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#BainWebinar Procurement Best Practices Through Covid19
This document discusses the impact of COVID-19 on procurement and the economy, emphasizing the urgent need for businesses to protect health and maintain operations amidst rapidly changing conditions. It highlights the differences in recovery rates across regions, particularly comparing South America to other areas, and underscores that businesses must adapt quickly to evolving customer needs and supply chain disruptions. Additionally, it predicts a challenging economic landscape for various sectors while emphasizing the importance of strategic decision-making during this crisis.
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#BainWebinar Procurement Best Practices Through Covid19
- 1. June 18th, 2020 Procurement throughCOVID-19 Copyright @ 2020 Bain & Company. All rights reserved. Any use of this material without specific permission of Bain & Company is strictly prohibited
- 2. 2200615 - BainWebinar_Procurem ...BOS Context for these materials • COVID-19 is a humanitarian crisis and a global challenge. In this interconnected world, we have seen the virus spread rapidly, and we are still gathering information to understand both its cause and its impact • We are grateful for the businesses, governments, non-profits, and individuals around the world that are working to protect those that are sick or in danger of becoming so and “flatten the curve” • There is a lot that is still unknown about COVID-19; these materials are an attempt to shed light on what we know so far to help businesses make informed decisions – The top priority for all businesses is to protect the safety and health of employees and customers, for which there are WHO, CDC, and other national guidelines – Bain is not an expert on epidemiology and containment policies, however given our 45+ years of experience advising companies during both economic booms and busts, we are committed to spreading accurate and timely information to reduce the unknowns for businesses and business leaders • Our focus is to enable companies to make rapid and practical decisions; with a global pandemic that is rapidly spreading and changing, now is not the time for detailed decision making; the need for speed and the right directional strategy outweighs the need to get intricate details right, and we are committed to helping business leaders navigate the path forward
- 3. Our facilitators INTRODUCING Head of Americas ProcurementPractice Chuck Miller COVID task force Leader in South America Ricardo Gold Leader of Performance Improvement Practice in South America Ives Moraes
- 4. for today KEY TOPICS 01 COVID-19 Macroeconomic Impacts
- 5. C O NT E X T Environment is becoming increasingly challenging; procurement must step up and support the business to limit impact and remain essential COVID-19 is impacting us all The safety of employees, customers and suppliers is paramount At the same time, COVID-19 is causing tremendous business & procurement impact Firms must adjust to changing customer needs, manage shifting commodity prices, and inspect the entire supply to mitigate disruptions Cash will be King for 2020 and beyond We need more a resilient supply chain and accelerated digitization in our remote working ‘new normal’ Leaders must prepare now to accelerate during and beyond the downturn Paralysis is the biggest risk today: First movers will be rewarded as working capital and profit pools contract rapidly
- 6. 6200615 - BainWebinar_Procurem ...BOS Most global experiences of successful mobility restrictions presented bell-shaped curves that peaked ~10-30 days post lockdown and consistently decreased following peak Lockdown is lifted Most countries that went through lockdowns managed to reduce new infections Note: COVID-19 new cases per day (7 day moving average); Date of lockdown lift is considered when there is a significant lift of schools, stores and/or services Source: The Business Insider, Oxford Our World in Data Database (04/05) Czechia DenmarkNorwayNew Zealand Lockdown is lifted Lockdown is lifted Lockdown is lifted Netherlands Finland Lockdown is lifted Lockdown to be lifted (L+55) G L O B A L L A N D S C A P EG L O B A L L A N D S C A P E
- 7. 7200615 - BainWebinar_Procurem ...BOS So, why don’t we see the same curve in South America? Even in countries with more severe lockdowns, the recovery is taking much longer New cases per day (5 days moving average; From 100th case in a day) Days from 100th new case per dayNote: (1) Considering average mobility from May 23th to May 29th Source: JHU Data Stream; Google Mobility; Argentinian Department of Health 1 Even though some countries as Chile, Argentina and Colombia had the spread initially under control, SA countries are now experiencing a loss of control over case growth J U N E 0 8 2 0 2 0A S O FG L O B A L L A N D S C A P E
- 8. 8200615 - BainWebinar_Procurem ...BOS Measures taken can mitigate the spread Exposure immunity helps reducing R0 Combination should prevent HC collapse The key is to get R0 below 1. It goes beyond reducing mobility; cities demographics, testing, technology and exposure immunity also impact the R0 Specific demographics lead to “baseline” R0 Different location / stage leads to diff. strategy R0 <=1 • Favorable demographics lead to fewer needs of gov. measures 1 • Government measures (such as widespread testing and screenings) reduce the need for lockdowns 2 • Exposure immunity develops as number of cases increase, reducing need of other measures 3 Note: Illustrative impact of different factors influencing R0 Source: Lit. research 1 2 3 COVID-19 R0 (as a function of contributing factors) R0 can be kept at this level after transmission control is at low levels All variables must be taken into consideration when reducing the contamination R0. Different countries are acting in very distinct ways to approach the problem At this stage, most evidence suggests contaminated patients develop immunity, but its length and strength are still being debated G L O B A L L A N D S C A P E
- 9. 12200615 - BainWebinar_Procurem ...BOS 2:1 (5.4%) 6:1 (7.6%) 14:1 (6.2%) 60:1 (4.9%) 86:1 (2.3%) 183:1 (0.4%) 18:1 (14.4%) New York Brazil Despite mobility reduction efforts, SA starts from a higher R0 and is not leveraging any other tool to control the spread (testing, technology, etc.) Switzerland ~43% (From 870 cases) ~60-75% (From ~6k cases) ~46% (From 2.5k cases) >5>5 Denmark ~39% (From ~600 cases) Source: JHU Coronavirus Data Stream 05/06; Tableau; Worldometers; Google Mobility Database, Bain Analysis. Mitigation (High use of technology) Suppression (Mobility reduction) Time to slowdown • Technology usage • # of tests applied vs confirmed cases (Mortality %) • Mobility reduction during lockdown (%) • # of weeks from mobility reduction to case under control (<50 cases/1M) LowLow Medium Medium 32 Unconstrained R0 3-81-10 1-42.1 • Population density of main cities (k hab / km2) • # of people/household 3.32.5 2.5 2.2 S. Korea Countries didn’t reach such contamination levels ~25% Very High Hong Kong ~30% Very High 4-17 2.5 7 2.8 Favorable DemographicsHigh use of technology S. AmericaStrong suppression Italy ~70% (From ~15k cases) >5 Low 2-2.6 2.6 Exposure immunity • Adjusted number of cases / total pop. (%) Governmentmeasures Testing was poor in SA, especially in Brazil, where few technologies were used and only people in severe states were tested Differently from NY/Italy, Brazil opted on a moderate mobility reduction mainly stimulated through venue closure, with few population support. Cities are still far from developing exposure immunity, which led to a slow spread control, that will be followed by a long recuperation period with R0 of ~1 South American countries depart from not favorable demographics, with dense cities and high number of people per household G L O B A L L A N D S C A P EG L O B A L L A N D S C A P E
- 10. 13200615 - BainWebinar_Procurem ...BOS New York Brazil Despite mobility reduction efforts, SA starts from a higher R0 and is not leveraging any other tool to control the spread (testing, technology, etc.) ~43% (From 870 cases) ~60-75% (From ~6k cases) ~46% (From 2.5k cases) >5>5 Denmark ~39% (From ~600 cases) Source: JHU Coronavirus Data Stream 05/06; Tableau; Worldometers; Google Mobility Database, Bain Analysis. Mitigation (High use of technology) Suppression (Mobility reduction) Time to slowdown • Technology usage • # of tests applied vs confirmed cases (Mortality %) • Mobility reduction during lockdown (%) • # of weeks from mobility reduction to case under control (<50 cases/1M) LowLow Medium Medium 32 Unconstrained R0 3-81-10 1-42.1 • Population density of main cities (k hab / km2) • # of people/household 3.32.5 2.5 2.2 S. Korea Countries didn’t reach such contamination levels ~25% Very High Hong Kong ~30% Very High 4-17 2.5 7 2.8 Favorable DemographicsHigh use of technology S. AmericaStrong suppression Italy ~70% (From ~15k cases) >5 Low 2-2.6 2.6 Exposure immunity • Adjusted number of cases / total pop. (%) Governmentmeasures G L O B A L L A N D S C A P EG L O B A L L A N D S C A P E Switzerland 2:1 (5.4%) 6:1 (7.6%) 14:1 (6.2%) 60:1 (4.9%) 86:1 (2.3%) 183:1 (0.4%) 18:1 (14.4%)
- 11. 14200615 - BainWebinar_Procurem ...BOS The SARS hospitalizations metric suggests Brazil may have reached new cases peak, but additional waves are possible Source: Fiocruz, Ministry of Health Epidemiological Week Hospitalizations due to SARS per epidemiological week (k# cases; week of the beginning of symptoms) First wave of exponential growth Increase of contamination due to virus spread to the countryside and smaller cities Contamination curve slowdown after governmental measures are applied J U N E 1 1 2 0 2 0A S O F Weeks that are likely still incomplete on the reports P E R S P E C T I V E F O R B R A Z I L C U R R E N T T R E N D
- 12. 15200615 - BainWebinar_Procurem ...BOS Epidemiological status by state on May 25th: As the disease progressed, we expected most states would trend towards a “control zone”, with R0 ≈ 1 and ICU occupancy ≈ 60-70% Contamination R0 ICU average occupancy ratio M A Y 2 5 2 0 2 0A S O F GrowingSlowingDown Low Risk Medium Risk High Risk As states try to balance suppression/mitigation measures to control the disease with a controlled reopening of economies, we will likely see this “control zone” as a balancing point, with stable growth of cases and ICU occupancy under control Note: ICU occupancy in the state of Minas Gerais on May 25 updated from COVID-19 ICU occupancy to general ICU occupancy, a measure that the state started to adopt in the last few days; R0 calculated as the ratio of average new deaths in the last 7 days to the previous 7 days Source: Ministry of Health and State Health Departments State position on May 25th P E R S P E C T I V E F O R B R A Z I L C U R R E N T T R E N D
- 13. 16200615 - BainWebinar_Procurem ...BOS Evolution by state since May 25th: Many states that were in the medium and high risk areas indeed improved and progressed towards the “control zone” Contamination R0 ICU average occupancy ratio A S O F States with high ICU occupancy are at high risk of a health care system collapse and need to keep the R0 (contagiousness level) consistently below 1 so they can achieve a “sustainable” contamination stage GrowingSlowingDown State position on May 25th Low Risk Medium Risk High Risk Among the states that were considered critical, PA and CE had the most significant positive progress J U N E 1 1 2 0 2 0N O T E X H A U S T I V E Note: ICU occupancy in the state of Minas Gerais on May 25 updated from COVID-19 ICU occupancy to general ICU occupancy, a measure that the state started to adopt in the last few days; R0 calculated as the ratio of average new deaths in the last 7 days to the previous 7 days Source: Ministry of Health and State Health Departments P E R S P E C T I V E F O R B R A Z I L C U R R E N T T R E N D
- 14. 17200615 - BainWebinar_Procurem ...BOS Evolution by state since May 25th: In fact, many states that presented a lower risk also progressed towards the “control zone” Contamination R0 ICU average occupancy ratio A S O F States with high ICU occupancy are at high risk of a health care system collapse and need to keep the R0 (contagiousness level) consistently below 1 so they can achieve a “sustainable” contamination stage GrowingSlowingDown Low Risk Medium Risk High Risk With suppression measures being relaxed, especially in the “better states”, it is natural to see states in this area move to the right, towards the same “control zone” J U N E 1 1 2 0 2 0N O T E X H A U S T I V E State position on May 25th Note: ICU occupancy in the state of Minas Gerais on May 25 updated from COVID-19 ICU occupancy to general ICU occupancy, a measure that the state started to adopt in the last few days; R0 calculated as the ratio of average new deaths in the last 7 days to the previous 7 days Source: Ministry of Health and State Health Departments P E R S P E C T I V E F O R B R A Z I L C U R R E N T T R E N D
- 15. 19200615 - BainWebinar_Procurem ...BOS Current situation in Brazil: most states are now classified as medium risk and we expect states to continue trending towards the “control zone” over the following weeks 0.806545 1.272405 99.6777 11.11 Contamination R0 ICU average occupancy ratio A S O F Note: R0 calculated as the ratio of average new deaths in the last 7 days to the previous 7 days Source: Ministry of Health and State Health Departments Low Risk Medium Risk High Risk States with high ICU occupancy are at high risk of a health care system collapse and need to keep the R0 (contagiousness level) consistently below 1 so they can achieve a “sustainable” contamination stage GrowingSlowingDown J U N E 1 1 2 0 2 0 As states try to balance suppression/mitigation measures to control the disease with a controlled reopening of economies, we will likely see this “control zone” as a balancing point, with stable growth of cases and ICU occupancy under control P E R S P E C T I V E F O R B R A Z I L C U R R E N T T R E N D
- 16. 21200615 - BainWebinar_Procurem ...BOS Going forward: Combining effects from all States, the most likely scenario for Brazil is a long plateau of the disease until exposure immunity starts to play a role Estimated hospitalizations due to COVID-191 (# cases; epidemiological week of the beginning of symptoms) Projections Epidemiological Week Note: (1) With SARS Pneumonia symptoms; Source: Brazilian Ministry of Health – Public Health Emergency Operations Center; Bain Estimate. Healthcare system capacity Different stages of COVID-19 spread and government responses across Brazilian state should generate a long plateu in the curve After a significant period, exposure immunity may help states to reduce contagiousness levels P E R S P E C T I V E F O R B R A Z I L U P C O M I N G S C E N A R I O With many states reopening their economies, another wave of growth in the near future is not out of the equation
- 17. 23200615 - BainWebinar_Procurem ...BOS Manufacture Transport. & Storage Commerce COVID-19 crisis will hit all sectors at different levels; while agriculture still has a positive GDP forecast vs 2019, most industries & services will be severely hit Legend Note: 1Baseline projection on Feb/20; 2Baseline projection on May/20; 32018 growth vs 2020 Post-COVID projection Source: LCA GDP Growth projections; WTTC; FGV 2020 GDP growth projection before COVID-191 2020 GDP growth projection after COVID-192 ConstructionTourism3 Agriculture Industries Services Real Estate Financial Services Public. Adm High Impact Medium Impact Low Impact Energy & Water Mineral Extraction AgricultureTaxes Other Services Information Services A S O F M A Y 1 4 T HP E R S P E C T I V E F O R B R A Z I L E C O N O M I C I M P A C T
- 18. 24200615 - BainWebinar_Procurem ...BOS Northeast & South economies expected to be more severely hit in 2020, mostly due to tourism and industrial activities; North and Central-West to face slightly lower losses • ~13% of the economy based on mineral extractives and energy, with the modest drop and profitability advantage • ~10% of the economy based on agriculture will help mitigate local services loss High epidemiological impact Low economic impact (5,0% vs 5,6% BR) North • ~10% of total GDP based on Tourism, sector that will suffer a major blow • ~42% of total state revenue based on fiscal transfers that will be maintained by the federal government using aid measures • ~27% of GDP based on agribusiness; strong soy harvest and high USD will keep 2020 performance similar to last years • High public spending and FS shares will also mitigate the drop in the region High epidemiological impact High economic impact (7,2% vs 5,6% BR) Midwest Northeast Southeast Low epidemiological impact Low economic impact (5,1% vs 5,6% BR) High epidemiological impact Average to high economic impact (5,2% vs 5,6% BR) • ~13% share of manufacture in the economy will lead GDP fall in the region • ~16% participation of FS and professional services in the economy will avoid an even more delicate situation for SE Epidemiological impact High Medium Low South Medium epidemiological impact High economic impact (5,9% vs 5,6% BR) • ~16% of the economy based on manufacture and higher concentration of severely hit goods such as furniture, textiles, clothing and footwear • While agriculture share is similar to other regions, weather will lead to severe harvest losses in 2020 (47% loss of soybean harvest in RS) P E R S P E C T I V E F O R B R A Z I L E C O N O M I C I M P A C T
- 19. for today KEY TOPICS 02 Procurement Game Plan
- 20. Procurement must simultaneouslybalance multiple priorities in face of COVID-19 O U R P O V How can I manage an unprecedented amount of change over the coming months? How can we systematically learn as an organization from this ‘forced experiment’? R ecover R e t ool f or t he new w orld PLAN Now to retool the business for the future Prot ect ACT Now to protect and run the business today
- 21. Procurement “Buy Better+ Spend Better®” purchasing levers can be deployed to reset cost and cash position for the near- and long-term Best price Negotiate prices Negotiate terms Manage price risks Pool volumes/ contracts Shift volumes to best price suppliers Leverage procurement networks Control demand Enforce compliance Reduce complexity Perform value engineering Optimize value- add in supply chain TCO process improvement Collaborative improvement Volume allocation Demand control Design-to- cost System cost reduction Make vs. Buy I N C R E A S I N G D I F F I C U LT Y P L A N N O W “ B U Y B E T T E R ” supply led Typically ~40% of the value “ S P E N D B E T T E R ” operations led Typically ~60% of the value
- 22. Proposed Procurement “PlanNow” priorities R e - t o o l f o r t h e “ n e w w o r l d ”R e c o v e r Update supply plan based on near-term and new-normal demand patterns Create clear procedures with the business to pivot supply in face of future crises (e.g., substitutes) Clean sheet view of value chain participation (make vs. buy; alternative “buy” models – JVs) Pragmatically create value De-risk supply and supplier management (Re-)align talent pipeline needs to meet the near-term business priorities (Re-)launch a digital transformation program Re-engineer P2P processes, adopt RPA to enhance resilience and mitigate risks Transform organization for “new normal” Amplify partnership with the business P L A N N O W Ensure supplier ramp plans align with company ramp; pivot sourcing as needed Build Supplier Risk Heat Map with key financial & operational metrics Create more resilient supply chain (balance between cost and resilience) and Embed supplier risk profile and strategy Diversify OCC footprint, flexible to geopolitical shifts Capitalize on shifting market dynamics (e.g., oil prices impact on transport) Raise previously “off-limits” levers Align sourcing strategy with post-crisis company strategy shifts Capitalize on post-crisis supplier innovations (virtual engagement, automated delivery)
- 23. Leading procurement teamsare beginning to clean-sheet their strategies, operating model and tools P L A N N O W 4 key questions organizations will need to answer in 2020 1 2 3 4 C at egory Management R eboot Value C hain Part icipat ion Do we need to revisit reverse and/or forward integration? How does Procurement support this dialogue? How to adjust our intelligence, analytics, “Buy Better” levers and commercial processes for complex and volatile markets? Fut ure Supplier Management How do we drive an integrated, value-added SRM approach (vs. a controls-based model)? End - t o- End D igit a l A lignment How do we move towards a true Control Tower capability in a pragmatic, focused fashion?
- 24. for today KEY TOPICS 03 A Winning Approach
- 25. Even knowing whatshould be done, most companies struggle to realize value 90% 75% Of companies surveyed have a cost program; however… of companies do not achieve cost productivity targets Note: Achievement of targets assessed based on performance of 1608 NYSE and NASDAQ companies from 2012 - 2017 Source: C-Suite level survey with +$500M USD revenue companies, April 2018, N=103; Capital IQ 44% miss productivity targets by more than 50% Executives cite a number of common pitfalls Value is slow and incremental – long lead times before realization, or not aggressive enough Silo-ed approach – lack of alignment or collaboration on achieving goals Cut too close to the bone – impacting value proposition or ability to serve customers Lack of resources – insufficient budget or resources to invest in programs A P P R O A C H
- 26. Bain “Buy BetterSpend Better” approach enables the realization of 8-12% savings over a two-year period with roughly half in year one A P P R O A C H I N D I R E C T C A T E G O R I E S B A I N E X P E R I E N C E Source: Bain Indirect Procurement Experience (2007-2017) Average savings Category 8-15% 7-13%7-14% 6-12% Facility Expenditures Off. eq. & services Professional/ HR services TravelMarketing 7-13% IT/Technology Logistics 5-10%10-15% Financial services 10%10%10%10%10% 5-10% Range (min-max) Average achieved savings 8-12% Average savings
- 27. How to structureBuy Better/Spend Better A P P R O A C H Build cost transparency by creating a spend cube Savings capture Opportunity Hunt & Diagnostics Design Implementation & Scale Prioritize initiatives through workshop with key stakeholders Work together in agile teams to implement critical initiatives Listen to the organization to leverage existing opportunities Create initial list of saving hypothesis and starting building sponsorship spine Build quick wins implementation plan to allow savings ASAP – incorporate savings into budget and financial planning Prepare for Wave 1 by detailing scope and engaging focal points Ensure capture by tracking initiatives KPIs Sustain gains by building required capabilities Prepare for Wave 2 by detailing scope and engaging focal points 1 2 3
- 28. Access all Bainmaterial on COVID-19 through the QR-Code or on our website: www.bain.com/insights/topics/coronavirus/ Coronavirus Insights Ricardo Gold Partner & COVID task force leader in South America Ricardo.Gold@Bain.com Thank you! Receive daily news from Bain on COVID-19 and other topics on our page: Follow us on LinkedIn! www.linkedin.com/showcase/bain-&-company-brasil/ Chuck Miller Partner & Head of Americas Procurement Practice Charles.Miller@Bain.com Ives Moraes Partner & leader of Performance Improvement in South America Ives.Moraes@Bain.com