Resiliency Themes – Part 2: Savings Becomes More Important in 2020

March 27, 2020Posted inArticles, Chief Procurement Officers, Events, Lists, Strategic Sourcing, Strategy

Ardent Partners takes the severity of the COVID-19 pandemic with the utmost seriousness. Please click here to read our approach in these uncertain times.

From March 31 through May 7, Ardent Partners will host The CPO Rising 2K20 – The Resiliency Imperative, an exciting new online series that focuses on the key strategies that procurement, supply chain, finance, and HR leaders will need to get through this period of adversity.

This series is comprised of web-based presentations, panels, and interviews with leading business executives, industry analysts, and other experts, as well as Ardent’s latest research on resiliency, agility, and the State of Procurement. Live sessions will run from March 31 through May 7 when the Virtual Summit is held. Recordings of each session will be available on the event site. Be sure to check back frequently as exciting new sessions will be added to the schedule.

The Resiliency Imperative – Part 2: Savings Becomes More Important in 2020

As we discussed in Part 1: An Economic Recession Looms, the global business community has gotten the wind knocked out of it by COVID-19. With market indexes at record highs, unemployment at record lows, and consumer confidence soaring, many business leaders believed they had the wind at their backs heading into 2020. Speculation that the economy would enter a recession in 2020 had subsided, prompting firms like Ardent Partners to forego concluding that a recession would hit this year. Instead, we predicted that savings would become more important this year, particularly in the second half of the year. But, as Dr. Anthony Fauci, MD, director of the National Institute of Allergy and Infectious Diseases said earlier this week, “You don’t make the timeline, the virus makes the timeline.”

And so it is. In just a few (long) weeks in March, the global economy has taken a hard turn south, with the stock markets now in bear territory, consumer confidence, and then consumer spending plummeting as millions of Americans stay home to practice “social distancing” in a state-by-state effort to “flatten the curve” of new infections and hospitalizations. As a result, state governors have begun to shut down major sectors of their economies — hospitality, tourism, retail, and mass entertainment events like concerts and professional sports — causing unemployment claims to rise by 3.1 million in one week alone. No one knows how long this crisis will last, how long many of us will have to remain in our homes (and not pumping billions of dollars into the economy), and what the post-COVID-19 business world will look like. Uncertainty is high, while confidence is low.

As a result, procurement organizations across many industries will face even greater pressure to cut costs and increase savings in 2020, just like they did during and for some years after the 2008-2009 financial crisis. These cost-saving measures will be tactical in nature — identifying costly buying behaviors, plugging savings leakage, driving supplier performance, and so on. But they will also need to be more strategic: moving away from low-cost countries and markets that are now financially and operationally risky, building supply chain redundancy (because failing supply chains are costly), and being agile enough to find the greatest-value suppliers when markets are in flux. In order to be resilient in 2020, there is now a greater importance on mitigating 1) greater business volatility and economic uncertainty, 2) increased competition in the markets, and 3) long-term uncertainty.

  1. Mitigating Business Volatility and Economic Uncertainty: Many Chief Procurement Officers (CPOs) and their teams already have had to respond to the early stages of the pandemic while it was disrupting markets and supply chains in China and South Korea. Although Chinese manufacturers are starting to come back online, a growing body of business leaders now fear that sourcing in East Asia carries with it unacceptable and costly business continuity risks, and that changes to business operations will need to be made in 2020. Chief Procurement Officers and their teams will need to reexamine their supplier relationships and contracts, and potentially begin to move supply chains closer to home or out of pandemic hot zones where there is less volatility.
  2. Mitigating Increased Market Competition: The COVID-19 pandemic and the uncoordinated global response to it has highlighted the challenges that many businesses will have this year as they scramble to find new or additional sources of raw materials, components, finished goods, and specialized services. As demand increases, so do prices, particularly as sourcing becomes more tactical in the short term and companies buy up whatever materials they can find. Bigger picture, sourcing from markets that are now deemed too risky, as well as sole sourcing, will be even harder sells for 2020. Chief Procurement Officers and their teams will need to not only mitigate sudden supply disruptions, but also prevent future disruptions and limit the impact of increased competition for a smaller pool of suppliers in a given market.
  3. Mitigating Long-Term Uncertainty: Longer term, procurement will need to flex its muscles its developed over the years by driving visibility into savings behaviors to identify cost savings opportunities. It will need to run competitive sourcing events to extract the most value from supplier bids. It will need to codify those savings opportunities into flexible supplier contracts that enable procurement agility and drive supplier compliance. It will need to collaborate closely with suppliers, co-innovate processes and product development, drive supplier performance, and monitor and mitigate an increasing array of supply risks that, as we are seeing now, can take down entire sectors and economies. The need to build savings coffers and an effective hedge against the unknown is here.

Final Thoughts

Chief Procurement Officers and their teams will have even more opportunities to shine this year, as the global business world finds its bearings and charts a course through the darkest and roughest seas we’ve seen in more than a decade. Procurement teams, under the steady leadership of the CPO, will drive procurement and supply chain resiliency by doing the basic blocking and tackling it’s done since the Great Recession, and by collaborating and innovating in a world where the only constant is change.

CALENDAR OF SESSIONS:

Instead of our typical related research section, we are inviting our readers to investigate our new virtual series, CPO Rising 2K20 – The Resiliency Imperative. Click on the session titles below to learn more and register for them! (Note that there will be more titles coming soon).

** If you enjoyed today’s article, don’t miss these sessions.

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