The Deloitte playbook for CPOs to combat COVID-19

9 procurement challenges

COVID-19 catalyzes an economic downturn that was already looming on the horizon. For CPOs, this situation is hugely complex, the breadth of the battlefield seems immense, and the pandemic makes it even worse. In current discussions with procurement executives we have identified 9 key challenges that must be solved

Consequently, most CPOs tend to act on a day-to-day basis with minimal forecast horizons and a focus on taking reactive action. Caught in the operative handling of COVID-19 challenges, CPOs can lose sight of their strategic objectives – lacking longer-term focus for post-COVID-recovery.

The Three Phase Plan

To balance current and strategic procurement priorities, Deloitte has developed a three-stage framework:

1. Respond Phase (immediately)

The focus will be on protecting the company, people and suppliers, ensuring sufficient liquidity to meet near term obligations as well as securing the immediate supply chain partner network

• Focus on smart material cost down initiatives to meet new targets
• Maintain sufficient liquidity
• Assure delivery capabilities of most important suppliers
• Remote working and supply chain ramp-up

2. Recover (18-24 months)

The focus should be on re-assessing the procurement operating model and value creation to emerge stronger in the new environment. At the same time, everyone gets comfortable performing remotely

• Continue actions from safety mode but create space for strategic considerations: procurement vision becomes keyo
• Close digitalization gaps
• Focus shifts to get supply chain started with ramp-up and capacity allocations

·       
3. Thrive (3-5 years)

There is an opportunity to move into the new role for procurement and support
the next level business models

• Implement new procurement vision, operating model and upskilling programs
• Strategic considerations of commodity strategies and supplier networks
• Benefit from sustainable cost optimizations

This Deloitte framework allows prioritizing the 9 key challenges. As most companies are currently still in the immediate “Respond” phase, CPOs need to focus on the immediate challenges:

These challenges require action in 4 main areas: strategy, processes, people and organization as well as technology and enablers.

No one-fits-all but a tailored measure collection

Deloitte has developed measures to combat these challenges effectively and in time. In total, our framework contains 25+ measures tailored to combat the crisis:

Here are 4 of the measures which each CPO should evaluate and focus on immediately:

• DPO Optimization Initiatives 

Due to current liquidity challenges, companies can still improve their DPO by 25% as well as cash and EBIT by negotiating market standard payment terms. Thus, they can achieve 1% additional savings on total spend. 

• Partnership Renegotiations 

Even in times like these, savings can be generated through classic negotiations – but the times of generalized strategies and one size-fits all negotiation initiatives have ended. With analytics tools and an innovative approach, additional savings between 3-5% can be achieved.

• Competitive B2B Marketplaces (e.g. Amazon Business)

For some indirect commodities, marketplaces like Amazon Business offer very competitive prices. For these very limited product ranges, procurement shall be switched to the providers. Companies can achieve immediate savings of up to 30%.

• AI-Optimized Tenders with Digital Tools

In recent years, software providers  have developed new tools and functionalities to support complex tenders. These tools provide extensive analytical capabilities for sustainable and faster results of 12-17%. 

Our survey shows that leading companies are already planning for the time after the crisis, investing to prepare for future growth. Successful CPOs need an agile action plan to gain a competitive edge, and not simply wait for competitors to be phased out of the market.

An agile action plan for CPOs

With the Deloitte Accelerator Approach, the principles of agile implementation are incorporated into a quickly usable concept not only for digital start-ups. A new way of much faster implementation of measures even helps multi-billion corporations achieving sustainable results much faster.

If you are interested in receiving your customized COVID-19 assessment and action plan, feel free to contact us. With minimal time effort from your side and only two video conferences, we are able to provide it within one week.