Daily Archives: October 21, 2014

Procurement Trend #30: Continued Margin Pressure

We still have twenty-seven (27) trends to go, so we need to get back to our discussing in detail each and every trend we debunked in our Future of Procurement series so that you understand not only why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians.

The goal is that, at the end of this thirty part series, you will not only know what you need to do to prevent staying in the past with your organizational “peers”, but what you need to do to not only stay in the present but start marching towards the future, which is coming faster than you think.

As per our original series, ever since the beginning of the modern industrial age and the introduction of the first mass production factories, customers have wanted lower prices. And when efficiencies gave customers these lower prices, they wanted the prices to be lowered even more. With end customers putting continued pressure on retailers to lower prices, these retailers are putting continued pressure on manufacturers to lower prices, and these manufacturers are, in turn, putting pressure on raw material providers to lower their prices. Margin pressure has always been with us and it’s not going away any time soon.

So why do so many historians keep pegging it as a future trend? There are a number of reasons, but among the top three today are:

  • Multiple global recessions in a short-time frame
    In the early noughts, mid-noughts, and late noughts in the US; Turkey, Greece, Ireland, Portugal, Spain, and Cyprus in Europe; Palestine and Egypt in the Middle East / North Africa, and so on over the last decade and a half …
  • High rates of joblessness in many first world countries
    including Greece at 26%+, Spain at 25%+, Portugal and Cyprus at 15%+, Italy at 13%+, Ireland and France at 10%+, India at 9%-, Sweden and Egypt at 8%+, Canada at 7%+, and a US U6 Unemployment rate of 12%-!
  • Hyper-competition in hot markets
    because less consumers working means less consumers with money to spend which translates into more companies chasing a smaller market, which, with the return of inflation and increasing interest rates, has less money to spend — net result, hyper-competition just to stay in business!

So what does this mean for you?

Multiple global Depressions in a short-time frame

Markets are still recovering, and even where people have cash to spend there is still apprehension. Plus, until we recognize the inherent warning that as long as we continue to let bankers rule the world, this is just the beginning. So, for the time being, don’t be too ambitious where projects are concerned, be realistic and look for flexibility and the ability to do more JIT if demand escalates (as the last thing you want is to be stuck with millions of dollars of excess inventory).

High Rates of Joblessness in Many First World Countries

This is not only prolonging the depression, but is reducing the number of people who have cash to spend and your organization’s potential market. This means sales prices need to be maintained, if not cut, which means that costs need to be maintained, if not cut as well. And if they can’t be cut, value needs to be added — for free. A significant amount of supply base development may be required.

Hyper-Competition in Competitive Markets

About the only way a new product is going to sell these days is if it is different and provides more value to the consumer than the competitor’s product. This means that Procurement needs to identify suppliers who can add value at little or no incremental cost in product design, manufacturing, or experience. Value added services are just the beginning of what Procurement needs to look for.

Four down and twenty-six to go!