The procurement industry needs to plan proceedings. Yes, eventually, we are going to witness the new normal. Things will get in the groove and it will eventually bound the pandemic situation to exit. But businesses should plan accordingly. They must start planning about the areas to make changes. What should be the new approach? How to proceed? What norms to follow? This is the time to let the discussion begin. Ever since COVID-19, business leaders are in total jeopardy. They are going through critical scenarios to manage everything, right from their workers to customers to their businesses. Product sourcing companies are no exception to this scenario. With COVID-19 hitting every part of the globe with equal force, the supply chain market has exposed quite a few loopholes.
With economies trying to change through the new normal, it becomes the responsibility of crisis management to repair the loopholes. The faster the recovery phase will begin, the better it will be for the industries. To repair the loopholes, recovery executives are eyeing reimagining certain procurement functions to make a better positive impact in the new normal. What are the procurement leaders thinking? What approaches are being considered to make a positive impact in the coming days? After researching and reviewing procurement leaders from different parts of the globe, most notably the Asia-Pacific region, it gave the major emphasis on re-imagination.
Re-imagination is the Ultimate Priority
The procurement leaders of the Asia-Pacific circle are focusing on reimagining the functions of procurement operations. As per the procurement leaders, this approach will help in better recovery efforts while focusing on a new operating model to benefit the product sourcing companies in the new normal. The most common concepts that are making it at the top of the re-imagination process are listed:
- Accelerating value capture, spend analytics, and leveraging digitization
- Recalibrating the cost-saving targets through value creation strategies and zero-based category
- Unlocking new opportunities through investment in joint ventures and supplier partnerships
- Guiding employees getting adapted to the new work environment by reinvigorating both new and core capabilities
- Focusing on the remote-working models
Certainly, each of these concepts has its priority on different industries. Industries dealing with transportation, telecommunications, consumer goods, technology, and logistics have their primary focus on supplier collaboration. Then again, industries dealing in chemicals, oil and gas, and highly advanced materials are facing problems, mostly regarding costing and reduced demands. Other industries like the agricultural and financial services are eyeing transformation – a reimagining of the services to accelerate growth ad unlock better opportunities. They are focusing on the concept of digital marketing and spend analytics that promises a lot of new verticals to get unleashed.
Minimal capital investment (cost reduction strategies)
A recent survey witnessed massive cost reduction strategies being implemented by nearly 52 percent of the procurement organizations. They reported these companies are trying their best to lower the cost-reduction targets as a necessary point of recovery from the damage that took place because of the pandemic. Procurement organizations are presently eyeing product sourcing companies from Asia-Pacific regions. Some of the major reasons behind such a strategic change are financial difficulties among the suppliers, major shifts in both supply and demand chains, and also resource redirection for boosting the supply chain resilience.
What Role the Procurement Industry Is Going To Play?
It may well tempt industrial leaders towards reducing or slowing the expectations. But to raise the economy, the procurement industry needs to play big. This industry has a major role in raising earnings by reducing the expenditure rate. This is necessary. They utilized this similar concept to greater effect during the 2008 economic crisis.
Procurement industries are trying to figure out the best ways to improve earnings. The primary concern is to find a solution that can add value to the service. The concept of remote work culture can have a significant benefit in cost-cutting, reducing the requirement for a specific office space. It will help organizations in remodeling their real-estate investment policies and associated expenses.
Focusing on Zero-basing Budgeting
Creating a budget from the scratch is something that Zero-based budgeting focuses on. As per the ZBB, it doesn’t involve any of the conditions from the previous budgets. A new budget starts from point Zero. But that said, when implementing Zero-basing budgeting, every expense that a company plans to add to the official budget must be justified properly. The primary goal of zero-basing budgeting is to make the best attempt to reduce the expenditures and figure out areas where cost-cutting is possible.
Procurement organizations are relying heavily on zero-basing budgeting to cut down significantly on the cost. Employees of these companies play an integral role. In most common scenarios, employees are involved in the creation of a zero-based budgeting plan. Companies ask their employees to provide details on the areas where expenses can be reduced. Any expenses not benefiting the organization (as per the management authorities), must be axed down completely under the zero-basing budgeting plan.
Relying Heavily On Sourcing
How a procurement industry will shape relies heavily on product sourcing companies. The better the sourcing, the easier the procurement will be. It focused sourcing on creating and managing supply chains. Based on the outcome, procurement focuses on utilizing the same to ensure a steady flow of supplies to the organization. Outsourcing the sourcing needs is the new norm. With organizations focusing heavily on cost-cutting, managing a separate internal sourcing division makes little sense. Outsourcing certainly saves a lot on workforce and space costs.
It is not only cost that companies need to focus on. Beyond that, there are several areas where the focus needs to be given. Organizations having advanced procurement functionalities understand the importance of proper supplier collaboration and how it can benefit both parties in boosting profits. Going for partnership with suppliers can provide to be beneficial in terms of earnings growth rate. Partnership with the suppliers, hence, is the concept that the procurement industry is expected to eye at. Bespoke business models are considered and some of the collaborations have already started following those with a positive outcome.