There is an urgent need for action when it comes to digitalization. © iStock

Simply commissioning local suppliers (local sourcing) can only solve this problem to a limited extent - and certainly not in the short term. After all, if only one case of coronavirus occurs at the moment, the manufacturer may have to temporarily shut down operations in this country too. In plain language, this means that companies should broaden their supplier base and secure production capacities for mission-critical products in good time. In the event of an emergency, there should be at least one other supplier for important supplier products who produces in another region.

Although this move away from traditional single sourcing is usually associated with a reduction in purchasing prices, companies can significantly reduce their default risks with this strategy. Multiple sourcing can also be worthwhile: Buyers agree certain minimum purchase quantities with several companies and at the same time secure options for further deliveries. In this way, they can reserve the production capacity required for emergencies and at the same time order the majority from the cheapest supplier. The possible combinations are varied and very individual - this task can no longer be carried out manually, especially for manufacturing companies with a large product portfolio.

Tip: When selecting partners, buyers should always adopt the same approach as an experienced investor who wants to ensure stable returns: it is better to forego short-term gains and spread the default risk more widely.

Rethinking partnerships

Especially in the manufacturing industry, relationships with suppliers are traditionally rather strained, but in times of crisis, the entire supply chain usually suffers. A cooperative approach helps to mitigate the effects for everyone involved. This can only work if the traditionally strained relationship between customer and supplier is improved. First and foremost, this requires a change in mindset: Customers and their suppliers should see their counterparts as partners and not purely as a sourcing source or sales market. They should also share the knowledge they have gained with each other. Suppliers will be able to plan customer requests more efficiently and communicate information about potential delivery problems to their customers earlier. All stakeholders are then aware of potential problems at an early stage and can act accordingly. In addition, buyers can help their partners to solve temporary cash flow problems - for example by paying invoices early. This is made possible with the help of financing solutions such as dynamic discounting or supply chain financing, which improve the liquidity of suppliers and at the same time benefit the client as it achieves more favorable purchase prices.

Tip: In order to keep supply chains stable in times of crisis, companies need to work more closely and in partnership with their partners. Managers should therefore not only pay attention to technology, but also initiate a cultural change within their organization.

Ensuring transparency along the entire supply chain

In the manufacturing industry, buyers know their strategically important tier 1 suppliers very well. What they lack, however, is information about their partners' supply chains. However, it is precisely this transparency that is of crucial importance when choosing a sourcing strategy, as purchasing not only has to order cheaply, but also ensure a continuous supply. This applies in particular to direct materials: if a supplier is unexpectedly unavailable, there is a risk that mission-critical products such as semi-finished products or standard parts will either be delivered late or not at all. The absence of a simple standard screw alone can quickly lead to an expensive production standstill.

Too little attention is often paid to tier 2 and tier 3 suppliers. Especially in the current pandemic, this is now falling on companies' shoulders: the loss of several partners who produce in the same region or have suppliers there quickly leads to supply bottlenecks and can put even large manufacturers in economic difficulties within a few months. However, if they recognize dependencies early on, they can adapt their sourcing strategy or initiate appropriate emergency measures together with their suppliers.

Tip: Organizations need to ensure that purchasing can make more informed, faster and more flexible procurement decisions. For example, the employees responsible should know exactly which partners they and their suppliers are working with. They also need all the information they need to make procurement decisions in a format that is easy to access - regardless of their current location or new home office.

No well-founded purchasing decisions without digitalization

Many companies are currently struggling with the stability, reliability and resilience of their supply chains. They are experiencing delivery failures and costly production stops. The pressure on buyers is enormous. However, in order to make informed procurement decisions, employees responsible for procurement need as complete an overview as possible of all spend and suppliers - and must also be able to quickly analyze and assess risks. They also need to have the right skills, tools and processes in place to quickly find, validate and integrate suitable suppliers into their supply chains. The digitalization of all source-to-pay processes plays a key role in overcoming the current crisis situation. By obtaining, aggregating and automatically evaluating supplier, performance and risk data, buyers gain a comprehensive overview of their supply chain and receive meaningful support in their procurement decisions - and can react much faster. Many companies still have a lot of catching up to do in this area.

Source-to-pay software can help organizations manage spend and suppliers. There are many providers of such solutions. Providers that make it onto the shortlist should be thoroughly evaluated. In particular, decision-makers should ensure that their purchasers receive real transparency across their entire supply chain and that the evaluation of important key performance indicators is automated and included in the overall view.

But software is not everything, and restructuring supply chains can only work as an overall concept. Companies should define procurement targets that are not only based on favorable purchase prices, but also focus on strategic cooperation with suppliers. At the same time, it is advisable to put established concepts such as single sourcing and just-in-time production to the test.

Companies should see the coronavirus crisis as an opportunity and finally make the restructuring of their supply chains a higher priority. They should bring suppliers on board as real partners - and make budgets available for initial pilot projects as soon as possible.

Alex Saric, Smart Procurement expert at Ivalua