Robert A. Rudzki

Strategic Sourcing and an Unstable Economy – I

Today’s guest blogger is James Baehr, a Senior Advisor at Greybeard Advisors LLC. Jim has had management roles in IT sales, IT operations, and IT procurement at major firms before joining Greybeard. Jim can be reached at: Baehr@GreybeardAdvisors.com.

Recent events in the finance sector and other economic elements have most businesses on edge. Companies are looking to cut costs wherever possible. Cutting funding for anything related to Strategic Sourcing or basic Procurement is not a good idea. Why? Unless your company is in one of the rare sectors experiencing growth, the Sales side of your business will be under significant pressure to produce top line results that are unlikely to be achieved. Most gross sales numbers will decline, margins will decline, or–worse–both will happen. 

Many companies will look to reduce any spending considered to be discretionary. While this helps, these activities are the proverbial equivalents of putting a band aid on a deep wound. One place that companies should not look to cut budget is in the area of Sourcing/Procurement. Why? It’s one of the few functional areas with the ability to have a positive impact on the bottom line and to make a difference now–today!

In this challenging environment, Sourcing initiatives that are underway should be continued. New initiatives may prove to be more challenging. Incumbent suppliers will carefully guard the business they have and lack the willingness to cut into margins. Potential suppliers may be less aggressive. It’s very likely that incumbents will be focusing on cash flow by ensuring that customers meet their commitments under existing agreements–volume, spend and otherwise.

When times are good, customers tend to make aggressive commitments in return for improved pricing or discounts. With cuts in spending they will be faced with falling short. Companies will need all the Procurement expertise that they can muster to avoid defaulting under these conditions. Fulfilling obligations may require restructuring agreements through strong negotiations skills and non-traditional thinking. 

On the flip side, if you are exceeding contractual commitments, now is the time to approach suppliers for improving their considerations. It’s very realistic to take a position that, since you are exceeding contractual commitments, you can reduce the associated volume directed to that supplier. Why not–you won’t be penalized. Most suppliers won’t want to put your business at risk. Sourcing professionals can apply their expertise to restructuring an agreement for increased benefit in the form of increasing discounts, or banking the volume for later use.

Posted by Robert A. Rudzki on October 13, 2008 | Comments (1)