Corona pandemic: "Crisis in procurement becomes critical"
The third BME survey clearly shows: synchronisation of value and supply chains is problematic - insolvencies are more likely
The global Corona Crisis is putting increasing pressure on procurement, logistics and supply chain management. This is the result of a current survey conducted by the Association for Supply Chain Management, Procurement and Logistics in Germany (BME), among its member companies for the third time within the last weeks.
"To maintain industrial production, many companies apply different shutdown strategies and measures," emphasizes Olaf Holzgrefe, Head of International at BME. This does not make the work in procurement any easier. It is "increasingly difficult to coordinate value-add and supply chains," Holzgrefe continues. Although the procurement managers interviewed by the BME are not yet aware of any insolvencies on the supplier side, many of them believe that this situation could soon change. The longer the Corona Crisis lasts, the more likely this scenario becomes reality. Currently, only two percent of the companies surveyed in procurement are unaffected by the crisis, 45 percent feel slight negative effects and over 50 percent of the companies feel strong to critical impairment of their business activities.
The Covid-19 pandemic is growing uncertainty on the executive floors of companies. "Most companies continue to report short-term planning horizons of four to six weeks maximum. So the journey “flying by sight” through the crisis continues," says Holzgrefe.
Since the beginning of April, the largest buyers' association in Europe has been accompanying its members through the Corona crisis. The first two surveys have shown that the measures taken by buyers, logisticians and supply chain managers are now having an effect. "This shows that the strategic alignment of procurement is immensely important, especially in times of crisis," says Judith Richard, speaker for the BME expert group on supplier management. However, the longer the crisis lasts, the greater the challenges and the associated pressure on companies.
The current BME survey also revealed that the liquidity of the companies – and above all suppliers – are currently suffering. In order to remedy this situation, the participants in the survey say they are taking various measures. For example, they are trying to reduce their indirect costs, as well as opting for second-source options or activating backup suppliers. However, while some of the companies surveyed by the BME are reducing stock materials, others report that they are replenishing their inventories.
The current situation also shows that the longer the Corona Crisis lasts, the greater the tendency to cut back on deliveries. Eighteen percent (previously seven) of those surveyed stated that due to postponed customer orders, materials were no longer demanded. It is therefore not surprising that the cancellation rate rose from seven percent to eighteen percent. In this context, the BME recommends that buyers regularly exchange information with their suppliers - even if this may be difficult in the Corona Crisis due to the decentralised working methods.
"Only 22 percent of the companies surveyed have taken a pandemic scenario into account in their risk management activities, and only half of them have developed action plans," explains Carsten Knauer, Head of the Logistics at the BME. This means that 89 percent of the companies were not prepared for such a crisis. It is therefore more necessary than ever to focus on supply chain risk management.
"In the future, digital risk management will become increasingly important in order to be able to obtain a transparent overview of the entire supply chain. This has been confirmed by her discussions with buyers, logistics experts and supply chain managers," adds Judith Richard.
At an online expert group meeting, the BME and the participating buyers decided to launch a fourth survey on the effects of the Corona Crisis on their business activities. The results will be presented at a digital expert conference in early June.
Note: Buyers who would like to take part in the fourth BME survey can register by sending an e-mail to bme-international(at)bme.de.
For further information on the above topic contact:
Olaf Holzgrefe, Head of International and Affairs at the BME