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”.
Here are six ways procurement can get ahead of an economic downturn.
1. 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. It 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. However, they foresee one occurring within 12 to 24 months.
It can be difficult for economists to recognize when a recession has started or ended. This is especially true without a plan in place.
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. Ability and willingness to move fast make companies more resilient and more likely to successfully weather economic shock.
2. 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.
3. Renegotiate contracts
49% of Suplari’s respondents flagged contract renegotiation as the key strategy for generating cost savings and mitigating risk. 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.
4. Consolidate vendor base
A large supplier base is a good idea in terms of generating innovation and mitigating risk. But this isn’t ideal in a recession. 45% of Suplari’s respondents flagged Vendor consolidation as a cost-savings strategy in a recession.
5. 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 stop individual projects. This is rather than impacting multiple plans across the organization with the delay of one interconnected project.
6. 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. 50% of retailers will focus on higher scrutiny of PO approval however.
Although cut backs may happen, there is a silver lining for procurement in a recession. A downturn can provide CPOs with the “burning platform” they’ve been waiting for. CPOs and their teams are also likely to find their influence in the organization as a result of a downturn.
Visit UNA.com to learn more about how a Group Purchasing Organization can help you find cost savings during an economic downturn.