Continuing economic uncertainty means procurement professionals must focus on balancing supply chain risks with new opportunities, say business consultants Efficio.
In its first Viewpoint article of 2013, Efficio says supply chain risk is a central factor to consider when economic uncertainty is the order of the day.
The authors of the Viewpoint titled “2013: Balancing risk and opportunity” say procurement professionals can take nothing for granted in the year ahead and the main challenge is to cope with the continuing economic uncertainty and price pressure on commodities.
Efficio Chief Operating Officer Alex Klein, senior consultant Tobias Regeniter and consultant Mika Partanen say the risk of suppliers going out of business is increased during difficult times and this must be managed effectively.
The good signs are that the US economy appears to be holding up, UK unemployment is down and the Eurozone crisis seems to have eased for the moment. But indicators including the Purchasing Managers Index suggest there is little prospect of an imminent upturn.
Efficio says there are steps procurement leaders can take to mitigate the worst effects of current economic conditions. These include:
• Exploit opportunities offered by the continued economic downturn by internally positioning procurement as a key influencer maintaining margins through cost reduction
• Clearly delineate the effects of unavoidable commodity price rises and ring-fence their impact
• Offset market price increases wherever possible. In transportation-intensive companies, for example, increases in fuel prices can be offset by driving value from other elements of the cost base, by reconfiguring the network, making greater use of back-hauling, or moving to a 3PL model
• Keep an eye on macro level developments such as the gradual upward trend of low-cost country prices. Revise volume allocations to such regions where appropriate
• Leverage shrinking demand on suppliers by driving competition through strategic sourcing programmes
• Pressure on suppliers should be applied upfront during the sourcing exercise. Once the suppliers are selected they should be supported through active SRM
• Manage the risk of supplier failure. As a minimum, actively monitor the financial situation of key / strategic suppliers.
In particular, the Viewpoint’s authors say, continuing uncertainty in 2013 calls for flexibility.
“Procurement leaders who can adapt to changing market conditions, for example from a situation in which cost focus is the priority to one in which the most significant factor is a marked increase in demand, will be best positioned to take full advantage of the opportunities available.
“The ability to manage risk against costs and take advantage of changing global supply chains will become increasingly crucial in the year ahead and into the future.”
Efficio is a results-focused procurement consultancy with a track record of helping leading organisations achieve more value from their procurement. It is headquartered in London, UK, and has offices in France, Germany, Switzerland and the US.
Efficio combines the credentials of a top tier firm with the depth of expertise of a flexible niche player. Clients include 3i, AstraZeneca, Barclays, BAT, Biffa, British Gas, Ford, Scandic, HSBC, KKR, Nokia, National Grid, O2, Tryg and Thames Water among others.