Riding the economic Tsunami

Darwin probably said it best – the fittest will survive. That’s also the assessment of my colleague in the UK, Robin Jackson, CEO of ADR International. If you haven’t seen ADR’s newsletter, this is what he had to say:

“The business environment has changed fundamentally and we will have to look back to the great depression of the 1930s, the collapse of South American economies in the 1970s and 1980s and Japan’s “lost decade” of the 1990s to draw lessons.

In this radically changed environment it is vital for the survival of businesses for procurement leaders to consider new ways of handling these challenges and develop new offensive and defensive sourcing strategies.

Remember this is a once-in-a-century readjustment of prices. Only if you are bold and act speedily will your business survive. Your competitors will be doing it and to survive you will need to do it too.

It’s time to call in the favours – if ever there was a time for strategic co-operation with key suppliers, this is it. If they don’t live up to their part of the strategic partnership billing, move swiftly to find alternative partners. Leverage your strategic supplier relationships. Be demanding and move rapidly.

Conserve your cash. Even if your business can borrow it is more expensive to do so now. So extend payment terms to the maximum without damaging the viability of your suppliers.

If you receive a price increase request then the supplier must be having a joke. With basic commodities falling in price by 40 per cent or more (a barrel of oil is down 70 per cent) how can any supplier claim their input costs are increasing? Any increases caused by the fall in the value of currency will be more than offset by the collapse in input prices.

Your defensive strategy should include preparing now for possible disruption of your supply chain. Disruption can result from suppliers going bankrupt, economic meltdown in countries, significant currency fluctuations and political unrest, so plan carefully how your business will manage it by developing detailed countermeasures.

In China the number of bankruptcies has increased significantly and this has led to an increase in social instability – imagine the chaos if a new political regime closed China’s borders to the West again, or Russia switched off the gas.

We need more than ever to be aware of currency movements and take them into account in all our procurement decisions. Given the volatility now inherent in the world economy, today’s low-cost destination of choice could be tomorrow’s high-cost country to avoid.

In this climate, it almost certainly makes sense to shorten your supply chain to reduce risk and vulnerability, so local sourcing could become the new must-do procurement strategy to replace the obsession with low-cost country sourcing of recent years.

These are unprecedented times. So our strategy for 2009 should be: be bold, be brave, act swiftly and be ruthless. Develop new offensive and defensive ideas and ways of working. Only then will you and your business have a chance to survive this economic tsunami.”

Thanks, Robin. We should all bookmark this. Post it on our desktops and build it into our work plan every day for 2009.

Find more articles by Robin and others at our ADI International web site


2 responses to “Riding the economic Tsunami

  1. I absolutely agree with your comments and recommendations. Supply management and sourcing professionals should be pulling out all their current contracts and taking the necessary action to mitigate their risk and reduce costs.

  2. Just passing by.Btw, your website have great content!

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