2009 and Beyond: Two General Procurement Changes Likely to Hit Metals Buyers

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Sourcing Strategies

In the past few months, during half a dozen spring procurement conferences, I’ve informally surveyed a number of CPOs and VPs of procurement about trends they expect to see ” and actions they expect to take ” in the coming months and years as a result of the evolving business climate. Many of these trends and directions-from-on-high will hit metals category managers and buyers who will either have to manage under these new directives or justify alternatives.

The first expectation I would suggest is that working capital management is in the process of becoming an even greater issue than in the past. This means, in the case of less advanced finance and A/P organizations, you can expect to have uniformly longer payment terms pushed your way to shove down the cash-strapped throats of suppliers (if you have not gotten them already). For more advanced companies, this will mean flexible discounting approaches that either internally fund ” or rely on third-party financing ” sliding scale discounts to suppliers based on when they chose to receive payment (some companies I have interviewed are already earning greater than a 20% APR through these programs). In either case, expect supplier change management to be involved and be prepared to explain how and why these new practices will impact your relationship going forward.

The second important lesson applies more to companies buying from smaller and mid-sized suppliers in general, most likely those involved in shaping, forming or otherwise adding value to raw or semi-finished materials (most likely not distributors and mills). And that’s the importance of closely monitoring the financial viability of your suppliers. I have had the chance to speak to a number of providers of supply risk and supplier credit information in the past few weeks and they have all said the leading indicators are actually looking worse for the end of 2009 in regards to the rate of potential supplier bankruptcies than in the first half of the year. After all, liquidation (Chapter 7) or restructuring (Chapter 11) is a trailing indicator of the economy. So expect to be given added responsibility not just to negotiate with suppliers and manage the relationship, but to actively check and monitor their health as well, both by looking at third party data (e.g., D&B, Experian, Equifax) and examining internal performance indicators (e.g., on-time delivery, escapes, PPM, etc.) which are perhaps the best early indicators of potential distress signals.

And if these were not enough, get ready to take on someone else’s job as well. I’ve heard about more friends getting laid off in the past few weeks (at all levels in procurement organizations) than in the past few months.

Jason Busch

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