are becoming more volatile, technological advancement requires significant attention and accessing talent with the right skills at the right time is an ever-present challenge.”

The Flash Survey found that “navigating these internal, external, digital and talent complexities did not get any easier with the arrival of the COVID-19 pandemic.”

“For many, the decades-long focus on reducing the supply base and driving cost reduction while streamlining procurement strategy has affected many organizations’ ability to react swiftly and confidently in these challenging times,” the Flash Survey said.

Deloitte conducted the Flash Survey with almost 100 procurement leaders from large global organizations headquartered in North America. It is meant to help procurement leaders navigate the ongoing pandemic while preparing for the future by exploring how professionals can position their teams for success in the near and long term.

Key findings of the Deloitte CPO Flash Survey

Deloitte’s survey indicates that procurement priorities have shifted, and the industry is entering into a new phase of the COVID-19 pandemic.

Gone are the days of reacting to the pandemic. Survey results found that 44% of procurement leaders are now in the stage of adapting and recovering from pandemic shifts, with another 30% saying they will be in recovery mode in the next one to six months. Companies are on the brink of shifting their focus to thrive in the “next normal.”

Source: Deloitte

Among other results, some of the key insights outlined by Deloitte are:

  • Cash is king: CPOs identified cost management as a top priority right now, commanding eight times more focus in day-to-day operations than anything else. Additional survey findings found that two-thirds of organizations will pursue cost-reduction strategies post-coronavirus, compared to just one-third pre-pandemic.
  • Consolidation debates continue: It seems a near majority of respondents plan to expand their supply bases, with 47% saying they will expand significantly or slightly. However, 25% of respondents plan on consolidating.
  • Economic hardships expected to last: Around 70% of survey respondents expect and are planning for a longer economic downturn that will last into Q2 2021 and beyond. Only 28% of respondents expect a quick return to pre-coronavirus economics.
  • Your team matters: Two of the top three critical success factors for procurement organizations concerned employees and teams. Eighty percent of organizations said worker well-being was “important” or “very important” for their success in the next year and a half.
  • Short-term tactical vs. long-term strategic goals: A slight edge was given to short-term and tactical strategies, with 38% of top-ranked procurement strategies coming from this category.
  • New “fires” to fight: Enabling effective remote working or virtual working environments was the biggest fire that had to be put out in recent months.
  • Manage what you can see: Only 50% of procurement leaders said they had high or very high visibility into their tier 1 suppliers. A majority (90%) of organizations rated visibility into their extended supply networks as moderate to very low.
  • How to thrive in today’s age: Organizations that are thriving reported higher visibility into tier 1 and 2 suppliers. Thriving companies were twice as likely to prioritize digitization daily, and were seven times more likely to expand supply bases.
  • Most important themes emerge: Enhancing supply management capabilities and adopting and investing in advanced technologies emerged as two key themes among CPOs.
  • Hindsight is 20/20 in 2020: Around 18% of respondents regretted not accelerating digitization fast enough.

Procurement strategy changes across industries

To some extent, all organizations were blindsided by the COVID-19 disruption. The Deloitte survey said it made companies reconsider supply chains that had been built up for decades.

However, the Deloitte survey also found that the effects of the pandemic on procurement showed up differently across industries — from revenue growth to drastic shifts in customer demand.

The life sciences and health care industry reported that it feels behind the average in recovering from the pandemic. Higher levels of respondents said they are still responding to the initial shock. CPOs addressed shortages of PPE at the start of the pandemic and in response said “activation of alternative sources” is a top mitigation strategy going forward.

Consumer and retail industries said they have a higher degree of visibility into tier 1 and extended supply networks compared to the average. In an optimistic look, 62% of CPOs in retail operations said they entered the recovery phase.

Other industries with optimistic survey findings include banking and capital markets, industrial products and automotive, and technology and media.

How procurement will thrive with a new strategy

Deloitte pointed to the increasing role of risk management in procurement as a key to success in the future. Procurement leaders that develop smarter ways to illuminate and act on risk will be better set up for success.

This can include rethinking sourcing based on risk or increasing the use of risk-sharing and/or performance-based contracting.

Deloitte suggested companies learn to reallocate resources and increase supplier visibility/relationships to thrive in the future.

“The COVID-19 pandemic has provided a unique opportunity to gain insight into what the most effective procurement leaders do to respond during times of uncertainty and thrive in the long term,” the survey said. “While many CPOs have not had much time to pause and reflect on which systemic, long-term changes they will need to make in order to adapt and thrive, top-performing organizations were better set up to manage the volatility, as they simultaneously learned from managing the challenges faced during the pandemic and adapted more rapidly and effectively to the changes taking place.”

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