Five Actions CFOs and CPOs Should Take Now to Prepare for an Economic Downturn

Strategy #1 - Get Quick Visibility into Spending: A company can’t control what it can’t see. Gaining global, enterprise visibility into spending is much easier now than it was even a few years ago with the advent of automated spend analysis technologies. With software programs or outsourced aggregation of data, companies can get a current view into spending within as little as 90 days. Experts suggest that spend visibility updates should be done on a quarterly basis at a minimum, but for relatively minimal costs, it is realistic today to have monthly spend visibility updates company-wide. Leading spend analysis software technologies can aggregate data from dozens of different systems, including every major ERP platform, and can analyze and drill down on spending along dozens of different dimensions including by commodity, cost center, GL account, geography, time, payment terms, and more.

Strategy #2 – Take Steps to Mitigate Inflation: Inflation is the X factor in this economic downturn, experts say, and getting ahead of it is critical. The panel recommended re-negotiating contracts with target suppliers and sourcing for value as immediate steps companies could take to help insulate themselves against inflation. In sourcing and contract re-negotiation, the first priority should be a focus on high value, high risk areas such as transportation and fuel. In addition, the experts say to focus on categories where you can negotiate lower prices with suppliers without incurring higher costs elsewhere or damaging your long term interests around delivery, performance and availability.

Strategy #3 - Renegotiate and Enforce Compliance to Contracts: One of the big areas of loss for companies is in supplier non-compliance to existing contracts. Whether it’s enforcing negotiated pricing, realizing quantity discounts or ensuring quality standards and associated penalties and discounts, contract compliance becomes even more essential in a recessionary environment. Further, experts say that companies should target certain contracts for re-negotiations in an economic downturn, noting that key suppliers may be more willing to re-negotiate than perceived. Technology can play an important role in helping companies’ link contract terms to spending and thus reducing leakage – and in linking contracts to supplier performance to track commitments versus actual performance metrics.

Strategy #4 –Mitigate Risks When Pursuing Cost Reductions : A bad sourcing decision or supplier issue that can be addressed and weathered in a good economy, can be devastating in a bad economy. Sourcing and quality experts say that one of the biggest strategic mistakes companies make is strictly looking for lower costs, rather than evaluating overall value with suppliers. The drive for lower costs that has led to outsourcing and Low Cost Country Sourcing (LCCS) has brought with it sometimes unforeseen downsides, such as poor quality components, delivery issues, increased risks and service interruptions. Thus, an increased reliance on LCCS and outsourcing demands an even greater role for evaluating overall value and capabilities when sourcing for lower cost. Optimization is a concept and technology employed by the leaders in global sourcing that helps executives balance risks and rewards. Sourcing technologies and services with optimization capabilities allow for sourcing events that factor in a range of requirements which enables decision making that extends beyond cost.

Strategy #5 –Do More with Less In a recession budgets are being trimmed and headcount reduced , yet with global competitive pressures your department may be asked to do even more. Seize the challenge and focus on making your department more efficient. Experts say the surest way to improve efficiency is in the smart application of technology. According to studies, virtually all the productivity gains made by US companies over the past quarter century have come via technology. However, experts caution that there are risks associated with the selection of which technologies to implement. They recommend going only with proven, best-of-breed technologies that have been tested and successful at other leading Fortune 1000 companies. Consulting partners, peers and leading analyst firms, such as Gartner and Forrester, provide a good starting point for the evaluation of such technologies

Additional Resources

For further information on how to leverage supply and contract management software to weather and excel in an economic downturn, download any of the following resources from www.emptoris.com:

• Download the first chapter of, “Spend Analysis: The Window into Strategic Sourcing,” the definitive book on spend analysis by Kirit Pandit.

• Download a whitepaper “Straight to the Bottom Line” based on the book by the same name, co-authored by Robert Rudzki

• Download the webcast “Grab Risk Management by the Horns” or the whitepaper “Taking Charge of Supplier Risk” by Professor Donavon Favre, contributing author to three supply management books and a world-renown expert on sourcing.