Buyers take stock

31 January 2008

31 January 2008

The stock markets are falling and the property market is slowing. But why do most buyers view the economic downturn as an opportunity? Jake Kanter finds out

In an after-dinner speech in Bristol last week, Mervyn King, governor of the Bank of England, issued a strong warning about the current state of the world economy. "The next year will pose economic challenges for us all," he said.

Analysts say the signs of an economic slump are all around us; a falling stock market, reduced consumer spending and a slowdown in the housing market.

But how are buyers approaching the tightening financial situation? Procurement departments will find themselves on the front line, working under these unpredictable conditions.

And if the economy does worsen, what will the impact be on purchasing costs and the health of supply chains?

The SM100 poll revealed most buyers feel positive about the effects of a downturn. Some 71 per cent of purchasers saw it as an opportunity for procurement to stand up and be noticed.

Marianna Zangrillo, vice-president of indirect sourcing, MRO sourcing and supply chain management at chemical firm Kemira, says difficult economic conditions could encourage some firms to look to procurement if they haven't before.

"The economic downturn tends to put more focus on spend management and I see it as an opportunity for existing procurement functions, and as an opportunity to create such a function in companies that do not have one yet," she says.

Other buyers are switching their attention to increasing competition among their suppliers.

"Economic downturns always makes suppliers compete harder for business and they are more likely to perform well than when they're overloaded," says Paul Hooft, project controls and materials manager at engineering group CB&I. He adds buyers need to shift their focus from getting suppliers that can perform, to those that can reduce their prices.

Gary Moore, strategic procurement manager at Bournemouth Borough Council, believes procurement's natural function is to reduce the out-going costs of an organisation.

"Any downturn or poor trading environment presents a challenge for an organisation, whether private or public, with a natural focus on its cost base," he says. "Procurement is always in pole position to make a positive contribution. It should always be helping an organisation manage its cost base and identify supply-chain derived value-adding features to improve the appreciation of the products on offer."

And he is confident that the abilities of procurement will be noticed at such a time. "As a profession we are able, it could be argued, to make a stronger contribution to our organisations when trading conditions become difficult."

But there are risks of driving competition between your suppliers.

"In an economic downturn, smaller firms going bust or getting swallowed up by larger firms will reduce the overall number of suppliers and have a detrimental effect on competition in the supply chain," says Liam Gormley, buyer at Newcastle City Council.

Many buyers cited this as one of the prime threats of a slump.

And Nigel Stewart, procurement controller at Focus DIY, warns of a greater concern for purchasers - losing your job. "Even in successful teams, buyers run the risk of their jobs being part of those cost reduction processes," he says.

But the overall message from buyers is that practices should remain consistent, regardless of the economic circumstances. As Brian Grew, supply chain director at Live Nation, says: "Increasing costs need to be managed with the same skill and oversight as at times when costs are falling."

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