6 Steps Procurement Can Take Now to Manage Economic Uncertainty

The winds of economic change are in the air right now. With predictions for the coming year ranging from “business as usual” to “we’re already in a recession” and all points in between, chief procurement officers (CPOs) should take steps now to prepare their organizations for whatever’s to come.

In CIPS’ “Five steps procurement can take to weather a recession,” Juliette Rowsell discusses how the International Monetary Fund (IMF) sent up a red flag about how economies in the U.S., China and eurozone were expected to contract in 2023. “The slowdown is expected to be most pronounced across Europe,” she writes, “where the energy crisis will continue to hit businesses, reducing growth to 0.5% in 2023. In the UK, growth is expected to drop to 0.3%.”

Asked to share their predictions, seven out of 10 World Economic Forum (WEF) chief economists said they considered a global recession to be at least “somewhat” likely in 2023. And Gartner warned in its Recession Playbook that high inflation, talent shortages and global supply chain challenges could make a recession “more difficult to navigate than previous economic hardships,” Rowsell writes.

Mitigating Negative Impacts

None of us has a crystal ball, but with the current signs pointing toward at least some level of economic slowdown impacting businesses this year, now is a good time for CPOs to take steps to mitigate any negative impacts. Here are six steps that procurement can take now to weather the storm and deal with the ongoing uncertainty:

1) Identify critical resource bottlenecks. With some or all of the bottlenecks pinpointed, you can use them to guide cost reduction strategies. “Identifying where constraints are can clarify other priorities and decisions about how much inventory and raw materials to store,” Rowsell writes, “and identify areas where backup labor may be required and whether you need to secure new freight partners.”

2) Implement cost-reduction measures. In “6 cost-reduction measures to recession-proof procurement with innovative tools and techniques,” SpendMatters tells procurement professionals to consider using some or all of these strategies:

• Leverage innovations like artificial intelligence (AI), which use real-time analytics and insights to help make sourcing more cost-efficient.
• Use dynamic pricing models to optimize both cost and supplier performance.
• Develop and implement sustainable supplier programs and tracking tools.
• Create new skill sets and strengthen existing ones around pipeline generation and stakeholder relationship building.

3) Invest in productivity. “Productivity spend” refers to the recognition that the greatest productivity gains are to be found across the supplier base. “Productivity gains can be found by businesses through developing an in-depth understanding of the supply chain to identify opportunities to eliminate waste, adopt technology and ultimately do things a little differently,” Proxima Group reports. “It’s time for businesses to be bold in their spend and supplier management practices.”

4) Keep your eye on the ball. In the face of a potential storm, it’s also important that business leaders do not lose sight of the end goal: growth. “Maintaining spend in areas that help businesses move beyond the downturn will determine the winners of the impending recession – i.e., those businesses that will find long-term success,” Proxima Group adds. “The economic situation means that demand is low, but through protecting core supply relationships and staying front of mind with customers, businesses will be ready to scale more efficiently when the time comes.”

5) Review supplier segmentation and strategy. Not all suppliers are of equal importance to a company given the changes in supplier base, but it may be prudent to align on the segmentation and focus placed on each supplier. If weighted criteria are already in use, adjust the prioritization of criteria with assurance of supply in mind, The Hackett Group recommends. “Ensure that key suppliers are mutually agreed across the business,” it adds. “Understanding how each supplier is managed should be a critical first step any procurement or operations team takes when building a plan to weather the storm.”

6) Evaluate supplier stability. With all businesses under pressure right now, understanding the stability of your key suppliers is also an important next step in evaluating the assurance of supply. “Assessing financial stability and risk is not enough,” The Hackett Group cautions. “Taking the extra step to evaluate their supply chain and ability to retain talent is increasingly important.”