Globalization, Inflation and Procurement Through an Economic Lens

One of my goals when I started Spend Matters was to elevate the discussion of sourcing and procurement by bringing it alive and tying what we do as practitioners, consultants and vendors to the actual global market impact beyond our corporate function. Call me an idealist, but as I've said before, when I joined FreeMarkets originally as a start-up, I did so because I believed in the morality of spreading competition and giving new geographies a chance to win business on their own merits as much as I did because of the chance of personal gain in the process. So when I read or hear discussions that bring procurement and supply chain issues up to this level, I'm all ears.

Recently, European Leaders featured a bylined op/ed (registration and membership required) that not-so-jokingly referred to procurement as "making politician's dreams come true" in the title. Penned by Robin Jackson, CEO of ADR International, the piece begins by discussion how we've enjoyed a sustained period of high growth and low inflation. But in Jackson's words, "what has been missing in the debate is an acknowledgment of the role played by procurement people in helping achieve this delivery of lower prices to consumers. The shift from high-cost retail manufacturers in Europe and America to low-cost countries such as Sri Lanka, Morocco, China, Vietnam and India, for example -- have produced the lowest clothing prices ever plus the lowest electrical good prices. In financial services, we have seen massive off-shoring of low-value activities such as call centres to India and now South Africa."

I'd agree with Jackson that global sourcing and procurement has had a tremendous impact on keeping inflation low -- not to mention improving purchasing power parity for many in the West (and the world, by extension, based on the trading of currency from wealthy nations to poorer ones for goods and services in return). But is this activity sustainable? Jackson argues that "the huge reductions in cost and, as a consequence, in prices to Western consumers, cannot be replicated. They are a one-off. Electrical goods, clothing and all the other products and services that are now sourced in the developing countries will start to increase in price."

In the rest of the piece, Jackson concludes his argument by discussing procurement's two top opportunities going forward based on the impossibility of continuing to drive costs down forever by playing the labor arbitrage game. If you're a European Leaders member, I'd strongly encourage you to put aside just a minute or two to read the whole essay (and if not, what better an essay to spark you into joining).

Jason Busch

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