Procurement Intelligence Unit

A sage analyst once told me that nothing creates more nervousness in the procurement community that uncertainty – which doesn't bode well for the blood pressure of most CPOs at the current time.

Whether its the ongoing economic crisis in the eurozone, fuelled by Greece's precarious financial position, the continued weakness of many of the world's major currencies and the subsequent knock-on effect on the price of oil, or the seemingly endless fall-out from the eruption of the Eyjafjallajokull volcano in Iceland - wherever you look, uncertainty looms large.

For procurement, the problems posed by the various situations unfolding globally are manifest – increased risk, greater exposure to commodity price and currency fluctuations, and potential supply shortages and/or disruption, to name but three.

A cursory glance at the front pages of the world's leading newspapers in recent weeks reveals that it's the volcanic eruption that has done most to bring risk firmly back into focus, with the grounding of flights in European air space reported to have cost the air and freight industry somewhere in the region of £200 million per day.

But cost considerations apart, what Eyjafjallajokull has succeeded in doing is to further emphasise that risk management, mitigation and contingency planning are as fundamental to procurement's continued good health as contract negotiation and supplier relationship management.

Of course, there's little a procurement organisation can do when a volcano erupts, but what it can do is to ensure that it is armed with the necessary information and data to react quickly and effectively when factors that are within its sphere of control go awry.

Which is why some in the procurement community are breathing a little easier than others.

Take BP, for example. The company now has a well-established procurement intelligence team providing information to a multitude of procurement operations globally and although there's a tacit acceptance that intelligence will only stretch so far -and certainly isn't a silver bullet - there's also a definite appreciation of the value that it can bring.

In a recent conversation with Joe Mullan, Head of PSCM Shared Service, he outlined the benefits that the company had enjoyed during one of the most turbulent periods on record. "I wouldn't say it (market intelligence) creates certainty or even a greater degree of certainty, but it allows you to understand the potential range of scenarios that could be out there and that you need to be able to consider actions against," he added.

"It allows you to understand the range of actions and possibilities, and also allows you to explain what has recently happened to our costs."

It's the information that allows Mullan and his colleagues to explain the price pressures – both inflationary and deflationary - that companies such as BP are currently facing, that is crucial to both maintaining procurement's elevated standing within the wider business and ensuring that robust plans are put in place to enable procurement to adapt to the kind of business environment we've witnessed since the global economy stepped gingerly to its feet in the second half of last year.

"We're starting to see a little bit of commodity pressure in certain areas and being able to inform people of that is very helpful because it's one of those environments when many things can be pretty stable or declining and yet other things that are critical are gaining," says Mullan.

He cites the price of copper "going through the roof" as just one example of why market intelligence is so important while the economic recovery is still extremely fragile.

It's ash, rather than metal, that has occupied the minds of most in procurement in recent weeks, but as that crisis abates the focus will now turn to the next potential flashpoint.

Given that few predicted either the eruption of Eyjafjallajokull, and even fewer could possibly have foreseen the fall-out from events in one of Europe's northernmost locations, it seems reasonable to assume that only a very brave (or foolish) man would predict where, or when, that flashpoint will next occur.

What is more certain is that some in procurement will be better prepared for it than others.