(5/21/2011) Weekend Extra: Spend Volatility Webinar (CombineNet/Jason Busch)
Here are our notes taken from Jason's part of the presentation:
Transparency is no longer the key, although we thought it was when auctions seemed like the solution to our pricing and negotiation challenges. And collaboration with suppliers, while still valuable, should not be confused with "information symmetry" - meaning that both sides have access to the same information. As procurement professionals, our goal should be "information asymmetry", or having more information than the suppliers we are working with.
In order to create this asymmetry, we should do information/data collection early in the process, and really spend the time to make sure we get the cost modeling right. Only after all of that is complete should we start thinking about the negotiation itself.
Another key idea that may be fading into the sunset is a focus on supplier rationalization, or making sure that you only have as many suppliers as needed to meet demand. In the past, this has played out in a trend towards less suppliers per category, but the current risk climate (due to recession, inflation, natural disasters, and political unrest) may justify the opposite approach.
As always, supplier awards should be very purposeful. This idea simply suggests that minimizing cost is no longer the top priority. It is important to understand the cost of taking risk off the table, using, as an example, the same process companies often undergo when deciding what percentage of the business to assign to diversity suppliers.
Two sources of information that anyone responsible for procuring commodities should watch:
- GDP: Both local and global. In the US in 2011, there has been a growth in commodities and a rebound in manufacturing due to domestic demand and export markets (due to a weak dollar). China is also seen as a growth engine for GDP and a barometer for commodities pricing. Although they have seen tremendous growth, they are also battling high inflation, food shortages, an aging population, and a shortage of women that will affect them into the future).
- PMI: The procurement managers index, put out by ISM each month, measures the relative growth of new orders and inventory. Also called the "Report on Business", it contains quantitative measures as well as commentary of the changes, which might be the most important part for anyone looking to take action based on the monthly update.
-- K.B.