Purchasing Officers: Confident Now, But is Trouble Ahead?

While the recession has strengthened their negotiating positions, many purchasing professionals have not yet assessed the impact of the recession on their supply-management strategy.

Cost-cutting is driving a more prominent role for chief purchasing officers (CPOs) but their short-term focus could cause problems in the future, according to a study released by BravoSolution, a supply management software provider.

The research, conducted by independent research consultancy Loudhouse, surveyed the views of 400 CPOs and purchasing directors of large organizations in five countries (United States, United Kingdom, France, Spain and Italy). It indicates that 74% of organizations have seen an increased need for cost savings over the past 12 months. Some 44% anticipate wider mandates for cost control and 38% see an increased strategic input for procurement over the next 12 months.

Nearly four out of five purchasing professionals stated they have seen unexpected opportunities as a result of the economic downturn. For example, 51% believe they are now in a stronger negotiating position with suppliers, and 48% state they have more flexibility when it comes to reviewing existing contracts. Some 40% also noted that cost-cutting priorities have increased at the board level.

However, the study also found that 69% of the CPOs had not examined the impact of the last six months on their supply-management strategy, leaving them exposed to potential long-term problems. And of the other 31%, some 72% are introducing changes to their supplier-management strategy, indicating a fundamental need for purchasing professionals to evaluate the risks that the recession has created.

Of those purchasing professionals who have introduced new systems and processes to their supplier-management strategy over the past 12 to 24 months, a large proportion report a clear return on investment within six months: 41% have made savings from greater supplier performance management, and 31% witnessed improvements from eSourcing tools and templates.

"When costs need to be cut and supplier contracts renegotiated, it is clear that procurement can play a leading role in steering their businesses through the current economic turbulence," says Nader Sabbaghian, CEO of BravoSolution. "However, our research clearly shows that many purchasing professionals are currently following short-term strategies that could lead to long-term problems. Distracted by this, CPOs are failing to evaluate the full impact that the last six months has had on their businesses. Overlooking risk in the midterm and lacking investment in process efficiencies, many businesses will feel pain in the next 12 months with the potential of supplier flexibility drying up."

"Purchasing professionals find themselves in a unique position during the downturn. They move towards center stage within corporate strategy and are empowered as a result of supplier instability," says Billy Hamilton-Stent, director, Loudhouse Research. "However, this is not sustainable. Future planning, risk assessment and innovation must take precedence in the coming months if large businesses are to build sustainable purchasing strategies in leaner times."

With 40% of businesses agreeing that procurement is viewed as an area to invest in during the downturn, the majority of organizations may face internal budget challenges over the next 12 months. Only 12% of businesses expect purchasing (operational) budgets to increase in 2009/2010.

"CPOs can deliver cost savings today by hard negotiation, however tomorrow's efficiencies must be realized through evolving business strategies and addressing the top three procurement challenges of 'cost saving,' 'speed,' and 'visibility'," continues Sabbaghian. "Ignoring this necessity will make change all the more difficult in the future, especially with purchasing departments facing the challenge of doing more with less."

Slightly more than half of the respondents felt that the economic downturn had created negative obstacles that had prevented them from achieving their procurement goals, with unstable supplier credit the biggest challenge (29%). Supplier bankruptcies (22%) and lack of negotiation confidence (10%) were also areas of concern.

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