Monday, April 26, 2010

Inexperienced Procurement Departments have a Dilemma!

As we head out of this recession, there are some historical realities that will occur again in this recovery cycle, just like they have in all past recoveries. What's interesting is that our US economy has been on such a long roll that most of the teams working in Sourcing/Procurement/Purchasing Departments today have never managed their way out of a recession. They will most likely be surprised by the two big supplier responses that we'll see in coming months:

1. Even after a recession has "bottomed-out" and is headed back the right direction, suppliers tend to continue to cut production and inventories for a few quarters into the recovery.

2. Then, it could be another two quarters before most suppliers begin to rebuild the capacity that was reduced.

This means that the buyers no longer have the advantage they did a year ago when suppliers are bloated with product and capacity and need to sell "quick and cheap".

Right now in April, we are already seeing increasing costs in container fees, steel prices and corrugate prices based on supply-demand issues. Just wait another few months!

Last September, I advised my readership that the time was right to renegotiate all steel products (like store fixtures) for longer term contracts. Container costs were at historic lows, steel prices were bottomed out.  If you followed that advice, congratulations!  If your current steel product contracts are due to expire this year, you are in for a tough discussion with your CFO!

In any case, 2010 will be a great year to "Watch your P's & Q's" and play your cards close to the chest.

Phil Leichliter
J. Philip Group L.L.C.


Thursday, April 15, 2010

Common Threads, from What I'm Hearing "Out There"

In conversations with senior management across a broad spectrum of business segments in the past 30 days, I’m hearing a number of “common threads”.

1. More with Less. Businesses large and small have become accustom to doing “more with less” and most have no intention of layering back on any of the expense areas they’ve eliminated or reduced just because they see a little light at the end of the tunnel. Expect to see very lean organizations prosper.

2. Many senior Finance Executives are “hunkering down” while they determine the impact of business-hostile programs like “Cap & Trade”, new tax structures, and the cost to employers of the “Health Care Reform” measures. Many are already putting away cash reserves to deal with them. In the past, this cash would have been available for investment in equipment, facilities or human capital.

3. Long Road Ahead. Very few Senior Executives I’ve spoken with believe that the current stock market performance or retail upsurges are a trend that will continue without significant hiccups. They believe there is a very long road ahead filled with swings in the market, additional business consolidations and failures.

4. Consumers are gun-shy. They continue to pay down debt and save, rather than spend because they are uncertain about their future. They believe that out-of-control government spending means hyper inflation, tight money, continued low home values, and high unemployment which will be the “norm” for a long while to come. In short, they don’t trust, and I don’t blame them.

5. “Genius’ Beware”. Executives of companies which have benefited from the current economy should beware the false sense of “genius” that many mid-to-lower level managers are feeling. They are being lulled into believing that they are “excellent” at what they do, just because their market segment is prospering. Take stock of your team; ensure they have a firm grip on reality, both of the overall business environment and of their actual contribution to the success of the firm.

We must be flexible, patient, and use our resources wisely, but the future IS very BRIGHT for those who interpret the times for what they truly are. The consumer has always been ready to recognize and reward those providers of goods and services who do the best job!

Please feel free to leave a comment!!

Phil Leichliter