COVID-19 pandemic has created an unprecedented opportunity to transform & digitize the Procurement function by pulling three levers of People, Process & System to effectively deliver Financial Optimization, Business Efficiency, and Risk Mitigation.
Most businesses were left vulnerable with supply chain disruptions, no documented plan and underinvestment in procurement capabilities. The last-minute scramble with minimum digital foundation found an uncoordinated, inefficient, and unpredictable response from procurement leaders, finance, operations, legal, suppliers and other stakeholders.
The Unprepared Procurement Function
With the current crisis, CFOs and leaders of the organization are being asked for areas of significant cost reduction, for which usually an easy answer is to restructure the business and layoff thousands of employees. Most of the leadership struggles to address the spend on vendor ecosystem, reason being, their inability to negotiate or terminate contracts due to unavailability of the ready business intelligence data and insights.
Vendor spend accounts for 50%-70% of the total spend for a midsize to large companies.
The current crisis will lead us into a recession soon which may stick around for a while. For survival and still be able to achieve reasonable growth, companies need to transform their procurement functions from People, Process, and System perspective.
Leaders can start with asking the right questions
- How can we get sponsorship and support across the organization to initiate transformation?
- Are the core functions of procurement, finance, legal, and operations aligned, and what does their competency look like?
- Would outsourcing non-core functions help us cut costs and what’s its impact on the organization?
- How can I know every day what we are spending, whom we are spending with and where do we spend?
- How can I empower and enable the organization to make decisions with the right controls in place to avoid financial leakages?
- What can be done to avoid a complicated mix of inflexible requirements, disparate processes, and functionally isolated activities?
- What kind of technology solutions impacting different aspects of the source to pay cycle can be leveraged?
- and much more..
Technology will be just one part of the solution and a comprehensive look at the organization via transformation program is the key to bring the desired change. The result would be enhanced the ability of an organization to drive long term value through improved capabilities, faster response, and better operating model.
Rohit Dak is a Managing Partner with Zeolyt Ventures. He is 20 years experienced top-level Business Finance, Growth Strategist & Transformation Leader with proven expertise in Digital Transformation, Finance, Procurement, Investment Valuation, and Management Consulting.