You might expect the pandemic to have pushed business continuity planning for critical parts up the agenda in the 2021 Indirect Procurement survey. But it hasn’t. Why is this and what lessons can we learn?
Across the globe, supply chains have been disrupted, suppliers have gone out of business and stocks of critical parts have been limited due to the impact of COVID-19. Yet, in the 2021 Indirect Procurement report, produced by RS Components in partnership with the Chartered Institute of Procurement & Supply (CIPS), continuity planning had barely increased in importance from last year.
Only half (50%) of the UK organisations in the 2021 Indirect Procurement report say they have a strategy in place for business continuity planning for critical parts, just four percentage points higher than in 2020.
So what can account for the apparent lack of interest in what surely is a vital part of MRO procurement in a crisis like the pandemic? And if you don’t yet have a strategy in place for business continuity, what should you consider when formulating a plan?
Perhaps the widespread lack of such a strategy is connected with MRO procurement teams needing to fire-fight the problems generated by COVID-19.
“The old ways of working in procurement need to change – we need to procure for resilience rather than just for cost.”Richard Wilding, Professor of Supply Chain Strategy at Cranfield School of Management
Richard Wilding, Professor of Supply Chain Strategy at Cranfield School of Management believes that procurement teams have been too busy coping with the crisis to plan for the next one, and that work on continuity planning has merely been deferred.
Procure for resilience
From his work with companies in the UK, he believes that the underlying importance of robust risk management planning has been brought home to procurement people by the pandemic.
“The old ways of working in procurement need to change – we need to procure for resilience rather than just for cost,” he says. “We need to think about continuity through the whole supply chain.”
He believes that business continuity planning has stopped being just a problem for procurement and now requires collaboration across the organisation. Companies need to look carefully at long-distance supply chains that have proved vulnerable in the pandemic, he says.
They should consider near-shoring – sourcing parts closer to home – and look for suppliers who use smart manufacturing technology which is less dependent on people and therefore less vulnerable to events like pandemics, he adds.
“Lessons will be learned from the high-risk crisis management that procurement teams have been engaged in during the pandemic.”Kate Davies, Head of Global Commercial Services, Electrocomponents
Kate Davies, Head of Global Commercial Services at RS Components’ parent company Electrocomponents, admits she was surprised that more companies did not have a strategy for business continuity. “Lessons will be learned from the high-risk crisis management that procurement teams have been engaged in during the pandemic,” she says.
She expects the pace to pick up sharply over the next year to 18 months as business practices and policies adjust to the post-pandemic world. But she believes it’s a great opportunity for procurement teams to focus on cost in new ways.
Instead of being driven to always buy items at the lowest price, Davies sees “embedding total cost of ownership in buying decisions” as being critical to sustainable commercial success. Improving the quality and durability of what you are buying can lead to big savings in the long run, she says.
“Embedding total cost of ownership in buying decisions is critical to sustainable commercial success.”Kate Davies, Head of Global Commercial Services, Electrocomponents
Continuity plans should also emphasise the avoidance of ad-hoc, off-contract purchasing by end users. Such purchases are actually more expensive when you include the cost of processing off-system payments. And one-off suppliers may be more vulnerable in a crisis than trusted supply partners.
It’s good to talk
Davies says plans need to consider all eventualities, including what happens if the organisation suddenly needs to scale back its operations. And that can only be done by having open and honest conversations with your suppliers about how your contractual arrangements with them would be affected by such a decision.
Consultancy firm EY says that plans should be stress-tested in the light of what actually happened during the pandemic. And McKinsey says that lessons are already being learned. “Our conversations with procurement leaders have identified a common theme: of newfound energy to apply hard-won lessons learned from an extraordinary time,” says the firm.
The Business Continuity Institute emphasises the importance of making supply chains more resilient. It recommends setting up a cross-functional risk team to plan for the future. That team can then step in as an emergency management group if disaster strikes.
Risk management is at the heart of business continuity planning for critical parts. To be effective, planning needs to start with a clear view of the risk landscape facing your business. You then need to look at how to mitigate each risk in turn and think about all eventualities.
And it’s not just a job for procurement. You need to engage colleagues across the business. By working together, organisations can learn the hard lessons of the pandemic and put themselves in a better place to weather the next crisis, whatever it may be.