We have attended numerous webinars showcasing strategies to reduce costs and limit the pandemic’s impact on businesses.

Many of these webinars aim to grow the presenters’ audience and to sell software or long-term solutions, but is that the right thing to do right now? Sure, as long as you do not list the benefits of a specific platform or highlight the advantages of an expensive transformation.

And that is why we would like to start by asking how purchasing managers have been dealing with this new situation. Have you created new strategies to help your company survive? Or have you limited yourself to addressing specific problems as they arise?

In some countries, the economic downturn is already a reality, and the way purchasing departments react is fundamental to keeping companies afloat.

This crisis is obviously going to test the skills of our teams and the purchasing culture within our companies. At this time, many companies are reflecting on the importance of developing negotiation, analytical and interpersonal skills (also known as soft skills) and quality relationships — both within the workplace and with suppliers.

Still, not all is lost. In order to survive, companies should invest (despite the crisis) in transforming their purchasing departments and systematizing their work.

If you were to assess your procurement team right now, what would you find they are lacking? Be honest, critical and constructive when answering the following questions. Do you think your team would be able to:

– understand and create quick TCO models?

– influence or encourage change in internal departments and react appropriately?

– obtain sufficient information, analyze it and make informed decisions?

– establish effective relationships with suppliers to decrease expenses without sacrificing the company’s relationship with them?

Below is a model we created based on more than 15 years’ experience helping Fortune 500 companies survive everything from hard times to mergers and acquisitions, to drastic cost-reducing transformations (among others). The following eight tips are designed specifically to help procurement executives survive the COVID-19 crisis.

8 tips to reduce the short-term impact of COVID-19:

1.Create a task force to coordinate all efforts

  • Create a multi-area team to execute the initiative (including all purchasing teams, legal departments and other affected areas)
  • Create a tracking system to monitor and coordinate efforts
  • Have your leadership team craft messages for internal circulation and for suppliers (for example, on the importance of teamwork and multi-area collaboration at this time)

2. Analyze information and define your goals

  • Create a database that highlights your main suppliers and the information you need to make important cost-reduction decisions: in times like these, practical analysis trumps precision
  • Consider the impact this crisis will have on your EBITDA/P&L and cashflow (is your company public?)

3. Define a cost-reduction strategy

  • By supplier type, expense type, area
  • Permanent vs temporal cost reduction analysis

4. Execute quick wins

  • Immediately reduce variable costs that are not critical to your business (marketing, CRM…)
  • Stop purchasing from suppliers. Use your procurement platform to challenge purchase requests.

5. Focus on optimizing fixed costs

  • Review contracts and make use of force majeure clauses
  • Generate strategies with business owners for contracts that do not include such a clause

6. Negotiate with suppliers in accordance with your strategy

  • Set up a war room to compile negotiation results
  • Help business owners negotiate with their main suppliers
  • Negotiate variable costs only if a minimum is established
  • Negotiate discounts and payment deferments with your essential suppliers
  • Talk with your suppliers; you may be surprised to receive their support: we are all in the same boat, and everyone wants this to end as soon as possible

7. Follow-up is essential

  • Involve your executive team, share achievements frequently and ask for help during all-hands meetings
  • Share success stories
  • Present results quickly and accurately

8. Define the next steps to guarantee sustainable savings through the end of the crisis

  • Control spending with a purchasing platform, redefine your budgets, challenge purchase requisitions and sensitize the entire expense-approval chain
  • Lead an effective cost-reduction program based on your organizations’ needs.

What you can expect to find

  •  Issues with contracts: not all have exit and force majeure clauses.
  • Manager resistance to budget cuts: they may not understand the short- and medium-term impact of the crisis that is causing your company to take drastic measures.
  • Involuntary removal of suppliers from your database: some may not make it through the crisis.
  • Becoming aware of different skills within your team (negotiation, relationship management with different areas and suppliers) and development areas you will need to have on board when the crisis ends.
  • Outdated technology, difficulties arising from information overload or a lack of information, redundant systems and data cross-referencing just to end up entering it all in an Excel sheet…

 Next steps

Economies will take between 6 and 18 months to recover. It is essential that companies mature, grow and create a center of excellence immediately.

 Medium term

Evaluate and develop skills throughout the entire organization to establish strategies and spending categories, collaborate with cross-functional teams and suppliers, negotiate effectively, develop better service contracts and agreements, perform strategic analyses… You will also have to create or redesign an efficient purchasing system consisting of a digital purchasing platform and new processes and policies.

Long term

Your executive team must understand that purchasing departments are a strategic pillar for optimizing company value. They must also comprehend that creating supplier risk management programs is critical for your company to survive any crisis.

You absolutely must create a procurement transformation program to set the foundations for a sustainable and profitable business model now. Are you ready to make it happen?