Five Actions CPOs Should Take Now to Address an Economic Downturn

Panel of experts offers advice on taking control of spending and reducing costs in an uncertain economic environment


"Technology and innovation can go a long way in helping companies to not only get lean and efficient, but also in delivering sustained business performance improvements," said Schneur. "Emptoris is committed to helping companies fuel such efficiency and innovation both through the application of technology and through the exchange of ideas and best practices."

Five Actions CPOs Should Take Now to Prepare for an Economic Downturn

Strategy #1 — Get Quick Visibility into Spending: A company can't control what it can't see. Gaining global, enterprise visibility into spending is much easier now than it was even a few years ago with the advent of automated spend analysis technologies. With software programs or outsourced aggregation of data, companies can get a current view into spending within as little as 90 days. Experts suggest that spend visibility updates should be done on a quarterly basis at a minimum, but for relatively minimal costs it is realistic today to have monthly spend visibility updates company-wide. Leading spend analysis software technologies can aggregate data from dozens of different systems, including every major enterprise resource planning platform, and can analyze and drill down on spending along dozens of different dimensions, including by commodity, cost center, GL account, geography, time, payment terms and more.

Strategy #2 — Take Steps to Mitigate Inflation: Inflation is the X factor in this economic downturn, experts say, and getting ahead of it is critical. The panel recommended re-negotiating contracts with target suppliers and sourcing for value as immediate steps companies could take to help insulate themselves against inflation. In sourcing and contract re-negotiation, the first priority should be a focus on high-value, high-risk areas such as transportation and fuel. In addition, the experts say to focus on categories where you can negotiate lower prices with suppliers without incurring higher costs elsewhere or damaging your long-term interests around delivery, performance and availability.

Strategy #3 — Renegotiate and Enforce Compliance to Contracts: One of the big areas of loss for companies is in supplier non-compliance to existing contracts. Whether it's enforcing negotiated pricing, realizing quantity discounts, or ensuring quality standards and associated penalties and discounts, contract compliance becomes even more essential in a recessionary environment. Further, experts say that companies should target certain contracts for re-negotiation in an economic downturn, noting that key suppliers may be more willing to re-negotiate than perceived. Technology can play an important role in helping companies' link contract terms to spending and thus reducing leakage — and in linking contracts to supplier performance to track commitments versus actual performance metrics.

Strategy #4 — Mitigate Risks When Pursuing Cost Reductions: A bad sourcing decision or supplier issue that can be addressed and weathered in a good economy can be devastating in a bad economy. Sourcing and quality experts say that one of the biggest strategic mistakes companies make is strictly looking for lower costs rather than evaluating overall value with suppliers. The drive for lower costs that has led to outsourcing and low-cost country sourcing (LCCS) has brought with it sometimes unforeseen downsides, such as poor quality components, delivery issues, increased risks and service interruptions. Thus, an increased reliance on LCCS and outsourcing demands an even greater role for evaluating overall value and capabilities when sourcing for lower cost. Optimization is a concept and technology employed by the leaders in global sourcing that helps executives balance risks and rewards. Sourcing technologies and services with optimization capabilities allow for sourcing events that factor in a range of requirements, which enables decision making that extends beyond cost.

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