Back to Hub

What role can procurement play in freeing up cash in the wake of Covid?

03/30/2021 By

From managing uncertainty in demand and supply, to having clear visibility of accounts in real time, to determining whether a supplier’s very existence is at risk, freeing up liquidity is both an opportunity and a challenge right now. In response to the Covid first and second waves, survival can depend on ability to act quickly. Procurement is a critical area that many business leaders are prioritizing to free up cash and better manage their liquidity position, because understanding their supply networks provides deeper visibility into spend.

Companies in diverse industries, including manufacturing and retail, are bracing for a hit to their results amid halted production, supply issues and changed consumer behavior. Reduced revenues can impact a company’s overall financial situation and force them to rely on liquidity reserves, raise additional capital or reduce spending to make up for a shortfall. Adding to the challenge is uncertainty about how long the pandemic will last, which means that companies have to draw short-, medium- and long-term contingency plans. While the list of things for leaders to consider is endless, the procurement function is a good place to start.

Enno Arne Lueckel, VP of supplier information management experts scoutbee, talks to Pamela Hackett, CEO of global operations consulting firm Proudfoot.

What is your advice for business leaders looking to increase their liquidity?

“Too often, when people are looking to reduce spend quickly, they jump into deceptively longer-term projects that can ultimately slow them down. Sometimes, it is best to first determine where not to start. For example, leaders will not get it right if they jump straight into restructuring the purchasing department or radically changing purchasing processes, as both of these actions, while likely to provide ROI in the long-run, require time-consuming changes from all angles and are unlikely to result in quick returns. Additionally, many business leaders jump to digitize for quick results, and although it will become a necessity for business agility and survival in the long-term, a complete digital overhaul of all processes is not recommended as this is best executed with the right research, preparation and data-handling.

“Instead, business leaders can look to smaller scope projects that can yield positive, long-term impacts while improving cash flow. A good place to start is in spend volume, looking to reduce or stop buying items. While this may seem like an obvious choice, the types of spend and the approach to reducing it can be different. For direct spend, demand varies with inventory levels and companies should flex the spend to the new requirements. An inventory assessment can also help identify stock that is sellable and can improve cash flow. However, decreasing spend volume may not always be an option as is the case of discretionary and operational spending. In these instances, companies should look for obsolete practices that can be cut down.

“For many organizations, reducing or stopping spending is easier said than done. In this case, another viable option for quick wins is to reduce the price paid for items to improve positioning. Price reduction can come by negotiations with existing suppliers or sourcing new ones. Working with an existing supplier can be optimal for quick returns and it can be worthwhile asking for an exceptional gesture. However, advancements in supplier discovery technology today mean sourcing new suppliers or supply options can be opportune, as AI makes it rapid, comprehensive and category-focused, and can handle all certification or compliance needs in the search.”

How do you ensure new processes will be successful?

“The key is to ensure that you are not only freeing up liquidity but also making sure that the newly implemented processes are able to be repeated and maintained. This is what we call future-proofing your procurement organization to be a valuable player and leader inside the business.

“To begin future-proofing a business and understanding the positioning in the outside market, business leaders need to assess whether their procurement function has an established vendor marketplace to clearly see when new vendors are available or prices for materials drop providing flexibility and quick decision making for the supply chain. Intelligent data and technology is also vital to ensure business continuity to give procurement teams insight from all angles to enable informed decisions, visible patterns and support when re-strategizing is needed to maintain long-term goals.”