The PIU is about to launch its latest research exploring the possible courses of action in times of economic uncertainty. As part of this, it will look at strategies and tools to navigate a company through an economic slump.
The larger the company, the greater the scope for employing aggressive negotiation strategies. Indeed, some companies can circumnavigate the need for negotiations - the last crisis saw many famous examples of suppliers receiving letters outlining a 10% payment cut.
The current climate is made more challenging by a market that is seeing inflation in nearly all commodities. Indeed, many procurement professionals now experiencing the boot being on the other foot, with suppliers increasingly able to dictate terms with customers fighting tighter supplies of key input goods.
As the economic situation worsens, procurement's range of options is limited. For instance, the promise of future business is a lever that may be entirely absent from the buyer's toolbox.
In such circumstances, when commercial pressure may not be enough, buyers may opt for a 'softer' approach. It would be hoped that lower contract prices may be delivered by bringing businesses closer together.
The question for suppliers would be whether it would accept a buyer's move to forge a strategic relationship when it is financially struggling, especially if there is a history of aggressive negotiation and cost-cutting.
Procurement needs to ensure that strategic relationships are forged for the right reasons. Namely: clear commercial benefits of working closely either to innovate or improve productivity by close working. A concealed attempt to secure lower costs will scarcely be credible and set unrealistic expectations in a relationship.
There may be opportunities, however, for more vertical integration within a sector that is struggling more generally. It may be an opportune moment – if there is any available capital – to consider acquiring a supplier that is experiencing financial difficulties, but can add value to the organisation.
Aside from this more extreme measure, looking beyond the cost-reduction focus which may dominate procurement's concerns may deliver savings through indirect means – productivity gains, for instance.
The main barrier to these opportunities, however, is not their presence, but the mindset. Once a company experiences financial difficulties, this filters through the entire organisation, leading procurement to a myopic focus on cost. But, can buyers over look this and still take advantage of the opportunities?