In the first column in this series, I provided some background details on the fall of the dollar and how US deficit spending might, ironically, become a savior of the overall US economy if our loose monetary policy and free spending ways lead to a continued slide of the currency, making exports more attractive. In this post, I'll provide a few quick tips on how companies should consider gearing up from a Spend Management perspective for increasing export volumes. Perhaps first and foremost, it's essential to remember that the current recession has led to a significant reduction in operating capacity in many supply markets. And this time around it will come back online more slowly than before, as suppliers and producers take a highly conservative approach to growth.
I spoke to D&B's Jim Lawton about this subject at Purchasing's Smart Sourcing Summit and he suggested that: "What we're seeing is a permanent -- or near permanent -- change in underlying supply market capacity. Unlike previous recessions, many suppliers that survive will simply not be able to finance rapid growth based on available credit not to mention the fact that producers and various supply markets could very well limit capacity to drive up prices." In other words, even though we could very well see export demand grow materially, our supply chains may not be able to scale as quickly as our customers want. Because of this, companies should focus on building and nurturing supplier relationships that will give them a leg-up on the competition in any potential allocation situation.
Second, the falling dollar could drive up the cost of raw materials and related inputs (especially in those commodity areas where there is limited domestic producer capacity). For those markets in which companies both buy and sell in US dollars and can pass on the cost of materials, there won't be much if any impact (buying and selling in local currency is a natural hedge in any market). But for those organizations selling in local currencies and buying in dollars, the impact could be significant, hurting margins along the way.
Companies will also need to consider the battle for contingent labor and contracting talent if orders pick up faster than their operations can scale. But few organizations have in place company-wide services procurement solutions that can support this type of demand outside of a handful of functional areas. Procurement organizations can do their part today to prepare to support this type of growth infrastructure by standardizing on global VMS system and managed services partners capable of creating a scalable virtual talent model in their business.