adr international Procurement consultants

Time to rethink

As light begins to appear at the end of the economic tunnel, there are some key steps businesses should take to streamline their procurement, says Bill Michels

As the economy continued to worsen in the first quarter of this year, many companies in North America took drastic steps to adjust staffing to meet the reduced demand, and these cuts continued during the second quarter. Companies rationalised facilities, closed plants and focused much effort on adjusting headcount without knowing when business would level off.

Automotive production, for example, is only half what it was a year ago. North American automakers are essentially shutting down their own factories for nine weeks this summer. Further, there is no assurance that all the plants will restart come the autumn, and no certainty about what they might build or how many.

More than 20 companies have left the recreational vehicle sector, while the home building and appliance sectors have almost halted operations. The landscape is changing so quickly that every forecast is suspect, and only the boldest suppliers are likely to anticipate demand. Production is essentially off across the economy.

Against that grim backdrop, however, there are signs that the economy is stabilising, if not turning upward. Stimulus funds are being released. Financial markets are beginning to unfreeze, and ten large US banks are set to pay back $68 billion in loans they took from the US Treasury last year – more than double what the government expected this year. Consumer confidence is also returning.

These signs are putting new demands on procurement departments that have suffered from headcount losses over the last three quarters, while at the same time chief procurement officers are being asked to accelerate cost and value initiatives, extend financial terms and deliver improvements in lean supply chains without increasing staff. They also have to keep an eye on supply chain risks that go hand-in-hand with supplier financial instability.

Many companies have lost their most experienced staff to buyouts. During the headcount reductions, many firms went for high-cost employees who made up their experience base. That can leave huge skills gaps.

However, the people who are left may be receptive to new responsibilities or new ways of doing business. As uncertain as these times are, they may present a good opportunity to rethink and restructure your approaches to procurement and supply management. Here are some of the issues you may need to consider:

• Is your team organised with a core focus on cost and value improvement? That means automating administrative tasks to keep staff expertise focused on category strategies, not processing transactions.  You may consider outsourcing management of low-value expenditures so that you can place your best resources on the high-value direct expenditures and key business expenditures.
• Has your procurement team conducted a detailed market, supplier, risk and cost analysis? The last 18 months have disrupted markets in categories in every industry. It's time to gather fresh data and develop short, medium and long-term cost improvement plans.
• Has your team developed a supplier development programme to reduce costs and generate innovations that can improve your business? With R&D funds in short supply, you may need suppliers to provide new ideas as well as existing products.
• Do you know the skills of the people you have in place and do they meet the skills you need? Do you have a plan in place to align skills and requirements? Your firm might benefit by hiring experienced category managers on a temporary basis to recapture lost experience. Another approach some North American companies are taking is to hire high-level negotiators to renegotiate key contracts based on the slow economy. 

If your firm is looking for solutions to extend resources and improve cost value and focus on business strategy, you could consider “outsource” rather than “resource”. As we see the recovery of the economy, there will be limited time to capture the short-term opportunities available from the economic recession. 

Once the upturn kicks in, it is likely that inflation will then become the main danger, and that will mean that cost containment will be the priority. 

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