The procurement checklist for uncertain times: How to drive long-term value

Recent years have brought challenge after challenge: first, supply chain disruptions caused by the COVID pandemic and the war in Ukraine and now, mounting inflation and escalating prices. 

Nevertheless, these uncertain times can be used as an opportunity to generate long-term, sustainable improvements for your business, so we have identified three core areas for procurement to review in order to create long-term added value. 

Best practices in times of crisis 

1. Achieving cost leadership

Keeping costs in check in times of crisis is a challenge, especially when prices, interest rates, and inflation are all increasing rapidly. It is precisely in such times that making targeted savings, instead of “wild” cuts, is more effective, setting you up to benefit from savings measures in the long term. We recommend you check the following criteria: 

• To what extent are your categories aligned with your business’s priorities and goals? 

• Does the structure of the categories make sense? 

• Have you asked your non-critical suppliers for a price reduction? 

• Are you taking advantage of volume discounts by consolidating suppliers? 

• Have you considered working with local suppliers? 

• Can specifications be altered? 

• Can raw materials be substituted? 

• Do you have a price task force to challenge and prevent unjustified price increases? 

• Can cross-functional cooperation create synergies? 

2. Tipping the break-even point

Outsourcing can give a business’s profits and efficiencies a boost at a relatively low cost, and so it can be an effective way of moving the needle on the break-even point in challenging times. 

Outsourcing can reduce pressure on your team; a third party can deal with regular purchasing processes, for example. You should start by asking the following questions: 

• Is outsourcing generally an option? 

• Which processes can be outsourced to take pressure off your team? 

• Are there any parts of the strategic purchasing process that can be outsourced? 

3. Optimizing working capital

Optimizing working capital is an impactful means of improving the business’s cash flow and financial stability. What criteria should you consider to yield greater financial leeway? 

• Do you have an in-depth understanding of the payment terms for your liabilities? And have you compared them with the wider industry? 

• Do you have a control system in place to ensure that the negotiated payment terms are met, and all suppliers are paid according to the correct terms? 

• Do you and your sales department have a clear understanding of the payment terms? Are they benchmarked regularly?  

• Are your customers’ payment terms shorter than those of your suppliers?  

• Does your accounts payable management process need to be adapted to the current situation? 

• Have you checked your inventory? 

• Can warehouse throughput times be optimized?