We may have been too quick to call the pandemic over
At least when it comes to procurement, we may have been to quick to call the impact of the pandemic over. We concluded in September 2020 that the COVID-19 pandemic’s impact on procurement was over. We clearly saw that the 186 organisations we surveyed were back to their pre-pandemic priorities. Furthermore these organisations predicted for March 2021 that supply risk mitigation would hardly play a role and that the clear focus would be on cost reduction.
Fast forward six months and now in March 2021 we see these predictions were too optimistic. The relative importance of supply risk mitigation has become the key priority for 22% of the 41 organisations who participated in our latest round of research (see Figure 1). This means that supply risk mitigation again is the most important area for procurement teams in Australia. However, the participants expect that by July 2021, supply risk will only be the top priority for 12% of organisations. Let’s see if that too will prove optimistic.
Figure 1: Six months ago it was predicted that Supply Risk would only be the key concern for 5% of Australian organisations. The actual number is now 22%
A close follower is cost reduction at 20% (see Figure 2). Its importance has dropped by eight percentage point compared to what was predicted just six months ago and is now even behind July 2020 levels. This is expected to be a somewhat temporary dip, as participants anticipate the importance of cost reduction to be again at 27% in July 2021, probably coinciding with receding importance of supply risk mitigation.
Figure 2: Six months ago it was predicted that Cost Reduction would play a more significant role than it actually is in March 2021.
When we looked at the numbers previously, we found that public sector and private sector organisations experience the impact of the pandemic very differently. This remains true in March 2021, however the trends observed are unexpected.
Cost reduction takes the top place in the public sector (!), with a staggering 30% of respondents stating it is their top priority in March 2021. This compares to 21% of public sector respondents saying in September 2020 that “delivering against social and sustainability commitments” was their most important goal. None (!) of the respondents said this time round that sustainability is their key priority. Public sector respondents expect the pressure for cost reduction to further increase. In July 2021, 40% of respondents expect cost reduction to be their main focus (see Figure 3).
The private sector struggles most with supply risk mitigation (27%) followed by cost reduction (17%). These participants expect that by July 2021 their relative importance will reverse, with cost reduction being the most important for 24% of organisations and supply risk dropping to forth place. The ability to innovate, including working with the market to innovate will take joint first place with cost reduction at 24%.
Figure 3: Cost Reduction has shot up to the top spot for public sector organisations, while supply risk dominates in the private sector
When we asked about the respondent’s key challenges in March 2021, almost a third responded that internal resources are a key hurdle. This includes not having enough procurement resources, keeping the team engaged, system limitations and a lack of clarity on responsibilities.
Another third of respondents said their biggest challenges are external facing supply challenges. This includes delays in supply/shipping, difficulties importing raw materials, shortage of shipping containers and the cost of freight.