Friday Rant: Despite Capital Markets Volatility/Decline, Don't Change the Spend Management Course

In the Great Recession of 2008/2009, we saw many procurement organizations take two steps forward and half a dozen back. Of course this was not all their own doing. Many were forced to reduce headcount -- and certainly fewer could actually add additional resources that could drive costs down far beyond their fully-burdened cost to the organization -- despite the clear returns that a focus on sourcing cost reduction, procurement compliance and supply risk management could provide. And of course there were other cost cutting initiatives that hit procurement as well, such as reduced software spending, lower (or eliminated) travel budgets and extended payment terms for suppliers (which procurement was often put in the middle of).

If we see a continued return to negative GDP growth and a general deterioration of business conditions, procurement will be in the cross-hairs of the CFO to reduce its own costs. But this time, if it happens -- and that's still an "if" -- things are likely to be different for a number of reasons. Consider the following factors making any potential recessionary impact on procurement different this time around:

  • The track record many companies have showed since the last recession from a procurement and supply chain cost cutting perspective has proven the hard-dollar impact and returns such programs can have. For companies that did not perform as well as some, it's almost always possible to show other company benchmarks around savings in the same industry.
  • The impact many industries and businesses have seen from poor supply chain risk planning efforts around Japan has sparked an interest in foundational investments and programs as a core cost of doing business. These investments are unlikely to go away, even in a downturn, and we could actually see an increase in some forms of supply risk mitigation spending.
  • The ability to trade resources in areas like A/P and tactical buying which have been further automated (and in some cases outsourced) since the last recession for bodies that can focus on cost reduction in core spend areas is now more possible than before.
  • Commodity price volatility has hurt many companies enough to prove the importance of building and maintaining an active set of resources in areas focused on category management, category strategy and supplier management.
  • The rise of newer models and tactics to drive material and even risk-reducing savings programs such as material demand aggregation for direct material spend on a multi-tier supply chain level requires the ability to manage such programs (which requires the right set of resources).
  • Procurement is often driving the enablement of the parts of the businesses that are growing (e.g., access to new geographic markets) rather than contracting.

Now more than ever, it's time for executives to look to procurement as a hedge against a recession. By investing more -- not less -- in procurement programs, organizations will set themselves up to weather whatever economic storm that blossoming deficits, debt downgrades and a stagnant export environment can bring.

Jason Busch

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