Pursuing better Procurement – How to build trust even in a crisis

COVID-19 continues to affect every major industry internationally as the vulnerabilities of an increasingly interconnected global economy are laid bare. With unprecedented supply chain challenges coming from all sides, the procurement function is changing fast to cope with the ‘new normal’ of working smarter in a post-COVID world. However, while many things are changing, one element of the equation has remained the same: the value of trust.

Building trust into the foundations of the relationship

Supply chain disruption is rife right now, and this has served to underline the invaluable nature of building trust between yourself and your suppliers. Building trust is a lengthy and difficult process, but it can be very quick and easy to destroy. Achieving trust buys a level of mutual respect and a willingness in both parties to invest in one another’s futures. This is more important now than ever before, when the harsh realities of operating during a global pandemic puts pressure on suppliers to either abandon their commitments or otherwise act in an opportunistic manner when major shock events occur. However, a trusted supplier who trusts you in turn is far more likely to stick with you as a ‘known quantity’ who they can rely on for fair dealings and adequate warning if circumstances change. Leading procurement experts agree that clear communication from the start is essential for building and enhancing trust, and consequently if your communication is a bit vague and non-specific then your supplier just won’t know how to react. Ultimately: “The worst thing you can do is to tell your vendors or suppliers that you will do one thing and then you go out and do something else entirely. Always let them know exactly what you aim to do and where everybody stands.” – Terence Lee, Chief Procurement Officer, Geodis

Previously, cost was generally thought of as the primary consideration when choosing suppliers. Now, the procurement function needs to look again at the nature of the buyer/supplier relationship and should think hard about how building trust will in turn breed more resilient supply chains. If recent months have proved anything, it’s that being able to rely on suppliers today, tomorrow and further down the line is a factor that must be taken into consideration alongside cost. It is never too early to give suppliers every indication that you want to be in business for the long run, with your actions continually and repeatedly backing up that claim, as in this business: “You’re talking to people who react like you would; they respond well to fair, openhanded and honest treatment.”– Keng Ann Low, Head of Supply Chain Management, Sime Darby Industrial

Harnessing innovation in the face of mounting obstacles

Innovation is proving essential for overcoming the harsh realities of operating during the current pandemic (which, at the same time, is itself proving to be a catalyst for further innovation). In one recent European survey, 70% of executives claimed that the pandemic is likely to accelerate the pace of their digital transformation. In all cases, procurement leaders are emphasising the importance of collaborating with suppliers as openly and early on as possible, so that both sides can understand one another’s most critical problems, find workable solutions and mutually benefit from them in the long run.

Understanding the innovation market requires skills and knowledge of markets and technology, and ultimately your suppliers are going to be experts as they are the ones who are bringing new technology to the table and they are also the ones exposed to what's really happening in the market. Therefore, buying organisations should take advantage of the suppliers’ knowledge at every opportunity, encouraging them to always remembering that: “As buyers, we should always make ourselves attractive to ensure that innovative suppliers want to work with us, allowing us to secure the right resources at the right time.” – Gerard Magadia, Head of Strategic Sourcing and Vendor Management of Meralco

This means that you don’t have to always wait for suppliers to come to you with innovative offerings. Instead, you can go directly to them with specific problems in mind and ask them to think of ways they might solve them. At every point, it’s important to: “Make the suppliers feel like they are part of the organisation, because when they feel invested in solving problems, they become that much more engaged. At heart, innovators are problem solvers.” – Terence

Relationship management and sharing information – do the rules change in a crisis?

Everyone is suffering from the pandemic in one way or another. However, this doesn’t devalue trust and transparency, rather it enhances it. “It’s still a question of managing relationships effectively and honestly. If you have that trust, then not only will you be invested in their success (or, indeed, their survival) they will feel the same way towards you and will help you to stay viable as a business.” – Terence

Furthermore, your suppliers should be integral to your short and long-term future plans to steer through the pandemic and come out the other side stronger and more resilient than before. Procurement leaders see greater collaboration and bolder experimentation with new strategies as the way forward towards a smarter procurement function. McKinsey’s Digital Strategy in a Time of Crisis report from April highlights how companies currently have “a mandate to be bold” with tightly integrated digital strategies informed and improved by key supplier partners whose experience can be invaluable in making this kind of digital transformation a success. Elements of this approach might include:

• Promoting knowledge-sharing networks: Get your suppliers on board with your plans and let them contribute in a genuinely collaborative manner. “One silver lining of the pandemic is that it should get everybody thinking more carefully about pooling knowledge in order to monitor risk, anticipate challenges and develop joint mitigation strategies with their business partners.” – Keng
• Always remaining responsive: Uncertainty is a relationship killer, especially in the current business climate where questions need answers promptly and decisively. Always maintain clear lines of communication with your suppliers and don’t leave them hanging.
• Fair reasoning: Similarly, always explain your reasoning for business decisions that are going to impact your suppliers. Don’t leave them guessing, make sure they understand what you are doing and how it fits into the overarching strategy (of which they should be an integral element).

Coca-Cola: A Case Study

In a recent post, Coca-Cola’s Chief Procurement Officer, Mark Westfall outlined just how much of an impact COVID-19 has had on the procurement function of one of the world’s biggest and most recognisable multinational branded conglomerates. Alongside quick responses such as creating a Coronavirus Taskforce that took swift action to rectify supply chain issues, he spoke about the impact of the pandemic on Coca-Cola’s attitude toward sustainability and ethical sourcing to improve the resilience and long-term viability of the company’s global supply chain. Arising from its ongoing experience of COVID-19, Coca-Cola has committed to a policy of greater engagement with suppliers to better understand their needs and forge closer relationships, improving the timely payment of invoices to help support supplier liquidity, greater ease of information sharing with suppliers, particularly around health and safety issues, and simplification of issues around supplier compliance with standards and policies, made possible through more ambitious tech integrations.

This demonstrates how the pandemic is shaking up the thinking of CPOs and the procurement function in general. A realignment of values and priorities in procurement is all but inevitable as the world rides the ebb and flow of the pandemic, with greater trust, transparency, communication and collaboration with suppliers high on the list for reappraisal.

The quoted procurement leaders in this post are Terence Lee, chief procurement officer for Geodis, Keng Ann Low, Head of Supply Chain Management with Sime Darby Industrial and Gerard Magadia, Head of Strategic Sourcing and Vendor Management of Meralco, Philippines, who were interviewed by our moderator, CASME Services Director Graham Crawshaw during a recent virtual summit.