How Covid-19 has helped Procurement Departments within Financial Services focus on Value Delivery
7th January 2021
Our Service Offerings & Thought Leadership team are working closely with the University Of Bath and the students of the MSc in Operations, Logistics and Supply Chain management to investigate the trends driving changes and the common ways organisations are tackling them. We recently looked at Travel and Transport and how the COVID-19 crisis poses opportunities for some businesses to reshape and redirect operations.
Just like other sectors, the COVID-19 pandemic has had a serious impact on the financial services industry. Banks, insurance and investment companies have all seen reduced profits and had to reserve cash, with loan volumes declining and investment returns decreasing as customers put-off longer-term financial commitments. Customer confidence has been severely knocked by the sharp rise in unemployment and a fall in economic output. As a result, customers have become more frugal, while interest rates are minuscule and insurance premiums are in question.
To improve their commercial position this has resulted in procurement departments having to take immediate action and strengthen their cash flow position. Organisations may have had to request payment holidays from suppliers and receive immediate upstream support to ensure supply chains remain resilient.
In times of crisis, however, opportunities for procurement teams have arisen. Organisations can use this unprecedented situation to have open discussions with suppliers on a collaborative basis and apply lean measures to improve their cash position. Such strategic collaboration may have taken longer to implement under ‘normal’ economic conditions or may simply never have been possible.
Procurement departments in Financial Services need to routinely assess risk in their extended supply networks. Cyber-security is crucial within the industry as banks are a consistent target of criminal hackers seeking financial gain. With many employees having to work from home, the adoption of applications such as Zoom has been astonishingly fast when previously organisations may have been wary of the cyber–security threats and data breaches such online working practices could cause. Crucially, this could be seen as a tangible re-evaluation of risk as a result of COVID-19 disruption which has subsequently opened new opportunities for communication and workplace flexibility.
Organisations have been forced to accelerate digitalisation to ensure procurement has all the tools to enable as much visibility and transparency throughout the supply chain as possible. Ways of working must become more agile and responsive while new digital categories are being introduced that professionals must adapt to. A survey of procurement professionals by Boston Consulting Group (BCG) found procurement departments could adopt technology solutions and see their activities digitalised by a further 60-70%. Therefore, organisations in financial services must catch up with other industries in terms of digitalisation to have greater visibility within the supply chain, and to offset the commercial and operational challenges that the pandemic has brought on them.
Finally, the pandemic has provided procurement departments the opportunity to reassess their core purpose. Where cost savings and risk management should remain a paramount priority for procurement professionals, innovation and sustainability must also become a key focus. Companies need to make decisions whether to maintain their predominant focus on cost and risk or if they can align their purpose to become more focused on delivering value and sustainably–led. Without clear purpose and direction, performance will unlikely be improved upon. Organisations can use this time to reassess their goals and potentially adopt more innovative and sustainable procurement strategies.