Procurement in Troubled Times: Creating Opportunity from Economic Adversity

Procurement plays a prominent role in seizing these opportunities, moving beyond the function’s traditional boundaries and helping to shape an organization’s strategic approach to become a high-performance business.

We are in extraordinary, if not unprecedented times. In industry after industry, businesses are bleeding red ink, laying off employees, being nationalized or simply going under.

While businesses face challenges in the current economic environment, these extraordinary times also present opportunities that companies can exploit to gain competitive advantage. Previous downturns have proven that companies may be best positioned to gain competitive advantage during and immediately after a recession.

Present conditions offer an ideal opportunity for an invigorated focus on costs. Consolidation, currency swings and the credit crisis are rewriting the procurement paradigm.

Findings from a recent online survey by Accenture reveals that a new business environment is emerging with significant opportunities for companies. Procurement leaders are playing a prominent role in seizing these opportunities, moving beyond the function’s traditional boundaries and helping to shape their business’ strategic options on their journey to becoming high-performance businesses.

The turbulent current economic times are impacting procurement in several ways:

• Corroboration: More than three-quarters of procurement heads who were surveyed reported that the current downturn was “significantly affecting” their procurement functions.
  
  
• Budgets and Deliverables: Procurement leaders are being asked to do more with a lower cost base. Many reported, however, that they were able to capture additional savings.
  
  
• Suppliers: The majority of those surveyed felt that their supplier relationships had been affected and that supplier risk had increased. Security of supply emerged as a major concern and many reported monitoring the financial stability of their suppliers more closely.
  
  
• Speed of Response: Timescales are tightening. There is a danger that businesses may lose sight of their longer-term procurement plans while focusing on the short term, which can undermine the sustainability of benefits.
  
  
• Talent Management: Analyses indicate that pressures on talent management within the procurement function are easing slightly, despite pressures that the new business environment is placing on the procurement function itself.
  
  

Short-term responses to the downturn include cash conservation, cost reduction, supplier collaboration and relationship management. Many are re-evaluating or redefining their sourcing strategies and/or increasing their payment terms. Interestingly, longer-term initiatives have largely been left untouched as procurement transformation programs continue with little response to the present volatility.

Short-term actions are focused on survival and the day-to-day necessity of dealing with the downturn, but that does not suffice for companies in search of high performance.

To capitalize on opportunities, different organizations will need to respond in different ways. Before turning to the procurement function’s specific role in this, it’s necessary to first consider the context of the organization in which it operates, reviewing how recession-driven “big picture” strategic imperatives might affect the business.

Some possible strategies include redesigning the businesses operating model, making selective acquisitions and adopting green principles. Regardless of the strategy chosen, it is important that companies have a clear plan to execute on that strategy and also realize the role of procurement in delivering the financial and operational resources to fund that plan.

Accenture’s extensive research into high performance as it applies to procurement finds that procurement masters:

• Drive down costs—sustainably, and in a manner that will not hamper the business’s ability to grow.
  
  
• Generate cash from within the business through effective and durable management of working capital.
  
  
• Reinvest achieved savings appropriately to fund the potential investment required to achieve even broader or more impactful cost reduction or cash generation.
  
  

To successfully manage through these turbulent times, organizations need to drive structural improvements that can benefit them now and over the longer term. Procurement is at the forefront of this change—and the present economy marks an unrivaled opportunity for the procurement function to become an integral part of an organization’s ability to successfully mitigate these extraordinary times and ultimately achieve high performance.