A Beacon in the Storm: Procurement Helps Organizations Navigate Uncertainty

As procurement departments and CPOs shift away from worrying about global chip and component shortages and over to new concerns, issues like inflation, higher business costs and recessionary fears are all taking center stage this year.

At its core, procurement plays a strategic and pivotal role in organizational success. It’s responsible not only for providing the materials needed for production, but also to help drive down costs and improve inventory management, both of which can directly impact companies’ finances, commercial viability and long-term success strategies.

And because procurement’s responsibilities cover everything from sourcing raw materials to inventory management to fulfillment—and all steps in between—the department is especially well positioned to help guide organizational strategy, address key challenges and leverage new opportunities in any market conditions.

Addressing Current Market Concerns

Despite the current market conditions, procurement leaders are well positioned to be able to uncover opportunities and help their organizations navigate any bumps in the road. “Enhancing the employee experience, modernizing the procurement process and emphasizing high-quality supplier relations will be key priorities for procurement leaders to help their companies maintain success,” ORO Labs’ Sudhir Bhojwani writes in “4 Ways Procurement Will Evolve in 2023.”

David Stein, vice president, semiconductors at electronic component distributor Digi-Key, says efficiency is a key focus for buyers right now. “Many buyers are being asked to do more with less, and getting there requires a thorough review of current processes,” Stein explains.

To address this issue, Stein tells buyers to seek out areas of inefficiency and then find ways to make those processes more efficient. “Technology and automation can help in this area and can pay significant dividends down the road,” he adds.

Fostering Strong Suppliers Relationships

Profit margins are also narrow for a lot of companies right now, Stein says, and spreading out inventory liability can help solve the problem and allow companies to schedule out large orders over the course of 12 months. “Your distributor knows that the order is guaranteed and will take the steps necessary to ensure continuity of supply, and your company doesn’t pay for orders (or, have to carry the inventory in its plants) until it is necessary,” he adds.

Finally, Stein says developing and fostering strong relationships with distributors not only makes good fiscal sense, but during times of volatility and uncertainty these bonds can translate into significant benefits for both sides of the equation.

“A procurement professional’s direct relationships with suppliers translate into market knowledge,” says Stein. “This, in turn, helps ensure that when a company gives a distributor an order, that distributor will buy the product, ship the right product on time and in the right quantity and ensure that it’s of good quality.”

Get Ready to Scale

According to Bain & Company, businesses that “bought better” during economic downturns recovered faster than their peers and enjoyed better long-term health. In the face of the storm, Proxima Group (part of Bain & Co.) says it’s also important that business leaders not lose sight of the end goal: growth.

Procurement departments will play an important role in that potential growth. “Maintaining spend in areas that help businesses move beyond the downturn will determine the winners of the impending recession (i.e., those businesses that will find long-term success),” Proxima adds.

“The economic situation means that demand is low, but through protecting core supply relationships and staying front of mind with customers, businesses will be ready to scale more efficiently when the time comes.”