While recessions can be notoriously difficult to predict, there has been increased noise from high-profile economists recently that a recession is on its way, or may even have already started. Fuelled by speculation around economic uncertainty, trade and tariff wars, three out of four economists predict a recession by 2021. Within the community of procurement professionals, a Suplari survey found that 55% of procurement and finance professionals expect a recession before the end of 2020.
Procurement teams have the ability to mitigate the worst effects of a recession on their wider organizations. With the right strategy, a business can even gain market share and profitability, while recessions are seen by some CPOs as procurement’s “time to shine”.
Rather than take a head-in-the-sand approach to the possibility of a recession, here are six ways procurement can get ahead of an economic downturn.
- Have a contingency plan
Writing for Forbes, economist Bill Conerly noted that “even a simple recession contingency plan helps businesses act faster and act smarter”. Having a plan in place is a key part of risk management and acknowledges the reality that positive market conditions cannot continue indefinitely. According to the Suplari survey, nearly one third of surveyed procurement professionals feel unprepared for a recession, even though they foresee one occurring within 12 to 24 months.
The trouble with waiting until a recession starts before coming up with a plan is that it can be difficult even for economists to recognize a recession has started, or ended for that matter.
This will mean that the worst effects of a downturn will already begin to bite before you even start work on a plan to deal with it. An ability and willingness to move fast makes companies more resilient and more likely to successfully weather economic shock.
- Keep the procurement team lean
Any advice to lay off staff may sound heartless, but regular reviews and cutbacks of the team whenever it becomes larger than required is much better for business (and team morale) than a single massive layoff when a downturn occurs.
Having a lean procurement team only becomes viable if end-to-end procurement processes are also lean – this means eliminating waste and creating efficiencies at every step of the process.
- Renegotiate contracts
49% of Suplari’s respondents flagged that contract renegotiation would be a key strategy for generating cost savings and mitigating risk in a recession. This strategy is used more predominantly by technology/SaaS focused respondents with a more proactive spend culture who can create a significant impact through renegotiations with tech providers.
- Consolidate vendor base
A large supplier base is a good idea in terms of generating innovation and mitigating risk, but not ideal in a recession when efficiencies should be sought and contracts are consolidated with single suppliers to generate cost savings. Vendor consolidation was flagged by 45% of Suplari’s respondents as a cost-savings strategy in a recession.
- Delay major expenditure
More than half of surveyed manufacturers indicated they would delay major project expenditure in a recession. Companies that bullishly press ahead with major expenses despite a recession put themselves at risk, although delaying capital spending shouldn’t be executed until it’s certain that a downturn is occurring. Approaching capital spend in modular steps enables companies to easily stop individual projects rather than impacting multiple plans across the organization with the delay of one interconnected project.
- Tighten spend scrutiny
Any professional who has lived through a recession will be familiar with the higher levels of spend scrutiny. The Suplari survey revealed that 60% of companies will tighten scrutiny of the travel category, while 50% of retailers will focus on higher scrutiny of PO approval.
Although teams may be cut back and major projects put on hold, there is a silver lining for procurement in a recession. A downturn can provide CPOs with the “burning platform” they’ve been waiting for in order to roll out a key change or transformation. CPOs and their teams are also likely to find their influence in the organization grows as a result of a downturn and leadership’s renewed focus on the bottom line.
Visit UNA.com to learn more about how a Group Purchasing Organization can help you find cost savings during an economic downturn.