Thursday, 27 March 2014

The coming Spring: Procurement and the Recovery

The evidence is stacking up that the UK is in recovery mode.  Now there are a couple of points about that. Firstly, it may not feel like a recovery – but my experience is that it never does until the recovery has been going for a year or two.  Maybe more.  Secondly the recovery is never uniform.  Rather like my favourite quote “the future is already here – it’s just not evenly distributed” (William Gibson) all recoveries start off patchy before they “float all boats”.  So there are going to be mixed recessionary and growth signals for months to come. 

So what does this mean for procurement?  Well it requires a bit of thinking and a change of behaviour. 

When your popcorn is ready to eat the rate of pops drops, but if you wait for them to stop altogether you have overcooked it. If you wait for all signs of recession to be gone you will be in the midst of the boom.  The number of suppliers going out of business will drop, but some will still fail even though the finish line is in front of them.  Continue to be careful about the financial health of suppliers.  The recovery can finish off some companies because of the need to increase capacity, hire new staff, and rising input prices which is hell for the Cashflow.

The recession was all about forcing down prices, and costs out.  This often meant wage freezes and hiring freezes.  So there is no pent up demand for wage rises, which will eventually have an impact on prices.  Suppliers are going to be much less willing to agree bottom rates in return for guaranteed work – a long contract could leave them exposed.

A lot of suppliers mothballed or closed capacity during the recession.  This means firstly that they have to invest to re-open that capacity, and secondly that there might be supply shortages.  Both of these will also tend to increase prices, but availability might be low.  Suppliers will sensibly bottom slice their lowest margin business, so if you are still in “recession mode” pressing for the lowest possible price then you might struggle for supply.  Once survival is guaranteed suppliers are going to look for the “fat” to put on their bones for next time.

Many suppliers ran staffing at minimum levels.  As the recovery develops the job market will open up, and staff will be looking for promotions just as suppliers need more personnel to cope with increasing demand.  So again there are likely to be price rises and gaps.

And suppliers may no longer be quite so keen on your work.  If there is more to go round, they can be more selective.  If they have a limited supply and can get good prices wherever they go, then they will select customers on other critieria – like how you treated them during the recession.  It’s a bit late to worry about the consequences of that now, but you might want to find ways to apologise for beating them with a big stick for the past 5 years.  Or of course to remind people about your support of them during hard times.

So, just remember that things are changing, and change is dangerous.  Make sure you are not stuck in the mind set of the past five or six years and suffer as a result.
(The cherry blossom in Leeds always told me that Spring was on the way or here already)

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