Economic Damnation 3: (Un)Employment Rate

You’re probably asking why this is a Procurement damnation because, on the surface, it doesn’t appear to have anything to do with Procurement. And it’s a good question, because, on the surface, it has to do with the health of the overall economy, and nothing to do with the supply and demand (im)balances that drive day to day Procurement decisions, especially for those organizations still using the Kraljic (Portfolio) Purchasing Methodology.

And from that perspective, you would be right. But here’s the thing. The employment rate is related to the overall health of the economy and the amount of disposable income in the economy. The amount of overall disposable income combined with views on acceptable (consumer) debt levels determines how much consumers have to, and will, spend. The amount of spend determines overall demand for unnecessary and necessary products alike. (Yes, people need to eat and will always spend on food, as long as they can afford to, but if money is tight, “essentials” gets redefined to low-cost basic essentials and high-end food products like prepared meals, imported fruits and vegetables, and lobster are off the menu.) This, of course, determines demand, and demand determines not only your volume leverage in negotiation, but the overall profitability and health of the business, and, thus your overall budget. (Remember, no sale, no store.)

And even if you are in B2B sales, because you supply office supplies, MRO, technology, or equipment, you still depend on consumer spend because if consumers aren’t buying from your customers, your customers aren’t buying from you.

But that’s just one side of the equation. The other side is the talent side. If employment is high, people are buying, but talent, which you so desperately need to take your Procurement organization to the next level, is scarce, and your only option is to hire them away from a rival. This means a big bump in expected salary and lots of perks (and training, so bring that budget back or else) to get them to stay.

In other words, there is no good (un)employment situation for you because either unemployment is rising, which means falling demand and reduced leverage in negotiations and operating funds, or unemployment is falling, which means a lack of available talent and more funds dedicated to talent to keep the talent base you have.

In other words, the eternal damnation of (un)employment rate is not restricted to governments and economists. It affects Procurement quite heavily too.