Deloitte: Procurement leaders focusing on cash flow, expanding supply base

02 December 2020 Consulting.us
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With the pandemic marching on, procurement leaders continue to focus on having enough cash and expanding the number of suppliers to reduce supply chain risk, according to Deloitte’s 2020 Chief Procurement Officer Flash Survey.

The Covid-19 pandemic has greatly disrupted the global economy and supply chains – and created an unprecedented headache for procurement leaders. But challenges were already mounting for supply chain chiefs before the pandemic, with rising protectionism, volatile markets, rapid technological advancement, and talent shortages.

The black swan event of Covid-19 has made many business leaders rethink their decades-long focus on supply base and cost reduction – in practice, sourcing from a few cheap suppliers in Asia – which affected many companies’ ability to quickly adapt during the pandemic.

Chief procurement officers (CPOs) expect things to get worse before they get better, with more than 70% expecting and planning for an economic downturn that will last into Q2 2021 and beyond. Different industries have felt variable impacts, of course, with the transportation and hospitality sectors projecting revenue declines of approximately 60%, while the MedTech, pharmaceutical, and IT services sectors are expecting revenue growth of more than 55%, according to Deloitte’s CFO Signals survey.

Cash is king + To consolidate or not to consolidate

Amid trying times, maintaining cash flow has been a key endeavor for many enterprises. CPOs identified cost management as the top priority, with nearly eight times more focus in day-to-day operations than other areas. Meanwhile, two-thirds are pursuing cost reduction strategies post-Covid, compared to one-third before the pandemic.

Nearly half (47%) of CPOs plan to expand their overall supply base, while only a quarter plan to consolidate their supply base. Of those who plan to expand, refining their geographic base was the top choice (31%), while a shift to nearshoring was the second choice (24%). Deloitte notes that companies are trying to reduce overreliance on a few suppliers in uncertain times, while also trying to locate suppliers closer to home in order to mitigate pandemic and international trade risk.

The pandemic has also focused more attention on supplier visibility – since it's harder to manage what you can’t see. Only 50% of survey respondents said they had high or very high visibility into their tier 1 suppliers, while 90% of companies said their visibility into tier 2+ suppliers was moderate to very low.

You can't manage what you can't see + Thriving

The small amount (20%) of respondents who said their company was thriving reported higher visibility into tier 1 and tier 2 suppliers, and were twice as likely to prioritize digitization in their day-to-day operations. Thriving companies were also seven times more likely to be expanding their supply bases.

Approximately 18% of respondents said they regretted not accelerating their digitization fast enough through avenues such as upgraded systems – which can enhance visibility and analytics capabilities.