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Interesting times for procurement

Now is the time to review everything procurement does or else face downsizing, says Robin Jackson

A curse said to be used in ancient China was to wish your enemies: "May you live in interesting times." Somehow it seems to have been directed at all of us in the procurement world today. With ongoing massive demand destruction driving the world towards another depression, the times do indeed seem to be interesting, to say the least.

A recent survey found that CEOs in the Fortune 500 have switched their focus from growth to mere survival. This sorry state of affairs raises the most fundamental question of all for all of us in procurement: how relevant are we in this new world?

With the market driving negative input price inflation and doing part of our cost management job for us, some may argue that procurement now has a reduced role and that businesses should cut costs by downsizing their procurement functions.

I don't believe so. In fact there is an argument that the opposite is the case. But we will have to act quickly to stop the axe falling. Here are some ideas.

• Make sure your businesses input prices at the very least follow the market prices down. If not you could be left as the high-cost producer, not a good place to be in these competitive times.
• Review all your contracts and look for ways to minimise your exposure to built-in price hikes or to drive prices lower than contracted.
• Increasing numbers of businesses are failing. A fully documented supply chain and risk analysis of all your key categories is essential, with countermeasures developed and implemented.
• Similarly you need to understand the financial state of all your key suppliers. A detailed financial review of their businesses is required to identify those that are at risk whether through high gearing, cash burn or collapsing market demand. You need to be in contact with those that are working alongside them to support their survival too.

·Never has the phrase "cash is king" been more relevant than today. Not only do businesses have reduced cash from sales but banks are also reluctant to lend and even when they do, money is no longer cheap to buy. Procurement needs to be working alongside their finance peers looking at ways to manage and conserve cash.

• Procurement needs to be looking for ways to reduce waste throughout the supply chain and maximise efficiency gains. Reducing waste usually means cutting cost and cash needs. Procurement can work in multi-disciplinary teams to support this activity.

This is no time to stand still. Procurement will need to switch its focus fast. You may need to tear up your previous objectives and plans for 2009 and go back to the drawing board.

You will need to establish a new set of objectives for procurement in your business that supports its survival. These need to be communicated to people throughout the organisation to galvanise support and promote excellent procurement as a being of fundamental importance.

If not, if procurement's value is not understood by the business, then get ready to be downsized. This is no time for faint hearts. We are at war with unprecedented market conditions, and interesting times need new ways of working, now.

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