During the month of April, Investigo hosted two CPO webinars to discuss some of the key issues facing procurement functions right now. Hosted by Gareth Paul, Associate Partner, Angharad Kenward, Senior Director and Melanie Robinson, Manager, the events brought together chief procurement officers and procurement directors from leading businesses across our network.
We have been in discussion with our CPO network and addressed some of the key challenges/opportunities facing the industry currently: Increased Industry Collaboration, Supply Chain Continuity, Global Sourcing Challenges, What is the new normal? What will be the Future for Procurement?
Collaborate to accumulate
“Misery acquaints a man with strange bedfellows,” says William Shakespeare’s The Tempest – and the crisis has certainly seen many interesting collaborations, from the military working with the cabinet office to Boots joining forces with EDF.
Aspen has sourced a lot of PPE from the building sector and bought face masks from a company that makes operating theatre doors. “It’s having the ability to adapt what you do,” said Andy Jones Director of Procurement Aspen Healthcare. “We’re having very different conversations with very different organisations. We wouldn’t be able to buy that in the public sector.” Suppliers showing agility will prove they could be used for other things. “We encourage entrepreneurial thinking and making mistakes,” he added.
Jay Doyle CPO ITV felt the crisis had reminded the board, the plc board of the organisation’s reliance on third parties: “We can’t operate without them. The crisis has accelerated an innovative approach on how costs can be better managed. We talked about stuff before, now we’re doing it out of necessity.” At this time, businesses need to consider more than just price. They need to consider business continuity and having a diverse supplier base, instead of putting all their eggs in one basket. That kind of dependency can be damaging.
Widening networks is crucial, but there’s sometimes a fine line between generating opportunities and out-and-out profiteering. “I’ve had five people saying they can supply whatever I want since the start of this call,” said Andy, who has reminded certain suppliers that they’re dealing with public money. Supplier behaviour right now will make it very clear who procurement functions should work with in the future.
There was a consensus that process outweighs action in public sector procurement, its rewards system traditionally favouring certain suppliers. It has also been hindered by the number of hoops suppliers have to jump through. Why allow a large number of suppliers to bid for a job in an emergency situation? It would be better to apologise after picking the wrong supplier than to delay the supply of crucial equipment, suggested Andy. The lessons we learn now could serve to improve public procurement in the future.
Thriving or surviving?
“My primary focus is keeping 350 manufacturing locations in continuous operation and managing 4000-5000 logistics trips a day in a market where every country constantly changes its rules and drivers don’t want to go into red zones.” said Alex Jennings, CPO of DS Smith.
For many companies, though, the focus is on business continuity and managing financial risk – conserving cash, renegotiating contracts and spending only on what’s essential. “ITV’s productions have ground to a halt globally,” said Jay Doyle, CPO ITV, “except for news and for entertainment programmes that had already been made. In the broadcasting business, viewing figures are through the roof but monetising them through advertising revenue is virtually impossible as brands are pulling their ad campaigns. The direct consultancy business is facing significant challenges around revenue, with no live sport or other events.”
There are even companies who are experiencing both extremes. Gerry Tominey is CPO for AB Foods, the second largest sugar producer globally, with FMCG divisions such as Kingsmill, Ryvita and Blue Dragon. As well as increased demand for most of its food businesses – due to people stockpiling and consuming more at home – sales have dried up for its businesses that supply ingredients for restaurants. It also had to close all Primark stores overnight. There’s a need for businesses to adapt in order to plug gaps where there’s a shortfall in revenue, and to manage costs in those areas.
The main challenges for Kuehne + Nagel, one of the world’s largest global logistics companies, have been third-party logistics space and inability to deliver to pubs and restaurants. “Flows are significantly disrupted at the moment,” said Mark Parvin, Head of Procurement. “We have a haulier who hasn’t got the flows to do the business. We’re focusing on keeping them in the game so that they’re there when things ramp up again. We need to make sure the work we do have is well distributed, managing cashflow for ourselves and for some of our suppliers too.”
“The focus is on continuity of supply and preserving cash” said David Medori, CPO William Hill. With next to no sport, the company’s been forced to close its 2000 stores and although gaming has gone up, revenue’s massively down. “It’s about continuity of business first of all. Next, it’s about cash and cost management, renegotiating contracts related to sports. Then it’s about moving on to reactivation and getting back online quickly.”
With all hands on deck so to speak, is there still room – or even time – for innovation? This seems to depend on your industry. “Innovation is on a backburner,” said Klaus Hoffman former CPO Kraft Heinz. “It’s about streamlining your portfolio. You want suppliers to concentrate on large productive runs.” Certainly, any new knowledge that can be gained from the current crisis, and that can help us deal with sourcing challenges in the future, is very valuable knowledge indeed. Data insights and consulting company Kantar is currently introducing new research. “The whole category of hygiene has been treated as a commodity for many years,” said Stephen Day, CPO Kantar. “The latest research shows it’s now a very valuable category and one where consumers will start investing in premium brands.”
Vodafone Group has seen a rise in overall demand of 35% across Europe due to “more people calling people,” said Ninian Wilson, Global Supply Chain Director. Fixed networks are also up 50% and the company is working hard to maintain supply. Indeed, “there’s now a problem with oversupply as shops aren’t open and aren’t selling phones.” However, Vodafone is engaged in specific innovation around body temperature monitoring, such as a thermal imaging camera to check people’s temperature at Nightingale hospitals. “There’s been a lot of innovation for healthcare products and barriers to entry have come down,” said Ninian.
“Agility has become the word,” said Alex. The sudden upsurge in demand for items such as food, medicine and PPE has seen sourcing challenges across the board. “We’ve learnt a lot about ourselves as a company. We can be more flexible in planning than we ever thought. We’ve gone from a stable process to Christmas every week without four months of planning.”
Flexibility’s particularly important when it comes to supplying internationally. Delivering to Macedonia, for example, involves having to quarantine for 14 days. Border crossings also involve the exchanging of paperwork. “We get by-the-minute visibility of what’s happening at each border and send communications to customers saying the product has left,” said Alex. “Customers are pretty happy with what we’ve been able to achieve.”
“Life has become PPE,” said Andy, who’s now heading up the company’s response to COVID-19. “There’s plentiful supply. The main problem is logistics, getting it to the relevant locations.” Having been contracted to the NHS on March 23rd., along with the rest of the private hospital sector, Aspen has experienced a drop in revenue due to cancelled procedures. Initially, there was a huge boost to morale from becoming part of the NHS – but with Aspen’s hospitals largely empty, things have been challenging since. It’s had to furlough most of its staff and focus on covering costs, while devising a return strategy – all while being prepared for a potential second wave. “When the taps are switched back on,” said Andy, “the NHS might not be able to cope, so it might have to reach out to the private sector. More people will not be able to get treatment for other things.”
Equally, the food industry is working non-stop right now. “It’s a challenge to secure supply,” said Klaus Hoffmann, formerly CPO at Kraft Heinz. “You have to make sure suppliers are capable of staying open. If you haven’t got trigger sprayers, you haven’t got Dettol. If suppliers are not open, you actively have to extend your supplier base or return to previous suppliers.”
The importance of looking after suppliers was brought into sharp focus by some Sift statistics quoted by Bilal Shaykh, formerly Group CPO and Head of Real Estate and Facilities Management for Centrica. Over half of the companies surveyed have been forced to decrease production due to the ongoing crisis, and almost a quarter have ceased production entirely. 69% of procurement supply chain professionals believe the impact is increasing. 51% of companies have either lengthened or suspended payments to suppliers, while a fifth have shortened payments, mainly the supermarkets. “The majority of small suppliers are struggling with demand,” said Angharad. “There’s a serious cashflow problem which might change the market forever.”
U, W or L?
What shape will the economic fallout take? Will there be a decline, a trough and then an incline (U)? Will we see a decline followed by an incline and then a subsequent decline as a result of a second wave (W)? Or will it head straight down and stay there for the foreseeable future (L)?
“I’m worried about a second wave,” said Andy. “The return won’t be by snapping your fingers. It’ll be a graduated return. Whatever that looks like will determine what happens.” People’s behaviour – how comfortable they feel sitting in a restaurant, for example – could determine the shape of the recovery. Will staff and customers be required to wear facemasks? Will longer term social distancing be put in place?
“Depending on the shape we come out in,” added Alex, “we’ll be entering a buyer’s market.” If there’s one industry that could come out of the crisis considerably stronger than before, then it could be cleaning. 5% of the UK workforce currently works in the cleaning sector and there was a feeling that the industry might be in growth mode.
It could be that companies will not take up as much office space, but will place greater importance on how they look after the space they do have. Perhaps the very purpose of the office will change, suggested Angharad: “Will the office be the environment where people socialise rather than work, and home the environment where they work?”
A remote but connected world?
Gareth posed the question of whether there’s an increase in appetite for digital or whether it’s an unnecessary investment. Have companies woken up on working from home effectively and the importance of their work-life balance? “We might not have changed the paradigms as much as we think,” said Andy. “It will probably all change back to control, to being in the room. We should be careful not to mindlessly veer back to what we knew, but we probably will.”
Perhaps not. There was a strong feeling that the markets reopening would not signal a return to traditional working methods. Certain practices might be here to stay – for example, interviewing by Microsoft Teams. “We are a face-to-face industry but we will have to make changes in order to move with the times and reflect the market where we operate,” said Angharad. “It’s not ideal but we can connect with people really well through technology.” It’s also important not to forget the many benefits of remote working. “I don’t miss travel,” said Alex. “Being in traffic on the M25.”
Our increasing affinity with technology could bring new opportunities. In healthcare, initial GP consultations could move online. “It will be massive for healthcare,” said Andy. “The market will explode. In four weeks, we’ve built an Aspen portal where you dial in and see the consultant on video screen.” Equally, the concepts of going into a bank to pay in money or using a pass to get into a building could now become archaic. With people exercising online, will they actually go back to the gyms? Industries will seriously need to think about what their futures look like.
Raffaele Muscetta, Chief Procurement and Supply Chain Officer at Bombardier, felt that some companies might already be perfectly adapted: “Negotiating is one of the old practices we’ve been doing over the phone, and we’ve been exchanging documents via email, so that won’t be dramatically affected. What we’re doing today is supply chain management practice that’s been in place all the time. While some organisations are ready, it’s a new thing for others.”
It could be that things have changed for good. “People are looking after their wellbeing and exercising. Expecting everyone to go back to commutes and travelling might be tough. You have to listen to your people.” Ninian added that Vodafone’s CEO in Italy feels they can cut 50% of the company’s office accommodation as people can work from home.
This, of course, would be a nightmare scenario for property development and investment companies like British Land. Ginny Warr, Head of Procurement, has been spending most of her time speaking to struggling retailers who want a lower service charge, and negotiating with suppliers to try and reduce the cost to occupants. How will people now think differently about office space? Will social distancing mean half the amount of people on a floor? “For more traditional workers, or some disciplines like accounts payable functions which work better when co-located, it’s a real challenge,” said Ginny.
Indeed, British Land recently launched Storey, a flexible workplace brand: “People can’t commit to 10-year leases anymore because the world is so uncertain now, and it’s very expensive renting office space in London.” Ginny suggested that demand in the future will be very different, “but we don’t know what that looks like yet and I don’t think our customers can tell us either.”
There’s a feeling that technology has now moved across ages. With the speed of change, those who were once scared of technology are now using it every day. What will the accelerated shift to online do for office space in the future? Some companies might even pull out of physical premises altogether. Perhaps we’ll all have to think more creatively: one solution would be to turn empty office space into sheltered accommodation, partnering with homeless charities or the government.
The future for procurement
Changing consumer demands will have ripple effects on supply chains, and procurement functions will need to think on a macro level in order to understand these effects. ITV is building five different scenarios, each of which will elicit a different response from procurement in supporting the business.
What opportunities does the current crisis give to CPOs, procurement leaders and the industry in general? “It gets us on the board more often,” said Andy. “It shows how important procurement and supply chain is to the running of a company.”
“The focus on cost at board level will dissipate and they’ll understand what the procurement function can bring,” added Mark Aplin. “There will be a greater understanding of what procurement does in an organisation. We need to re-educate where we can and this is an opportunity for us to do that.”
At the same time, it’s up to procurement professionals to take the lead and make the moves necessary. “We need to invest in resources for the areas procurement should be covering,” said Mark Parvin. “It’s about strengthening the case, about sustainability, risk management, auditing supply chain. The intelligent procurement piece.”
Procurement needs to continue the spirit of collaboration that has grown throughout this crisis. For too long, procurement managers have taken the easy option and hired from within the industry, limiting creativity and entrepreneurial thinking. By looking outside procurement, they can bring in knowledge that previously wasn’t there. Procurement should be cross-functional.
“It’s an opportunity for the industry to put its head above the parapet,” added Angharad. “It’s stagnated over a number of years. This could be the opportunity to start to make some ripples.”