'Recessionary times can actually facilitate more creative solutions'

There is no textbook definition of recession, although economists widely acknowledge it as being two consecutive quarters of negative economic growth

As you read this, it is likely a significant proportion of the global economy will be in recession. But, for many of you, it will feel like we have been there for a long time already, despite the official statistics.

Major drivers of the global economy – China, the EU and the US – will all slow significantly in 2023, according to the IMF. So, as we batten down the economic hatches, what can procurement teams focus on to reduce costs and help deliver value?

The first thing to consider is discretionary spending. When an organisation’s primary goal is to protect the bottom line, ask yourself what can you spend less on, or stop buying altogether, without compromising on quality or service? For example, if you are in the business of making bread, you must buy flour. But simple changes elsewhere, such as reducing the frequency of window cleaning, could reduce expenditure. As energy prices remain high, could buildings be partially closed or spaces heated more efficiently to save on energy bills?

Covid has taught us that workspaces can be used flexibly without compromising productivity. A second area to explore is whether you can review your supplies to produce the same output by sourcing more cost-effective inputs.

Brewing is a great example here, and a sector I know well. All beer requires hops, an essential ingredient prized for its unique aromas and flavours. There are more than 250 varieties as well as blended hops, which offer consistent combinations. For a brewery that sources a particular hop blend, a shortage or price spike could present an opportunity to look at whether sourcing individual hops could lower the cost per unit.

Of course, connoisseurs, sommeliers and cicerones know that all beers have unique characteristics, so it’s only an option if the end product is not affected. Looking for alternative suppliers could not only uncover better value but broaden your supplier base and help build resilience.

A third area I want to highlight questions whether running a tender process for a new or existing contract is always the best option. Alternative approaches exist that could reduce costs in the short term and deliver better value over the medium to long term. For example, making a commitment to an existing supplier for a longer period or, in some circumstances, co-investing with them to develop a specific product or service enables you to create solutions that are not currently on the market.

In times of shortages of suppliers or supplies, or both, these alternative approaches can be invaluable in tackling rising prices, creating value and building strong, long-term supplier relationships. But they present an obstacle in the public sector, where the decisions of tendering authorities can be challenged in line with procurement regulations.

Whichever strategy you deploy, please do not allow a recession to become a race to the bottom. As procurement professionals, we have a responsibility to use our skills to ensure we treat people fairly, that suppliers are paid on time and we work towards maximising sustainability while minimising malpractice within supply chains, such as modern slavery.

Instead, think of recession as an opportunity to learn new skills, to innovate and build robust, new supplier relationships. 2023 will challenge us in ways we may not have experienced before. But, if we have learned one thing from the disruption of recent years, it is that procurement professionals are more resourceful, more resilient and our knowledge and skills are more important to organisations than ever before.

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