Managing Through a Downturn

A guide for CEOs, CFOs and supply management leaders on surviving the tough times though Procurement Excellence


With some forecasters predicting oil at $250/barrel, many businesses are being forced to impose surcharges, cut capacity and reduce staff to cut cost. In fact recently one headline in the New York Times read "Even Vegas Is Down on Its Luck". So what's your cost management strategy?

Economic downturns are typically accompanied by large inventory buildups and cutbacks in orders that cascade down the supply chain, often having a devastating effect on unprepared suppliers. In such a climate businesses large and small cannot afford to simply stand by and do nothing. A typical response might be that sales are good and costs are bad, followed by a financial crackdown, to limit the damage to the company's market capitalization and the level of shareholder dividend payments? In other words, get back to financial basics.

At Purchasing Practice, we don't believe this is the right solution. We believe in a more strategic approach to cost reduction. Some costs are actually good because they are a vital component that drives current and future growth. Cutting these too far or in the wrong places can have catastrophic impact on a business. It is the role of strategic cost management programs to consider all types of cost: good, neutral and bad. This assessment can then be used to target cost more effectively and reinvest any savings back into the business. By taking a more strategic approach, we believe, businesses can actually create opportunities to outmaneuver competitors who carry on with business as usual or are unable to adapt quickly, except by wielding the axe and cutting staff.

How Purchasing Excellence Helps

We know from previous downturns that procurement plays a key role in any cost reduction initiative. At Purchasing Practice we believe procurement leaders must use this opportunity to not only cut cost but also build sustainable competitive advantage. Following is a checklist of considerations to keep in mind as you look to leverage this opportunity.

Know your business

Procurement staff must understand the company's objectives and what's important to the company in order to gain a better understanding of its strategic imperatives and business drivers. Purchasing must take the lead while creating close alignments and alliances with key stakeholders across the company.

Stakeholders

Procurement must focus on the issues that are most important to the company. It is no use asking stakeholders, '"How can I help you?'" They might not know! Procurement must lead, and, as successful procurement leaders know, one of the biggest mistakes procurement can make is trying to be all things to all people.

By considering how the wants and needs of stakeholders align with what the organization wants and needs from its stakeholders, procurement can examine its relationship with each stakeholder. Procurement can then assess the strategies, processes and capabilities that are needed in order to satisfy these two critical sets of wants and needs.

The battle for talent

In the end, transforming procurement into a competitive advantage depends on winning the battle for talent.

Procurement talent is in short supply across all sectors, and major organizations globally are finding it a significant challenge to recruit and retain highly skilled, experienced procurement staff. This is a critical consideration as your company examines staffing levels. After all, overzealous cutting can be detrimental to employee morale and increase turnover, sending top performers into the hands of competitors and leaving your organization in a weakened position. In addition, with both the shortage of talent and increased internal financial constraints during a downturn, companies cannot depend on hiring to fill the talent gap; instead, businesses have to develop the skill levels of their existing staff.

This content continues onto the next page...
  • Enhance Your Experience.

    When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

Already have an account? Click here to Log in.

Enhance Your Experience.

When you register for SDCExec.com you stay connected to the pulse of the industry by signing up for topic-based e-newsletters and information. Registering also allows you to quickly comment on content and request more infomation.

OR

Complete the registration form.

Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required