Posted: Wednesday, October 22, 2008, 11:08AMAuthor: David Rae - Procurement Leaders
Published in: Edition 15 (August 2008)
A safe pair of hands
Unless you've been living on the moon, you might have noticed that the financial markets have taken a turn for the worse since the last issue of Procurement Leaders hit your desk. Of course, that's putting it mildly – Alistair Darling, the British chancellor of the Exchequer, probably put it most accurately when he said the economic outlook was the worst it's been for 60 years.
He was nearly fired for that comment, but then politics has never put the truth at the top of its list of priorities...
The awful truth is that we are standing on a precipice the like of which has rarely been seen. The Wall Street Crash of 1929, and the Great Depression which followed, are probably the closest parallels. And while both have toxic property investments and a fear of the unknown at their core, that's where the similarities end.
Rampant globalisation has provided a foundation which has allowed these current toxic investments to be transmitted around the world's financial markets in the blink of an eye. So efficient are today's markets that the level of contagion is, well, frightening. Every major economic power – and many more not-so-major – are affected to some degree.
The complexity of the current crisis is another aspect without parallel. The financial instruments that lie at the very centre of the crisis are so mind-numbingly complex that even those financial wizards who dreamt them up would be hardpushed to unravel them.
Of course, the answer – or, at least, George Bush's answer – is not to unravel the mess, but to buy it, and $700bn will get you an awful lot of worthless mortgage derivatives...
Throughout any crisis, what's needed is a safe pair of hands. And while governments and regulators have a huge role to play in the coming months, business leaders and, in particular, readers of this magazine, will find themselves in the eye of the storm.
The coming 18 months are likely to be extremely challenging. It's a time when the pressure to deliver cost savings will be especially high but it's also a time when suppliers will be relying on their buyers for their very survival. Procurement has a huge amount of responsibility. True, their first priority must be to the companies they serve, but there must also be a certain amount of responsibility shown to suppliers. Working with vendors through the difficult times can forge lasting, mutually-beneficial relationships during the good.
So, it's time to visit key suppliers, assess risk, take a look at hedging opportunities, dust off those cost-modelling spreadsheets, get in bed (metaphorically speaking) with the finance director and work with your internal business units to determine true demand. These are the type of strategies that will pay off in the long-run, not sweeping cost cuts.
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