I recently had the chance to catch up with BravoSolution's Nader Sabbaghian for an interview on the European perspective of the supplier credit and financial crisis. As the UK-based CEO of a company with operations in both the US and Europe, Nader has had the chance to see firsthand how the current turmoil in the market is impacting procurement on both sides of the pond, and he shared with me his impressions about what's happening in the European and UK markets.
Spend Matters: What is the general mood in Europe these days?
Nader: We're in a pessimistic state at the moment. Even top executives (i.e., non-procurement including CEOs and CFOs) are focusing significantly on efficiency and cost. A few weeks back, I made the rounds meeting two very senior executives in Paris and Rome. These individuals asked to see me on short notice and were interested in our ideas on ways they could aggressively cut costs on very short notice. These very senior executives are getting involved with procurement at a detailed level, and are even reaching out to speak with me directly. That's how dire the situation is.
Spend Matters: Is it a state of fear of the downturn or just mistrust between procurement and suppliers?
Nader: There is clearly a feeling of supplier mistrust and buyer mistrust. Suppliers are becoming increasingly defensive. But you need to appreciate the environment they're operating in. In the UK, terms are typically in the 40-60 day range. In Southern Europe, they can be 90 or 120 days -- sometimes even more. It has nothing to do with what is actually written in the contract. A/P organizations pay when they want to. And when times are bad and working capital is scarce, they pay you even later.
Spend Matters: So how does this impact the overall sourcing and supplier management environment?
Nader: We know suppliers who are effectively in a situation where they want more business but they can't accept it -- even if it is available to them. They are fearful of putting themselves at increased risk because they need more working capital. In addition, if they smell any potential trouble with a client regarding payment terms or related challenges, they are reluctant to bid on contracts. In this environment, even finding qualified suppliers to participate in sourcing events that you would think they would be hungry to participate in can be very challenging.
Spend Matters: So how does this impact overall relationships and posturing?
Nader: Companies are trying to re-position themselves based on their perception of the other party's ability to access cash. If the current situation continues I also expect that we will see increased consolidation across the market. This will impact large company procurement organizations and suppliers alike.
Stay tuned for Part 2 of this post when we continue to look at the impact of the European economy on M&A, procurement strategies, hedging and other related areas.
- Jason Busch