The Covid-19 pandemic, and the measures taken to mitigate its impact, have presented unique challenges to companies in the UK. From a Procurement and Supply Chain perspective, how is UK PLC holding up?
In light of the challenges posed by Covid-19 – and Brexit – what are the prospects for businesses in the UK in 2021?
Ross Dawson, with her colleague Ivan Bates, of Eton Bridge Partners, shares the second of two insights taken from a fascinating discussion between a group of some of their closest contacts in the industry.
To read part 1 of this series, please click here: What impact has Brexit had on Procurement and Supply Chain?
- Paul Cunningham: Specialist Advisor, Dialectica and ex-CEO of Skynet and Deltec
- Stuart Griffin: Interim CPO UK & I, Swissport
- Arnaud Lafontaine: Supply Chain Director, Red Bull
- David Loseby: Chief Procurement Officer, Rolls Royce
- Philip Molnar: Supply Chain Transformation Director, Costa Coffee
- Howard Pearson: Supply Chain Advisor to a fourth-party logistics provider and a fashion retailer
- Hari Sundaresan: Vice-chair, NHS London Procurement Programme
- Philip Usherwood: former Chief Procurement Officer, BP
How has Covid-19 impacted the NHS from a Procurement perspective?
The lessons of Covid-19 are being quickly absorbed by the NHS, according to Hari Sundaresan. The frustration that procurement teams used to feel towards trusts is evaporating because people have realised the critical importance of maintaining the supply of items such as PPE, oxygen and vaccines.
As a result, there is no sense of panic around the second wave thanks to the impact of the first. Procurement has become more digitalised and agile, and bureaucracy has been removed where necessary to ensure delivery As Hari said: “Things that used to take five years to do are being done in six weeks because they’ve had to be – Covid-19 has transformed procurement in terms of the mindset.”
The pandemic has been a catalyst of centralisation. Senior leaders are realising that you do not need 250 heads of procurement in trusts doing things 250 times in 250 ways. People are keen to share knowledge between the trusts and to join activity where they can.
In London, procurement heads have accepted an SRM model, which involves a single point of contact with major suppliers such as BT and IBM.
At the same time, a reorganisation of the NHS is under way that will see the 250 trusts reshaped into 43 Integrated Care Systems (ICSs). The procurement aspect of this process is happening much more quickly as a result of the pandemic.
The after-effects of Covid-19 will be severe, however. The backlog of cancelled routine procedures will take a very long time to clear; and the lingering impact of the stress induced by the pandemic will take a severe toll on the long-term mental health of NHS staff.
How have retail businesses been affected?
Many high street retailers who were in a perilous position before the advent of Covid-19 have fallen by the wayside. For those who remain, the challenge is to move stock if it cannot be sold over the counter.
Their ability to ride the storm will depend on their cash position before the arrival of the second lockdown at the start of the year, and the efficacy of their e-commerce platforms.
All retailers are now facing either a balance sheet that will look off kilter at the end of the financial year, or lost profitability. To get stock levels under control, they would have to drop prices to a point where they are merely breaking even.
Howard Pearson observed: “It feels like the high street’s demise has slowed over autumn and winter, and the organisations left are probably stable enough to survive, however if Covid is going to be with us for another year or 18 months the question is: how long can they survive with the cash available?”
At Red Bull, Arnaud Lafontaine admitted, it has been a “fantastic year”. After an initial dip in April, the numbers have steadily increased and are now at 2019 levels. This is attributable to people feeling the need for an energy boost!
Similarly, Philip Molnar said of Costa’s performance: “Our traditional store business has struggled because a lot are closed, however, thankfully the takeout business is continuing and that, and the express coffee machines have been phenomenally good.”
Are there any surprising changes in customer demand?
Consumer patterns have changed drastically over the last year, according to Philip Molnar, who was at Avon when Covid-19 struck. Year-on-year business went up 850 per cent, an astounding result that posed challenges for the company’s warehouses.
At first hair colourings were in demand, while pyjamas and leisurewear were also popular during lockdown. When people were allowed out but had to wear masks, there was a surge in demand for eye make up.
Avon also benefited because, when China first went into lockdown, the company switched to nearshoring and onshoring for many product ranges.
Are there any surprising changes in customer demand? What will be the long-term impact on working practices and mental health?
Even when the country returns to some sort of normality, it is unlikely that buying habits will merely revert to type. Society has changed; the population is down and the birth-rate has dropped by one-third.
Philip Usherwood said: “I wonder if we’ve seen the full consequences of the effects on mental health, especially for younger people. I am also concerned by the low uptake of non-Covid episodes in the NHS and the consequences of that; I don’t think we’ve even begun to see them yet.”
People with young children are struggling with the demands of home schooling – more work meetings are taking place in the early evening.
Similarly, greater flexibility is being shown by managers who are allowing team members to work through the night if that suits them better.
What are your business predictions for 2021?
We may see greater levels of collaboration in supply chain between large organisations that would previously have been bitter competitors.
This will, however, raise challenges behaviourally and contractually in the short term because of the complexity of the supply chain process.
Nevertheless, businesses as a whole will be forced to reach enhanced levels of pragmatism, agility and flexibility.
Long-term plans will become worthless. Planning horizons in the wake of Covid-19 and Brexit should become shorter, with flexibility built in. Being able to switch direction quickly will be key to success and survival.
The situation facing businesses is so complex and dynamic that it is impossible to predict exactly how the landscape will look by the end of 2021. As a result, they should revert to simple principles; preserve cash and be agile in the way they respond to demand. The longer your plan line is, the more complexity and uncertainty you have to build into it.
This means there will be a large degree of rethinking about the length of supply chains and their resilience and flexibility. Companies that remain rigid and dogmatic could become casualties in such a scenario.
As Paul Cunningham put it, businesses should focus on quick, agile responses rather than impractical long-term strategies. “You are deluding yourself if you think you can long-term strategise your way out of short-term cost and consumer behaviour changes. There are now more individual moving parts to manage across procurement and supply chain than there have been for a long time.”
This will be challenging for businesses whose behavioural culture is long-term and traditionally focused on precision.
But this year, more than ever before, businesses need to adapt and learn. If a strategy looks mostly correct, follow it; because the consequences of not doing anything could threaten your survival.
Thanks to all our attendees. We will reconvene in March to address other business issues and will share the findings thereafter.
To read part 1 of this blog series, please click here: What impact has Brexit had on Procurement and Supply Chain?
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