The coronavirus (COVID-19) pandemic is changing what and how consumers buy as well as how companies source, manufacture and respond to meet demand, says Chris Haydon, president of SAP Procurement Solutions in Palo Alto, California.
Consider Halloween candy. With the pandemic affecting supplies, logistics, delivery and more — and causing concern about and potential cancellation of door-to-door trick-or-treating in some cities — candy manufacturers have had to revisit their supply chain strategies. “Whether it’s candy or something else, the trick — pun intended — is finding the right sources of supply to be able to flex to the needs of the demand patterns,” Haydon says. “We’ve already seen it happening — and I’ve seen it myself. In July, (the grocery store) already had a big Halloween candy display.”
Whether pertaining to candy or other products, demand patterns of late are changing at a macro level, he says, prompting companies to look at the types and number of stock-keeping units (SKUs) of their products to either better meet or incentivize demand. Companies in some industries are optimizing their product lines, he says, while some are experimenting with what products to put on the shelves. “Right now, they’ll even break SKU buckets just to try to incentivize any type of demand in some of those segments,” Haydon says.
Other companies are doing anything they can to source supply to meet heavy demand for products like outdoor and exercise equipment, Haydon says. Another in-demand product: sparkling water machines. “They are sold out. The high-end ones that are high volume are not available,” he says.
Due to the pandemic, companies have found they need to invest in software and technology to have better knowledge of sources of supply, visibility and transparency into contracting, risk and logistics processes, Haydon says. Gaps in organizations’ ability to close orders due to lack of supply has been a big issue, he notes. Early in the pandemic, this occurred in China, which has since begun to recover, meaning “some of those open-order gaps have closed,” he says. “So, the risk of fulfilling some parts of that supply chain, at least if they domicile that in China, has changed.”
There also has been an accelerated move to sourcing locally, he says, citing a push by the European Union in particular. Additionally, companies are developing local, more strategic stockpiles, he notes. However, the types of products considered strategic has changed due to the pandemic, he adds: “Six months ago, we all thought of tungsten, coal and oil reserves in the U.S. as strategic. And now people think ventilators and face masks are strategic reserves.”
Other challenges and changes due to the pandemic:
The complete changing nature of work. “Whole industries, like information technology (IT) and financial services, have been able to deliver everything 100-percent remotely effectively for two quarters,” Haydon says. This has impacted, he adds, “the nature of how companies interact with customers, and how they deliver products has irrevocably changed and will continue.” It’s unlikely that most companies — even manufacturing companies — will return to a full-time in-office work week for most employees, he says.
The need for compliance and oversight, whether pertaining to local supply or certifications. This has become increasing more important, Haydon says.
Increased importance of supplier performance risk management. This is no longer a quarterly or annual event, Haydon says: “It needs to be a transactional event.” He compared it to coronavirus contact tracing, where companies need to know about each contact or supplier along the supply chain. “You have to know exactly who you came in contact with and in what context,” he says. “It’s been pretty proven, like with isolation, that when you conduct a supply chain map, your ability to control the risk there is vastly increased.”
Digital platforms can enable companies “to be more integrated to take an end-to-end approach,” he says. Now, it’s become even more important to have that integration from a risk-management or sustainability perspective, he adds. The pandemic essentially has accelerated the need for digitalization and interconnection — Haydon says “I don’t think it’s a choice” any longer for companies.
The pandemic has presented challenges as well as opportunities, and “the time for procurement to be more efficient and more responsive is right now,” he says.