Procurement Risk Management in a Post-Pandemic World

When the world was plunged into uncertainty back in 2020 with the global pandemic, it sent shock waves across the globe, with an unprecedented event which changed everyday life in a matter of days.

Back in 2021, a survey from ELCOM of over 2,900 buyers and suppliers, discovered that over 50% of leaders believe COVID-19 has significantly amplified the supply chain uncertainty created by Brexit. 

A further two-thirds of respondents agreed that events exposed the supply chain deficiencies including missing, fragmented, or inaccurate data. The biggest challenge identified was the complexity of modern global supply chains.

With issues around closed borders, increased demand, limited and restricted labour and decreased resilience all played its part to affect the supply chain. 

Four years on since the monumental event, how do supply chains now prepare for crisis management and contingency planning look in a post-pandemic world? Procurement Magazine spoke to supply chain leaders about the lasting impact.

How the COVID-19 pandemic reshaped crisis management strategies

Samir Khushalani is a Partner in McKinsey’s Houston office, the global management consulting firm. He explains that the past few years of “upheaval have underscored the range of ways the procurement function can generate value for their organisation: 

“From generating cost savings to safeguarding supply. It’s increasingly clear that the post-COVID shifts in how people live, work and play were not temporary. Now that we’ve entered a new economic era characterised by volatility, regionalised supply chains, AI maturity and talent scarcity. 

“Procurement practice is transitioning from basing decisions on assumptions of supply security to mitigating disruption risk by optimising their supplier portfolio with, for example, a robust diversification strategy.”

Alex Saric, Chief Marketing Officer at Ivalua, one of the leaders in cloud-based procurement software, says since the pandemic there has been more focus on preventative measures, with companies ensuring they have a diverse portfolio of suppliers to mitigate the impact of geopolitical, regulatory and environmental risks. 

Todd Abner, Founder, President and CEO at OMNIA Partners, which provides procurement and supply chain management services, echoed how the pandemic presented “a seismic shift in how procurement officers worked.”

Adding, due to supply chain disruptions, procurement teams increasingly relied on group purchasing organisations (GPOs) to build stronger supplier relationships and enhance emergency response plans, acknowledging that they couldn't manage supply chain issues alone. As businesses focused on continuity, many had to adapt their operations and business models, making it challenging to establish trust with new suppliers, especially for smaller companies. The demand for goods and services dropped significantly with the shift to remote work, but post-pandemic, procurement teams gained more credibility and fostered stronger interdepartmental relationships.

The vital lessons

Both Samir and Alex offered a different key lesson from the events. 

Samir Khushalani from McKinsey highlights that recent disruptions have underscored procurement's vital role in generating value, from cost savings to safeguarding supply. He notes: "We’ve entered a new economic era characterised by volatility, regionalised supply chains, AI maturity, and talent scarcity." 

This shift has led procurement teams to move from a "just in time" to a "just in case" mindset, focusing on mitigating disruption risks by diversifying their supplier portfolios.

Alex Saric from Ivalua emphasises the continuous challenges posed by "Black Swan" events such as COVID-19, Brexit and the war in Ukraine, which have severely tested procurement functions. He states, "Black Swan events have left supply continuity on life support." Successful procurement teams have adapted by enhancing risk identification, especially among vulnerable tier 2 and 3 suppliers, and by increasing flexibility and visibility. 

To support contingency plans, businesses are adopting smart procurement technology to improve transparency and collaboration, ensuring they can quickly respond to crises with informed decisions.

Crisis management in a post-pandemic world

As crisis management has undoubtedly transformed since the start of the pandemic, Todd notes the advancement of IT infrastructure is “at the top of the list.”

“Before the pandemic, IT infrastructure systems were growing increasingly outdated and the investment dollars were not adequate to correct the problem,” he states.

“The pandemic served as a big wakeup call to improve systems now or risk unpreparedness down the road. 

“Many organisations had fallen into an approach where it was the way “they had always done it” but in fact, this only served for them to be ill-prepared in the sudden procurement crisis. Now, these organisations have taken a highly strategic approach to procurement by investing in systems and talent to use data for sound decision-making. Additionally, they have established relationships, often through group purchasing organisations (GPOs), with other supplier partners that allow for flexibility during such events.

The evolution of risk management

SAP published a feature looking at how the current procurement market, which, marked by geopolitical conflicts, energy crises, and climate challenges, has been dubbed a ‘polycrisis’ by experts.

Samir adds that these supply chain disruptions, often arising from these challenges, have prompted companies to rethink their globalised sourcing strategies. Procurement functions have started to re-evaluate their supply base and to get a better handle of the number of sole and single sourced scenarios and are exploring sourcing alternatives with suppliers with divergent risk profiles. 

“Successful organisations have reassessed their risk and resiliency practices, including a review of their supplier relationships,” he adds. 

New look for supplier relations

As organisations face a growing pressure to minimise supply disruptions, and have faced shortages in critical areas such as fuel and critical materials, building strong supplier relationships have never been more important. 

Alex adds that to improve supplier relationships, many leaders in procurement have worked to streamline two-way communication with their suppliers and other internal stakeholders, onboarding them onto fully digitised source-to-pay platforms where they can efficiently share information. They share greater levels of information and have put in place processes and technology to do so more frequently and efficiently. 

 “This is essential for more strategic collaboration, such as new product developments and ensuring supply chain continuity,” he says.

“For example, buyers can notify suppliers of planned orders or forecasts so suppliers can be better prepared and minimise unnecessary inventory, and suppliers can notify buyers of any advance or delayed shipments.”

While for Todd, he believes the supplier relationships have become much more collaborative as both parties attempt to enhance their respective resilience against future disruptions. 

“Both have made significant investments in data collection and analysis to make sound decisions around sourcing and standardisation,” he adds.

“These decisions based on data will certainly create an atmosphere where organisations are better prepared with the right product and the right amount at the right time for the next disruption.”

New tech powering risk management

The use of AI is dominating the industry, and it will come as no surprise that these tools are being utilised to help prepare for events like the pandemic. 

Samir highlights how gen AI, and how it can quickly be deployed in many activities - such as category management. 

He also comments on how a multi-layered genAI tool can help build a robust end-to-end category strategy far more quickly than it was previously possible “By synthesising structured and unstructured data from internal and external sources.”

“Gen AI applications can also be used for comprehensive n-tier supplier risk assessments and the creation of action plans to mitigate, transfer, and manage risk,” he adds.

Alex echoed the use of genAI, stating that: “New Ivalua research has shown that procurement and supplier management teams who have adopted Gen AI deployments resulted in a 44% reduction in manual processes. In fact, in the past year, 24% of UK businesses have already deployed Gen AI in procurement and supplier management.

However, to fully harness genAI, organisations must consider multiple elements which can impact user adoption, output quality, agility, and security. 

“First, a solid data foundation is essential as poor-quality data will not only limit the insights produced by AI, but also undermine output accuracy and reliability in times of crisis. By focusing on quality data, businesses can help reduce the risk of ‘garbage in, garbage out’ and ensure they are on track to make the most of any emerging technologies.

To read the full story in the magazine click HERE

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