What Does the Potential of "the Mother of all Meltdowns" Mean for Procurement?

I'm usually an optimist, but I've been reading enough economic forecasts of late to start making me look at the US economy's glass not as half full, but nearly empty. As one example, consider this story from the Financial Times. Quoting and citing the research of doom and gloom economist Nouriel Roubini, the article offers up a 12-step plan to economic disaster for North America. The scary thing is that it's already possible to see elements of a number of these steps beginning to occur. According to the FT, "Professor Roubini's scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006. At that time, his view was extremely controversial. It is so no longer. Now he states that there is 'a rising probability of a 'catastrophic' financial and economic outcome."

If you combine this with the recent Fed concerns over Stagflation -- essentially a combination of stagnate economic growth combined with inflation -- then things are looking dire if you subscribe to the Roubini camp. But from a Spend Management perspective, what does this all mean? Late last year, I wrote a four-part series on how procurement organizations can prepare for an economic downturn. In this analysis, I suggested a number of Spend Management actions companies can take to minimize the impact of a downturn. I still stand by the advice that procurement organizations should consider five key items at the moment giving the recessionary environment. These are:

1) Reinvigorated efforts around sourcing (and re-sourcing)
2) Greater consideration of moving from fixed to variable cost structures (which will also, in theory, help companies scale up and down procurement efforts more quickly)
3) A newfound mandate to focus on overall supply chain risk
4) Ongoing and increased efforts to cut services procurement and non-production related expenditures
5) A greater embrace of the words in Lord Byron's famous quip: "Cash is virtue"

For greater detail on each of these -- and how to take action -- you can click on the above link. Considering the overall situation, I believe that it would behoove all of us to take the situation seriously. As the FT so rightly suggests, "the connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable." From a Spend Management perspective, it's our job to take preventative action before the metaphorical equivalent of a morphine IV is required to dull the "wretchedly uncomfortable" economic pain.

- Jason Busch

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