One of the lessons learned from the Covid-19 pandemic is that many companies worldwide are not prepared to face an economic crisis, so it is essential to start structuring a plan that can mitigate this impact.
The failure of organizations is not to think about a crisis in advance, but to establish a reactive strategy when the situation is latent or the market shows a trend. A comprehensive plan for companies, including an exhaustive analysis and possible anticipated strategic responses which, when applied, will help to overcome the adverse economic conditions.
In this new scenario, Procurement areas become strategic players in the planning of organizations. In this article we give you 3 keys to face the crisis during this juncture.
Some strategies from Sourcing
Contract negotiation
For organizations, it is essential to manage supplier relationships to maintain the agility of your Supply Chain. One step in adapting to changing economic conditions is to prioritize the negotiation of strategic contracts.
When a crisis hits, demand for goods and services stagnates, affecting the supply chain and, to a greater extent, organizations that need long lead times or to maintain the availability of large inventories.
Procurement can avoid this problem by prioritizing flexible contracts that include, for example, favorable cancellation clauses or better delivery times for supplies. This helps to mitigate the risk of losses that affect companies.
2. Expand the supplier network
When a company depends exclusively on a supplier and for various reasons the supplier is unable to deliver the promised goods or services, this generates a risk for the company. Supply Chain disruptions are expensiveTo avoid them, some preventive actions can be taken, such as increasing the number of suppliers for critical company goods and services.
No one is immune to crises; they can affect both buyers and suppliers. Therefore, it is necessary to start building relationships with suppliers that represent an alternative to those that normally win contracts with the organization. In this way, you will always have a backup in the event of a supplier crisis.
3. Securing Cash Flow
For organizations it is essential to take actions that guarantee cash flow. One way to support these efforts is to apply a policy of payment terms to suppliers; by extending the term of payment to suppliers, companies can obtain a rebate that goes directly to EBITDA.
Another way is to reduce purchasing costs to generate savings that result in quick wins for the company, this is linked to the search for new suppliers and purchasing strategies such as the implementation of reverse auctions that can generate up to 20% savings vs. allocated budget.
Living in the "New Normal" also implies taking measures in the face of economic risk and seeing this situation as an incentive for strategic planning on different company fronts.
Source: GEP Publications.
