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10 do’s and don’ts of procurement in times of crisis

10/06/2021 By


Spend Matters welcomes this guest post on procurement tips in a time of crisis from Sergii Dovgalenko, a procurement consultant, business author and CPO. 

Every procurement professional has a history of dealing with crises — global or domestic; financial, social or cataclysmic; force majeure or consistently engineered by inventive management. The set of rescue measures is fairly standard: Halt discretionary expenses, squeeze suppliers, right-size and right-shape, repeat.

Check out Spend Matters’ new 5-step “Procurement Technology Buyer’s Guide.”

The following pack of 10 do’s and don’ts is an attempt to share some practical experience of what worked better for us upon having a dozen crises under the belt. Most of these measures are being exercised as we speak.

1. Obtain executive buy-in for procurement during a crisis and help them maintain focus.

Usually, a crisis elevates the role of procurement, and even executive skeptics tend to look at us with some hope. The worst-case scenario is that the management attention transforms into “cut 10-15-20% across the supply base” kind of orders. The CPO needs to obtain a different mandate: “Look for every opportunity, don’t leave any stone unturned, challenge everything to deliver value.” Finance and procurement need to co-establish the corporate “back-in-black” program chaired by the Executive Committee and report, engage and escalate regularly to keep up the momentum.

2. Employ change management techniques to modify buying behavior.

You would have to change the basics of how people think when they decide to buy something. To enable a cultural shift, the full-blown change management effort will be required. Installing a few extra controls and limiting the spending on travel and entertainment is necessary but not sufficient.

3. Collectively define the monthly shopping cart of goods and services your company needs to maintain a lifeline.

Together with end users, procurement needs to define the monthly ration required to maintain the operational lifeline. All other spending should go through extra levels of scrutiny and approvals. Preferably, there should also be a reasonably large bucket of spend to avoid, defer or downsize sufficiently until after the crisis or maybe forever (e.g., gifts, entertainment, travel, catering).

4. Regularly analyze results and adjust controls. Not necessarily tighten up screws, as there is a wide gray area of spend in-between the lifeline and discretionary one, which cannot be simply eliminated.

The rules applicable to this gray area will be changing regularly according to the situation in the company, on the market or globally. A business cannot always postpone capital investments; it would eventually require some ad-hoc installation, maintenance or training. Extra controls should not come at the cost of business continuity or customer satisfaction (your salespeople cannot always bring just a “hello” to VIP meetings).

5. Identify types of wasteful spending and systematically eliminate it.

Procurement should look further than limiting the optional expenditures, which are usually related to routine office operations. They need to segregate the value demand from the wasteful one and eliminate the latest tirelessly. Usually, this requires the complete decomposition of business processes across the company, as opposed to just cutting some utilitarian demands.

6. Any saved dollar not reflected in the budget is a wasted one.

Procurement must avoid reporting on false savings, which are not helping the company to overcome a crisis, by implementing several basic principles of savings management:

  • Savings are measured against the budget
  • There’s a distinct bucket of savings applicable to the current fiscal year (“cash” savings)
  • Reporting is approved by financial control
  • Benefits realization is monitored based on actual consumption (not forecasts!)
  • Approved savings of the current fiscal year is deducted from a respective business unit’s budget

Doing so will have a positive effect on the company’s financial performance and procurement will have achieved value delivery.   

7. Don’t make suppliers responsible for your financial problems.

This rule is a champion of all don’ts. Many companies tend to suppress their suppliers instead of looking at their own business to generate new revenues or change failed practices and behaviors. Up to 5% of extra discounts at a cost of backstabbed partnership could be easily replaced with up to 100% savings from the elimination of wasteful needs. Suppliers cannot always be the sole source of efficiencies and patch holes in your company’s balance sheet with their funding.

8. Don’t only save — earn!

The crisis triggers creativity in many people, and they start realizing that smaller ancillary revenues are falling off the radar. Sub-lease of small office spaces that became vacant due to right-sizing, revenue-sharing with allied businesses (e.g., visa services or travel insurance for airline passengers), revenue-generating BPO (e.g., onboard duty-free or inflight catering, which used to generate dead stocks and required constant cash, gets outsourced at a regular premium), and, of course, marketing partnership. You can monetize your clientele, as each travel, business lounge stay or website visit is a cashable customer contact.

9. Don’t think everyone understands the difficulties and cares for the company’s survival.

Being in a hurricane and feeling how the very existence of the business is shaking gives the feeling of everyone experiencing the same. But many of your colleagues do not. They want a new laptop, a comfy business trip or a roaming call instead of a Skype session. Procurement needs to champion the change and persuade, challenge and force those who object to the new reality.

10. Don’t dismantle working controls when the crisis is over, adjust it to the new normal.

Turmoil does not stop overnight, it assumes a long and difficult recovery, during which procurement needs to implement systemic changes based on temporary relief from a corporate rescue program. Simply getting back to legacy practices means attracting a new crisis.

How does your company find the right procurement technology and vendor? Spend Matters’ new 5-step “Procurement Technology Buyer’s Guide” can help — with how-to documents, checklist templates and other tips.