Don’t stress out
This crisis puts a lot of stress on procurement and on suppliers, both professionally and in their private lives. What you want to do, is to get through the crisis without suffering too much damage and to come out at the other end of the crisis ahead of competition. In this post, I will show you how to manage the crisis so that everyone involved keeps their sanity and how to engage with supplier CEOs in an effective and decent way. This post complements a video on my YouTube channel.
Crisis management
Let’s start with crisis management. Here we drew inspiration from two sources. We looked at our own experience from the banking crisis of 2008. And we talked to our peers in China who experienced the current crisis a bit earlier than we did.From these sources, we derived five key principles that we are deploying at our clients right now:Strong internal coordination, within procurement and across functions
Well coordinated external communication, providing clear guidance to suppliers
Self-help toolkit, that enables procurement team members to solve most problems by themselves
Clear escalation paths and completed staff work to protect decision makers
Focus on leading indicators to anticipate next wave of problems and opportunities
The first principle is about internal coordination. In this crisis, procurement will often find itself on the receiving end of demands from engineering or manufacturing. These demands will often be worded like “we need” or “the supplier must” and this is unacceptable as it totally puts procurement in the defensive. We need to covert this one way street into a dialogue with other functions. In this dialogue, we can agree on priorities but one thing needs to be clear, nobody will be able to have their cake and eat it
The second principle is about external communication. We often see companies competing against themselves in times of crisis. This competition can happen between commodity teams. And it can happen between functions, just recently we had engineering cut the funding for development projects at suppliers only to have the suppliers come knocking at the door of procurement and asking for cash. The aim here is that in crisis, we bundle all external communication to suppliers and provide crystal clear guidance.
The third and the fourth crisis management principles are about protecting our decision makers.
Suppliers will cause continuity of supply problems, they will have cash flow problems, they will have to postpone product development projects. And here the objective is to solve as many problems as possible locally. And for this, the procurement team members dealing with these suppliers need guidelines, methods, checklists, in other words a self-help toolkit. The more problems we can solve locally and immediately, the better.
But some problems will need to be escalated up the hierarchy. And here the risk is that the sheer number of problems overwhelms decision makers. You can have two problem solving meetings five days a week. Or you can have four problem solving meetings seven days a week. Don’t let it come that far. Here we are learning from the the US generals who won WWII. They did not let their officers overwhelm them with bad news and questions. They implemented something that is called completed staff work. In short it means “I don’t want questions, I want answers!” I will dive deeper into completed staff work principles in the next chapter.
With the fifth principle, we are looking into the future. The risk in the crisis is that we are only looking at the problem at hand. But there might be a much bigger problem or an interesting opportunity just around the corner. So we need to aggregate information and identify leading indicators that allow us to look a day or a week or even a month into the future.
Completed staff work
Let’s now take a closer look at completed staff work. We know that it originated in WWII and different sources attribute it to either Douglas Mac Arthur or Dwight D. Eisenhower, the later US President. And it does not matter who invented it. In WWII, these generals could have been overwhelmed by bad news and questions quite easily. But they did not allow this to happen by introducing completed staff work principles. They asked their officers to bring any matter to them in the predefined format outlined below:
The officers had to describe the problem in concise language
Then, they had to outline the desired outcome, how would a better situation look like
Next, they were expected to develop alternative solutions, typically two or three at maximum
These solutions had to be evaluated in a logical way against associated cost and benefit
And finally there was a recommendation
So all the general had to do was to decide yes or no
With this very simple approach, the US generals greatly enhanced their decision making capacity. Now imagine what completed staff work principles could do for the procurement leadership of your company. It would certainly prevent you from stressing yourself beyond a breaking point in four problem solving sessions seven days per week.
Supplier focus
So far, we have mostly talked about what happens inside your company and to procurement specifically. Let’s now change perspective and look at suppliers. In a normal economic environment, we recommend to segment suppliers in a Pareto. For most companies, 20 to 40 A-suppliers account for 50% of the spend and then there are B and C suppliers. And we normally also recommend that your CEO builds strong personal relationship to the CEOs of your A-suppliers.
In this crisis, we recommend to extend this to all mission critical B and C suppliers. Consider this, in the current lockdown, these supplier CEOs are sitting in their home office and are worried about the future of their company, just like you. What is highly effective in such a situation is to reach out and ask “Hey, do you have 15 minutes?”
And then you just have a normal conversation between two human beings finding themselves in a difficult situation. If you are looking for discussion topics, a good conversation starter would be to ask the supplier CEO what you as a customer can do to stabilize the supplier’s supply chain. This is not an invitation to ask for money but there certainly is something you can do in a the sequence you place orders or in priorities that you align.
A follow up question could be asking the supplier CEO what the supplier can do to make your company more competitive in a shrinking market. This question certainly has a savings aspects but suppliers may have more creative ideas.
Why are we recommending this outreach? First of all it is the humane and decent thing to do. But if also pays off and the key here is mindshare. In this crisis, you want to have as much of the supplier CEO’s mindshare as possible. Consider this, the suppliers have limited bandwidth and limited capacity. At some point in time, the supplier CEO will have to prioritize you against your competition. And if you have most of the CEO’s mindshare, you will be prioritized. Humans always favor other humans who they like.
Summary
So in summary, this crisis is causing a lot of stress to your procurement and your suppliers. But there are three simple and highly effective ways of reducing this stress:Introduce good crisis management with strong internal and external coordination!
Protect decision makers and enhance your decision making capacity with completed staff work principles!
Build a strong personal relationship to the CEOs of your suppliers!
