I’ve been through six recessions in my career, and I have learned two things. First, recessions will end (usually within 18 months). And second, a recession is a great time to implement a new system.

The obvious reasons…

•  This is a great way to reduce expenditures through improved “Demand Management” and therefore increase profitability. This is always important, but becomes more critical in a down economy. 
• It’s a great time to reduce costs through improved sourcing (you have more leverage than in good times).
• You have the time because the pace has slowed. You want to be prepared when business ramps up.

 The not-so-obvious reasons…

• Fraud is more prevalent in down times. Now is the time to beef-up internal controls and drive contract compliance.
• With low interest rates, Early Payment Discount Management has even a greater ROI than normal (36%+ per year). Suppliers are much more willing to offer up early pay discounts to improve their cash flow.
• Licensing or subscribing to a third-party system/package is more cost-effective during these times. Vendors are more likely to negotiate price/terms. Several self-funding options may also be available to reduce or eliminate the investment required.

In summary, now is a great time to implement a new system. In the coming weeks, we will discuss how to make it happen.

By Tim McEneny, President & CEO, PurchasingNet, Inc.

In this economic climate, employees and managers must be able to demonstrate that they are increasing their company’s top line (revenue) or decreasing costs. Most procurement professionals cannot increase revenues, so that leaves decreasing or controlling costs.

Here are 10 actions that can be taken in a relatively short time horizon to survive a down economy:

1. Prepare a “Descending Dollar” listing of your suppliers based on their latest 12-month spend. If you don’t have a good eProcurement system to give you this data, talk to your buddies in AP.
2. Classify each of your suppliers as an A, B, or C supplier. A’s are the high-dollar suppliers and C’s are low-dollar suppliers. This will help you attack the high-dollar opportunities first. Naturally, you’ll want to start with the A’s.
3. Consolidate as much spend as possible with one supplier. Reduce your supplier base where appropriate. For example, if your company is buying office products from a dozen different companies, you have a tremendous cost reduction opportunity staring you in the face.
4. For each “spend category,” use the uncertain times as a way to renegotiate pricing, terms, etc. If you can aggregate your spend in a given category, you will be surprised how willing suppliers will be to offer more favorable pricing in return for increased business.
5. Use “Demand Management Techniques” for indirect spend to reduce the number of items that employees can requisition or request. There really is no need to offer your end-users thousands of choices when there’s money to be saved by offering comparable lower cost items.
6. Determine which Key Performance Indicators (KPI’s) are important to your company’s success. Our Best Practices KPI Library has over 50 KPI’s which are in use today.
7. Begin measuring actual performance vs. Best Practice KPI Benchmarks. These results can be published on a monthly basis. Remember the old saying…“you cannot control what you do not measure.”
8. Start matching invoices programmatically (automatically) to Purchase Orders so you don’t need an army of people in AP to perform manual matching. This will dramatically reduce overhead and reduce errors.
9. Start tracking and reporting the number of “After-the-Fact PO’s” to ensure your current process is being followed. Issuing a PO after an invoice is received indicates poor process compliance.
10. Avoid maverick buying by monitoring all purchases and invoices to ensure they are going through a central Procurement system or Purchasing Department. This can be implemented with the right system and a little top management support.

One of our clients, a Regional Bank with 2,500 employees, recently accomplished each of these steps in an 8-month period.

The result?

They experienced a 49% cost reduction in their largest spend category.

You can do it too! Now is the perfect time to take action and survive the poor economy. Even if you can’t accomplish each of these 10 steps, you will show your managers that you have “a plan” and are on your way to executing it.

Visit www.PurchasingNet.com for more survival tips.

-Tim