Vendor management in the form of procurement of different types of materials and products that are necessary for the smooth running of the primary operations of any organization is the need of the hour. This assumes greater significance in the wake of the waning pandemic that shook the economic and social fabric of the entire world and especially the established systems and protocols of companies. It is in this context that procurement management assumes a greater importance since it brings to the fore the digital transformation initiatives implemented by the businesses of varying sizes and the sectors in which they operate. Let us take a closer look at the example of a chocolate manufacturer to emphasize the importance of procurement management, irrespective of the pandemic and the new normal.
Situation before the pandemic
In this regard, what this example emphasizes is the importance of the procurement of cocoa for the chocolate manufacturing company. Cocoa is the main and the primary ingredient for the manufacture of chocolate and is the primary ingredient to which additions are done in the manufacturing of the chocolates, and may be in the form of dark chocolate or milk chocolates, and also in the type of other flavors added. Now, we need to consider how the procurement management system works in this big chocolate manufacturing company.
Vendor Selection Process Using Microapps
Vendors are selected after the due diligence process and they are rated on the strength of their application in which each and every aspect of their data submitted is scrutinized. This scrutinization can be in the form of quality of cocoa being supplied by them, the region in which such kind of vendors are operating, the machinery and the tools they are using to harvest the cocoa they are supplying, and various other important factors.
Based on the scores being generated through these stringent vendor selection processes, the chocolate company manages to ensure there is minimal risk involved in the selection of the particular vendors which are selected through the implementation of such a process and the requisite regulatory and quality control parameters are being met. Based on the scores obtained by the vendors, the chocolate manufacturing company selects the vendors, placing them in categories like A, B, C, etc.
Based on the scores obtained, the selected vendors are on-boarded and cocoa for making chocolate are sourced by them using digital transformation tools like the vendor management app, procurement management system, vendor onboarding system, and several other micro app modules.
Vendors are constantly monitored and their performance is measured on several parameters such as timeliness of delivery, the quality of cocoa that is being procured from them, the kind of regulatory compliance and internal quality control and institutional procedures they are following and other kind of coping mechanisms that the vendors are adopting, to ensure quality procurement at a reasonable cost.
How the Pandemic changed this set system and process
In the wake of the pandemic, this kind of smooth and systematic procurement process was disrupted. The ways through which the disruptions that the pandemic brought several obstructions forward were several. As all the cocoa used for manufacturing chocolate was all imported from Africa, the US based chocolate manufacturing company had operations impacted, slowed down, and even halted for a long period of time as all imports were negatively impacted by the pandemic and priority was given to the trade of medical supplies/equipment due to the urgency of the matter.
In addition, the supply of vendors became erratic due to the fact that the human labor used for the cultivation and harvesting of cocoa was dislocated from the cocoa growing areas. This made the prices of cocoa shot-up and operations of vendors became unviable as per the agreed contracts signed with the cocoa importing companies.
In addition, the cocoa manufacturing company realized that it was facing an intense backlash of the public opinion against them as the cocoa they had been sourcing from vendors were using child labor for growing and harvesting cocoa. This dealt a death blow to the operations of the chocolate manufacturing company, already reeling under supply chain disruptions and now facing regulatory action and a negative market and consumer sentiment due to the issue of child labor involved.
The digital transformation initiatives being adopted to change their business processes is possible for the chocolate manufacturer in this case by adapting to the new normal. Making sure that the cocoa being sourced by them is done so sustainably, their vendors are meeting each and every regulatory requirement, and there are no supply chain disruptions by opening alternative supply chain routes and sources is what the chocolate manufacturer did. By adopting the necessary procurement solutions in their new systems and processes matrix helped them to tide over this seemingly insurmountable crisis.