Today’s guest post is from Brian Sommer of Vital Analysis — a research analyst firm that advises technology buyers on what to buy or run from — and TechVentive — a market research firm that advises major technology and services firms on the messages that resonate with today’s buyers. He is also the blogmaster of Software and Services Safari.
So it’s time to reset the plans, dreams, strategies, etc. of souring and procurement organizations. The economy has bottomed out. Businesses have exhausted their inventories and must replenish their stores. Sourcing should kick in again.
But will it be any different than before? I have my doubts.
In a study I completed this summer, I conducted detailed interviews with sourcing professionals, supply chain experts, research analysts and more to find out what’s changed with strategic sourcing and procurement the last ten years. The unsurprising and disappointing answer was ‘not much’.
So these disciplines haven’t changed in robust times or poor times. When, then, will they change? I don’t know but I do know of several problem areas sourcing experts must address soon if their groups are to remain viable and relevant.
1) Knowledge Transfer
The folks at the MPower Group are hearing some of their clients worry that large amounts of sourcing and technical knowledge is about to leave their firms. Businesses with complex, aging tools, equipment, etc. will need to replace these items in the near future; however, the individuals who did the initial sourcing are retiring and their knowledge of suppliers, engineering specifications, lead times, supply sources, etc. may be leaving with them. Your key to-do is to determine how many of your key sourcing experts may leave your employ once their 401K is rejuvenated via a rising stock market. Then, decide how you can capture this person’s knowledge before they’re out the door.
2) New supply chain opportunities are available but you might not know about them.
For example, the Kansas City Southern (KCS) railway has been building out a powerful rail network the last few years. From the Midwest U.S. to Gulf ports and southwest into Mexico, it’s an interesting route. They’ve also developed a deep port on the Mexican west coast that can take container traffic scheduled for U.S. ports without the delays that used to plague those ports. Now, the KCS has put in a new rail line southwest of Houston that significantly reduces transit times for trains moving across Texas and Mexico. Rail traffic is down, fuel costs are down (for now), ports are less congested, etc. Now is the time to re-evaluate and re-negotiate.
3) Bankruptcies are still happening
This recession artifact is not over yet. Just because the economy has bottomed out doesn’t mean that the remaining companies will be survivors or prosperous. Watch out for key suppliers as some may fail right before your eyes.
4) When the economy does improve, there is a real risk that hyperinflation could strike.
That’s not a guarantee but the level of debt the U.S. has (to fund two wars, TARP, etc.) will eventually drive up interest rates. Your sourcing team must develop two alternate sourcing scenario strategies: one for hyperinflation and one for stagflation. Make sure you know how to tell which space the economy is in and how to adjust buying accordingly.
5) The risk of a pandemic outbreak (e.g., SARS, swine flu) could be a real problem for modern businesses.
It could change what we buy, where we buy it, how it gets shipped, etc. Make sure you have multiple suppliers in diverse parts of the world ready to provide materials to you. Don’t bet it all on one country, one supplier, etc.