Sourcing in a Recessionary Environment

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Psst….I know that we constantly stress the fact that companies should not “play the market” but if there ever was a time to conduct a sourcing event, I’d pick now.

Why?

Let me back up for a second. Today, for the first time in a long time, we had a new client delay a project start date until January because of economic conditions and the company’s own current financial picture. As a veteran consultant, I’m familiar with the fact that postponing a project is nothing new. Clients delay projects all the time for a whole host of reasons. But when clients delay cost savings projects, well, that gives me pause to re-articulate the value proposition of conducting sourcing events in slow markets. On the back of the Institute of Supply Management’s worst manufacturing index reading, in 26 years, purchasing managers around the country reported their order books slowing as US export activity also slowed. The actual reported number of 36.2 was well under the expected 38+ reading. Any number under 50 indicates an economic contraction whereas any number over 50 indicates growth. Two consecutive quarters of readings less than 50 indicate a recession.

And it is precisely during tough economic times that businesses can garner additional savings. Remember a few months ago when steel was an allocation market? Nobody dreamed of running a sourcing event because “assurance of supply” reigned supreme. But now those same suppliers (who often didn’t give some companies the time of day) are only too happy to receive an opportunity to bid on larger spend categories/programs. And though most companies are taking advantage of buying their metals on the ever falling spot markets (e.g. steel, copper, aluminum etc), purchasing only what they need based on current demand, others know that splitting out the material from the value-add and aggressively bidding the requirement may allow firms to lock-in an even greater savings than those just buying on the spot market. Furthermore, by creating a more competitive bidding event (and I don’t necessarily mean reverse auction here), the savings can be even greater than just opening the supply market slightly.

So if you are thinking about tabling a metals-related sourcing initiative until next year, think twice about it. After all, as Ben Franklin once said, “A penny saved is a penny earned.”

–Lisa Reisman

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