Procurement Intelligence Unit

The phrase 'double-dip recession' has been bandied around ever since the global economy began its steady (yet painfully slow) recovery from the financial turmoil of 2008. While market pessimists have forecast a return to negative economic growth for the past few years, the events of recent weeks suggest that the slippery slope back into recession may be closer than we thought.

Let me preface this blog by saying that I am by no means an economic forecaster; if I knew where the markets were heading I wouldn't be writing a blog right now; rather, I'd be relaxing on a large yacht somewhere in the Mediterranean.

However, fantasy aside, I (and many others) believe that the lack of confidence in economic policy makers across the globe, but in particular in the US and Europe, will likely result in the global economy once again returning to a state of recession. If we consider S&P's recent downgrade of the US credit rating and the ongoing confusion and debate around how to solve Europe's sovereign debt problem, the writing seems to be on the wall. If economic policy makers are unable to act swiftly and make sound economic decisions in times of financial uncertainty then economic prosperity is destined to suffer.

Ok… Let's move away from my economic postulations and turn our attention to procurement. One question that burns in my mind is how will this recession (should it come to pass) impact on the procurement function?

Many argue that recessions can be good for procurement. As sales revenues dry up, organisations began to focus on cost cutting as a means of remaining profitable. This shift in operational focus points the corporate spotlight directly onto the procurement community. Cost becomes king as procurement teams are seen as the avenue through which companies can ensure their balance sheets remain in the black.

CPOs and senior procurement staff that the PIU spoke to during the previous recession reported that the increased focus on procurement gave the function the profile and, in many cases, the means to undertake significant cost-saving programmes. Before the recession such initiatives were not deemed a priority as businesses focussed more on increasing sales revenues than analysing and improving cost bases.

Buyers and category managers were presented with an opportunity to enter into fierce negotiations with suppliers on price, payment terms and service levels in an effort to (quoting an overused business lexicon) 'pick the low-hanging fruit'.

The question I pose is what will happen this time round? If we spiral into another recession, it is likely, perhaps even inevitable, that the CFO or CEO will come knocking on procurement's door to see how it can help. What will our answer be this time? Payment terms have already been extended and prices have been reduced (in many cases at the cost of a positive relationship with the supply base).

Of course there is more that we can do, but perhaps this time it will not be so simple. Perhaps this recession will give procurement teams the opportunity to prove to their organisations that the function is capable of more than cost cutting and direct balance sheet actions.

We've picked the low-hanging fruit; the question now is how do we climb further up the tree?