There are two arguments, both of them quite convincing in their own right, but opposing and incompatible. In one corner … Current supply-chain changes and uncertainties make tendering, commitment and contracting too difficult if not impossible. In the other corner … It is these very changes that make new arrangements necessary if not critical. Of course, both contentions vary depending on the supply category. In some categories, 2020 has hardly had any impact. But in others, the cards are still floating up in the air.
It makes sense to discuss this using the case of a very affected supply chain, to illustrate and weigh up both sides of the argument. And so let’s consider business travel. It might not be the most critical area of your corporate supply. But none has been so utterly turned on its head since January.
Travel is also a good supply chain to use as an example, perennially, because it is complicated. It has many players and multiple levels. It engages many secondary suppliers, encompasses many systems and services, has complicated financial flows, and is classically conflicted, with powerful intermediaries being largely funded by end suppliers. If you manage to get travel procurement right, you’re well set to tackle strategy with practically any other category.
Firstly, to the case for standing back and doing nothing, why should you take a dormant approach? On the buy-side, you might not be able to offer volumes of business with adequate certainty. But even if you can, maybe the suppliers can’t reciprocate. In the illustrative case of travel, supplier distress is obvious. The majority of suppliers are hibernating, heading towards closure, or operating with skeletal resources. Many probably won’t survive unless international travel recovers sufficiently by mid-2021, which is unlikely. Therefore, most of the many suppliers you would have affectively contracted with in 2019, directly or indirectly, are simply unable to commit to contract terms in good faith. So what are you buying? In fact, you maybe need to avoid restricting yourself to certain suppliers so that you can spot purchase over the medium-term from the debris. In such an extreme case, availability becomes a bigger issue than cost and value. Even in less dramatic circumstances, maybe it makes sense to hang back until the supply chain settles into something you can better assess and engage with.
But there’s a yin to this yang. There is with corporate travel in any case. Simply put, the situation means that you need new and enhanced systems and services to manage the new risk, soon if not right now.
In 2021, in many supply categories, there will be some correct procurement balance and timing. For example, with travel, you could do zero travel up to December 2022 and stay maximum-Covid-safe. But your company’s competitiveness and revenues would unnecessarily suffer, because the fact that you used to travel presumably meant that it had a positive ROI. Alternatively, you could rush back into full 2019 travel mode as soon as the logistics and regulations allow. But this would be putting people too much at risk. So there is some sensible dynamic and approximate balance to aim for. Taking the dormant do-nothing approach disengages you from this process, so that you’re likely to be way off the target balance whenever you do or don’t act in 2021.
Ideally, whatever the supply chain can offer to help you cope in 2021, it would be similarly available from many of the dog-paddling suppliers. So there’s no need to over-think or make a fuss. They’ll be new but roughly the same as they always have been. But this certainly is not the case. Supplier capabilities and survivabilities are rapidly diverging.
You possibly need to formally engage with suppliers and make commitments to access the new gear that you will need for the “new normal”. For example, in travel, for international, you will need higher-level expert “trip management” services from very experienced travel booking consultants. The old six-out-of-ten service levels just won’t cut it. These good individuals are already in seriously short supply and there will be a race to secure their services in 2021. Those at the back of the queue, especially SMEs, will suffer.
And there is a brace of new systems and enhancements in the making to manage the many new risks and complexities, many of which will continue on beyond the vaccines. The world has changed. And at the most basic level, you will need expert help just to locate and obtain good supply when and where you need it from the shadow of a supply chain.
TMCs, airlines and hotels were basically similar enough for your selection not to be business critical. Up until recently, within the tiers and types, most could offer sufficient services at a similar price. But this is changing, dramatically. Even if you don’t fully tender and contract, reassessment of travel suppliers is now important. Some will fail. Many will not have the resources to develop the new inputs that you will need. Some will be to the fore. And with new risks and uncertainties set to stay in some fashion, in several supply categories, “the fore” is not just a nice place to be anymore. It’s now where you have to be.
Travel will cost more for the foreseeable future. But you’ll be buying less of it. And so the focus shifts to value, which now has a large risk component. Assessment criteria are similarly shifted, and so re-assessment make sense. Whether it be a tender, with a contract, or something less concrete, an active approach is probably worth the effort.
The two things that I’m promoting are agile contracts and true collaboration. I can’t see any way of getting anywhere near a 2021 procurement sweet-spot without some sticky buyer-supplier commitment. But I think the terms need to be fluid and creative, and the relationship, more than ever, needs to be open, deep and balanced. We are all fellow travellers.
Tony O’Connor has run the Butler Caroye independent travel procurement consultancy since 1998. He specialises in tendering, benchmarking, auditing, policy, process, strategy, analysis and advice across the travel supply chain. He is now also the Regional Director of the Global Business Travel Association.