Ivalua: How Procurement Can Help to Drive Meaningful Change
During the course of the pandemic, procurement has helped firms find savings, collaborate with suppliers, and navigate supply chain risk in the wake of COVID-19. This highlighted procurement’s importance and solidified its place in boardroom discussions. However, as organisations start to recover from the pandemic’s impact, procurement teams must look at new ways to demonstrate their wider value and support business objectives if they are to maintain their slot on the boardroom agenda.
Procurement is no longer just about risk mitigation, cost savings, and supply chain agility – it now has a strong environmental and social impact tied to it. Procurement leaders can solidify their new seat at the table by contributing to Corporate Social Responsibility (CSR) measures. This will underline procurement’s position as a strategic advisor while also driving positive change. The CPOs of the UK FTSE 100 have a huge amount of spending power. This power can translate into positive changes that drive CSR while delivering on business objectives. With growing government regulations, and consumer and employee expectations, organisations are now under greater pressure to act. Responsible practices are no longer optional, and those that do not comply can face serious reputational damage.
Late payments mean SMEs are feeling the pinch
As the pandemic caused many to reduce operations, late payments have compounded financial problems for suppliers facing liquidity pressure. While larger suppliers have the equity to hold out for longer without payment, SMEs can’t always last and face the risk of running out of funds altogether. Unfortunately, the FSB found that 62% of small businesses have been subject to late or frozen payments during the pandemic. Recent research reveals that almost two thirds of suppliers feel that late payments are putting their company at financial risk – which is ultimately threatening the survival of small firms as they are facing pressure to reduce costs to beyond what is reasonable.
Supplier failure is a major risk for organisations – particularly among small businesses. Failure of key suppliers can prevent organisations from delivering the products and services they need to customers, so they must provide transparency into when suppliers will be paid and pay them on time to give them a fighting chance to survive. Not only do prompt payments boost the wider economy, they also build strong relationships with suppliers – helping organisations to collaborate more effectively and even work together to find new revenue streams.
A survey of suppliers by Forrester research found that transparency and timeliness of payments was the top factor in encouraging suppliers to collaborate and share innovations with a particular customer. As suppliers are becoming more selective on who they work with, becoming a partner of choice is vital. This can help organisations build cutting edge products and services to gain competitive advantages. For organisations and suppliers, it pays to pay on time.
Stamping out modern slavery
Organisations have a duty to select suppliers responsibly, especially as labour issues become more prevalent. Famously, retail giant Boohoo was caught out by an investigation into its Leicester supply chain, revealing employees working in unsafe conditions for as little as £3.50 per hour. Earlier this year, Boohoo was forced to sever ties with hundreds of its UK manufacturers, as well as publish a full list of its suppliers. Instances such as this show that businesses now face new pressure to identify modern slavery in their suppliers – but also their suppliers’ suppliers – too.
As public and government pressure mounts, organisations need to improve visibility into labour practices across their supply chain. This will help firms identify responsible practices for direct suppliers but also for indirect tier two and three suppliers, reducing their risk. By scrutinising suppliers and their partners, organisations can put policies in place to ensure they only select those with the best labour standards. This will make a clear statement that exploitative practices won’t be tolerated while also making high labour standards a key differentiator for suppliers looking to work with you. In turn, this will force other suppliers to follow suit and become a real force for change.
Embracing a sustainable future
At the start of 2020, sustainability initiatives were picking up steam, but COVID-19 slowed progress. Ivalua research found that while 95% of UK businesses have plans in place to address environmental concerns in the supply chain in the next 12 months, 60% decreased their investment in sustainability initiatives due to the pandemic. Sustainability initiatives are now gathering momentum, with cities, countries, and businesses now making pledges to achieve net-zero annual carbon emissions.
As sustainability continues to be a focus, organisations need to ensure they are following green practices. However, 93% of UK businesses claim it is challenging to gain visibility into suppliers to track the environmental impact of their supply chains. Businesses must address supplier visibility issues and make sure they are putting the right tools in place to drive environmental change internally and beyond, empowering suppliers to do the same.
Turning over a new leaf
Procurement has played a vital role in helping organisations to keep the lights on despite major disruption. However, to keep their seat at the table in strategic discussions, procurement must continue to add value in the form of driving the CSR agenda as organisations pivot from crisis to growth mode.
But to achieve this, organisations must take a smarter approach to procurement. This will help them gain a 360-degree view of their suppliers, including information on sustainability practices and labour standards across the supply chain, and help to strengthen supplier relationships and collaborate to drive continuous improvements. Additionally, organisations will be able to automate and optimise payments, boosting the wider economy and better supporting SMEs. Ultimately, these capabilities will help organisations focus on CSR and make procurement a driving force for good for the future.