Note to CEOs – The World is Upside Down

Chief executive officers, maybe you haven’t been pumping your own gas, but every one of your suppliers has, and there is no way they are going to be able to absorb 30 to 40% increases in fuel costs and stay in business. Dow Chemical just announced a 25% hike in its prices. Steel prices are also setting records. Pizza makers are spending more dough, not making it when they look at wheat prices. The world of business buying has spun completely around in the last months, and you had better sit down with your other “C-level” folks to realign your expectations of what you can deliver.
I was in a very recent meeting with managers of an equity fund who apparently have not read a newspaper in the last six months. They were still expecting the purchasing team to deliver improved margins and lower costs from the supply chain. I guess its our own fault as purchasers that over the past ten years we generally could deliver value to the bottom line by strategically managing categories, building good supplier relationships when it mattered, and mitigating risk wherever it appeared in the supply chain. CEOs have been able to wish money out of the supply chain because we could make it happen.
However, just when we had you CEOs convinced of the difference we could make, the hurricane hit, the levees broke and the world was hit with a flood of rising commodity prices. From our work with a dozen companies buying many commodities, I can tell you that what we are experiencing is a very broad trend that shows no signs of stopping.
It is time for CEO’s and CFO’s to realize that the significant decline in the economy, combined with high inflation, capacity reductions and suppliers struggling to survive have created a very different buying marketplace. Budgets built on cost improvement are now at risk. Your buying teams must focus on cost containment. In many cases they will be applying the same tools, but their goals have to fit today’s realities.

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One response to “Note to CEOs – The World is Upside Down

  1. The world certainly has changed dramaticaly in the last month and another key element of supplier selection is going to be based on risk assessment of suppliers and even their competitors.

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