At an analyst/media luncheon, Emptoris brought procurement and technology executives together with sector observers to discuss and trade thoughts on issues that are top of mind these days. Though I had to leave early to catch a flight, the facilitated session of over twenty participants was extremely informative. Perhaps most apparent from those in the room was how procurement leaders are already feeling the impact of reduced demand. The retailers, food and CPG companies all sited slowing sales (except one maker of private-label goods). A wireless telecom provider noted reduced global demand for discretionary mobile calls. And a transportation provider also hinted at reduced demand.
But what do these negative demand signals mean when it comes to investing in procurement? As one CPO suggested, it means that the ROI period for any process or technology investment must be compressed to 12 months or less. For another procurement leader, it means becoming more flexible on payment terms and the financing of raw material purchases for suppliers (who will not stay in business and/or meet the demand for raw materials in certain global markets without this intervention). And for another it means focusing on high-risk vendors, putting them through a full financial work-up on a more frequent basis (yearly is no longer sufficient considering how fast even large companies can fall in the current economic climate).
All of these suggestions are excellent tips. But they gloss over the most fundamental investment that a number of CPO panelists suggested in an earlier session that I facilitated. And that's building visibility. Visibility not only into spending data -- though that alone is a crucial first step -- but visibility into supplier performance, into supplier financial viability and visibility into multiple tiers of the supply chain to better understand risk at all levels. Overall, I'd say the majority of companies at Emptoris Empower -- many of which represent the crème de la crème of sourcing and procurement technology investment -- lack the type of visibility needed to respond nimbly in the current economic crisis. And if they're not fully prepared, I highly doubt that other global leaders are either.
The good news is that the tools and content are available today to achieve this level of visibility -- from Emptoris and a number of others. Perhaps it will take a true series of crises for the typical company to realize how blind they are to the supplier and spend information they'll need to avoid the pain that is sure to materialize in a downturn without it.
- Jason Busch