Friday Rant: Get Ready for a Double-Dip Recession and Its Impact on Procurement (Part 2)
Last Friday, we introduced economic data that suggests the US could be headed for a double-dip recession sooner than many might realize (as early as Q2, when revised numbers come out). In this Friday's post, we'll continue providing what we believe are the most critical checklist supplier recommendations to consider based on the highly probable chance of economic stagnation or contraction. Even if you're a "glass is half-full" type of person, Spend Matters suggests that you're always better off safe than sorry. So why not take the next few weeks during what is often a summer lull to plan for taking action just in case. Below, is our continued set of checklist suggestions:
- Develop your own economic models -- It's also our recommendation that procurement organizations work closely with finance and any on-staff or retained economists to develop more specific forecasts around demand, supply, commodity price trends, benchmark performance and relative metrics that can help form a P&L forecast, budgeting, margin, forecast data (for suppliers) and related planning and analysis.
- Invest in supplier development and potential supplier credit facilities for key suppliers -- hopefully your organization has already invested in building a supplier development group that can go in and help improve supplier quality, take waste out of supplier operations and generate savings that both groups can share. If it has, now would be an ideal time to work with this group to identify at-risk suppliers that could be helped by early intervention going into another downturn. This might involve on-site development activities and/or even providing credit facilities, perhaps in the form of low-APR early payment or pre-payment for commodities and raw materials, to key partners.
- Make sure your spend analysis and P2P (including invoice automation) capabilities are fully in place and ramped up as soon as possible. If you don't have visibility (both historic and forecast) into what you're spending and who you're doing business with, it's not only impossible to act nimbly and take action when it comes to identifying at-risk suppliers, it's also challenging to develop accurate forecasts into your current and future payment obligations -- which directly impacts broader margin, EPS and financial forecasts.
- Look outside (not just in) when it comes to supplier and supply markets insight -- consider the importance of working with third parties like D&B, Bureau van Dijk, Panjiva and others to gain early warning about supplier stability based on financial and operational (e.g., export shipment) data.
- Dust off your supplier performance management tools -- supplier performance is the single best indicator of supply risk. If you aren't monitoring every single supplier that is critical to your operations that cannot be easily replaced on a day or week's notice, think long and hard about investing in an SPM solution that can automate many aspects of these efforts and serve as a central repository for managing information and collaborating with internal stakeholders and suppliers.
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Interesting that you use the term "double dip" recession. I attended a luncheon this afternoon in Atlanta where radio talk show host and potential 2012 presidential candidate Herman Cain (www.hermancain.com) spoke to an audience of small business owners.
During the Q&A, someone asked him, "if he felt the US was in line for a "double dip recession"? His response was an interesting one. He said, "how can we go into a double or second dip recession, when we are not out of this one?" He went on to indicate that, with the US at 10% unemployment and no sign that the stimulus is doing anything other than making the government bigger, the economy will not expand and we will remain mired in the current recession.
Therefore, taking conservative risks and remaining proactive is paramount to ensure your company can survive in this unsure economic environment. We have some good supplier management tools and white papers, should your readers be interested in looking at them on our website at www.hcmworks.com.
We are, for sure in some regards, uncharted territories.