Ask the experts: What can procurement do to prepare for a recessionary period?

  • Ruth Crawford
    December 15, 2022

Following a year of high energy prices and geopolitical disruption, we spoke to two procurement leaders about how they responded and how they’re preparing for 2023.

Over the past year, every organisation had to navigate continued inflation, soaring energy prices and disruptive geopolitical tensions. And throughout all of it, procurement teams have been put under the spotlight to overcome these challenges and deliver supply chain continuity.

Now, heading into 2023 with a potential recession on the horizon, procurement teams will be under just as much pressure to continue delivering value to their organisations.

In our recent webinar, hosted with our partner CASME, procurement leaders from different sectors shared their perspectives on how procurement can prepare for the challenges ahead – and ensure it still has a seat at the table in 2023.

You can watch the full webinar on demand. In the meantime, here are the highlights from the conversation.

Procurement teams need to focus on their supplier relationships

One of the points all our panellists agreed on was that focusing on supplier relationships will be crucial to navigating the challenges coming in 2023.

As Damini Upadhyaya, Director of Procurement at Tata Steel UK, explains: “Strong supplier relationships go a long way during tough times. During the pandemic and energy crisis, our positive relationships with our suppliers were extremely helpful – they even jumped in to provide us with the PPE we needed across our organisation.”

“Over the past year, many of the suppliers we did business with had the same issues as their competitors – so you couldn’t just switch to an alternative supplier if anything went wrong,” adds David Bondi, who has worked with iconic brands such as GE Capital, Coca Cola Enterprises, Ralph Lauren, Revlon in New York and most recently Baxter Healthcare in Chicago. “It’s all about identifying who your suppliers are, where they’re getting their commodities from, and understanding the source of supply from a geopolitical perspective.”

Damini also shared how challenges like the Russia-Ukraine war highlighted the importance of diversifying your supplier portfolio. 

“The geopolitical challenges really exposed the vulnerability of our supply chain and our overdependence on one geography. It’s opened our eyes to the issues around security of supply and transportation,” said Damini. “It has forced us to consider how we can bring resilience into our supply chain and mitigate our dependency on single locations.” 

A keen focus on demand management and supplier risk 

As the discussion focused on the potential upcoming recession, our expert panel shared their advice on how procurement teams can ensure they continue to add value to their organisations.

“From an external perspective, navigating the recession will involve understanding the health and well-being of your supplier community. Too often, we forget that suppliers face cashflow challenges too – it’s extremely important to understand supply risk from a financial perspective,” explained David. “And from an internal perspective, procurement can support the C-Suite by looking at demand management, and having the courage to challenge why you’re buying certain goods and services.”

Omer Abdullah, Co-Founder of The Smart Cube, also offered his perspective on this point, explaining the value the procurement team can bring to those kinds of conversations: “One of the biggest complaints we hear about procurement is that we’re telling leadership what to do. Instead, it’s actually about telling leadership the implications of what they’re doing, and helping them make smarter decisions with the right data.”

For Damini, navigating the recession will involve a similar focus on demand management, as well as cost avoidance throughout the organisation.

“Cost avoidance will take centre stage in the recessionary environment – we’ll have to think about what we need to buy for operations to continue, what purchases we can postpone to a later date, and what can we do without,” added Damini. “Once we’ve done that, then we’ll be able to start looking at how we can bring supplier contract prices down.”

Opportunities to have more open conversations with suppliers

While the recession will inevitably bring additional challenges for procurement teams on top of those they’ve already faced in the past year, there will still be opportunities to negotiate contracts with suppliers. But, it’ll require having the right intelligence in hand.

“In recessionary situations, it’s crucial to understand the ‘should-be’ price of your commodities – that’ll help you start open-book conversations with your suppliers about your contract terms,” explained Damini. “In some cases, it might mean looking at where you can extend contracts and get additional value from them. It’s important to remember that suppliers will be keen to have contracts running for longer too, so there’s a chance to really work together.”

David also shared his perspective on having intelligence such as ‘should-be’ prices, and added how important it is to understand the wider market.

“Knowledge is power in supplier negotiations. Being able to understand factors like the state of transportation and the cost of containers now compared to six months ago will be extremely valuable,” added David. “I’d also recommend gaining the courage to ask suppliers what you can do differently to lower the cost of the goods you’re ordering. If you have a strong relationship, you might be able to find a good solution together.”

Priorities for next year

Looking ahead, the procurement leaders shared their most important focus points for next year – and both Damini and David shared similar perspectives. 

“Hands down, the most important element for me is aligning procurement operations with corporate objectives. You can have your own priorities, but you need to be centred around what matters most to your organisation,” explained David. “I think technology will also be a crucial focus, looking at how you can exploit data to become more efficient.”

“Absolutely, I agree with David. Procurement needs to be working very closely with the CFO. And an important part for me is how fast you can give an accurate picture of your operations to the CFO, so there’s enough time to make mid-course corrections,” adds Damini. “For that reason, analytics will be a focus for us next year – looking at how the market is moving, how it’s impacting us and the changes we’ll need to bring into our strategy in response.”

Ending on a positive note

Wrapping up the discussion, Graham Crawshaw – Global Content and Services Director and Board member, CASME – reminded us that challenges also present opportunities: “I think we need to congratulate ourselves on doing a great job, something that procurement is not often very good at. But we’ve got through the pandemic, we’ve got plans to support or get around the Russia-Ukraine war, we’ve managed interest rates, utilities, increases, inflation, supply, chain disruption. The list goes on, and I think we’ve learned from every step.” 

Want to learn more?

Catch up with the full webinar on-demand to get the experts’ complete advice on how procurement can prepare for the recessionary period, and ensure it maintains a seat at the table in 2023.