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.


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