In times of economic downturn, procurement professionals face unique challenges that require strategic planning and proactive measures. Here we will be highlighting such challenges, including that reduced demand, changing regulations and cash flow management. Respectively, it will provide actionable strategies with real-world examples to illustrate key concepts and emphasize the importance of proactive planning and collaboration with other stakeholders in order to optimise the supply chain, explore new markets and effectively manage cash flow.
Electronic Procurement Systems
An effective means for mitigating challenges can emerge through an optimisation of the supply chain. This can be attained through the implementation of an electronic procurement (eProcurement) system, such as Delta eSourcing. An eProcurement system comprises a digital B2B process that uses technology to centralise purchasing workflows and streamline business transactions comprising the requisitioning, ordering and purchasing of goods or services.
Integrating eProcurement systems into your company works to improve purchasing processes, reduce costs, and successively make major time savings in replacing paper-based operations by automating the traditional process and helping to analyse spending for strategic savings.
A prime example of this is in the case of Consortium Procurement, the procurement arm of the Northern Housing Consortium who chose Delta eSourcing and the Workspace Manager module to manage their tenders. By using Delta eSourcing, Consortium Procurement has streamlined their processes, making them more efficient and allowing them to run consistent and transparent procedures. It has also provided them with an external, secure document repository so everyone who needs access to all documents knows where to find them. As a central purchasing body, they also need to undertake subsequent mini tenders following an initial framework tender. The Delta eSourcing platform enables them to run those exercises in a compliant way, allowing access to members calling off the framework to enable them to access the system for evaluation, while restricting their access to other exercises.
“We find the system to be very straightforward to use. The layout makes it very clear where to go and where to find things after just a small amount of training, and the terminology is very straightforward and fits with our own terminology so there is no confusion.
“When the Procurement Bill goes through and the regulations change, procedures become streamlined and more notices are required, I have full confidence that Delta will manage the required changes to the platform and make the changes that our organisation need to make as painless as possible.” said Drew Frame, Procurement Manager, Northern Housing Consortium.
New Markets
During a recession, it could be worth exploring alternative markets to expand your existing network. As government spends a significant amount of money on public procurement each year, this can provide a stable revenue stream for businesses that are struggling to find customers in traditional markets. By diversifying the supply chain and exploring new markets, procurement teams can reduce their dependence on any one market and ensure a more stable revenue stream.
For example, in the UK, the government spends £290 billion on public procurement each year. procurement to stimulate the economy and create jobs. This means that there may be more opportunities for businesses to secure government contracts during a recession. Subsequently, there are plentiful opportunities to find and win, public sector tenders if a company considers expanding into this market if they haven’t already.
Cash Flow Management
Finally, effective cash flow management is critical during a recession. Procurement teams should work closely with finance teams to manage cash flow and ensure that they have adequate funds to operate during lean times. Procurement professionals play a vital role here as they are responsible for dealing with the procurement budget, negotiating with suppliers, and ensuring that there is adequate inventory to meet demand.
During a recession, businesses may experience a decline in sales and are likely to experience reduced cash flow. This can be particularly challenging for procurement teams as they still need to purchase inventory and pay suppliers, even when revenue is depleting. To manage cash flow effectively, procurement teams must work closely with finance teams to orchestrate an effective cash flow plan that considers the organisation’s revenue and expenses.
Negotiation of better payment terms with suppliers is an effective means of managing cash flow. This could involve negotiating longer payment terms or requesting discounts for early payment. Alternatively, procurement teams can assist their cash flow by delaying payments until revenue starts to increase.
Another option considers exploring financing options such as loans or lines of credit. This can help bridge any gaps in cash flow and provide the company with the necessary funds to operate during times of economic downturn. Procurement teams can work with finance teams to identify financing options that are appropriate for their organisation and ensure that they are used responsibly.
Procurement teams should also monitor their inventory levels closely to avoid stock issues. Overstocking can tie up cash in inventory that may not sell, while understocking can result in lost sales and subsequently, reduced revenue. By using analytics to forecast demand, procurement teams can optimise inventory levels and ensure that they are purchasing the right amount of inventory to meet demand.
Procurement professionals need to be aware of the challenges they face during a recession and take proactive measures to mitigate their impact. Implementing an e-procurement system, exploring new markets, and managing cash flow effectively are just some of the strategies that can help procurement teams weather the storm.
By working collaboratively with other stakeholders and taking a proactive approach to planning, procurement professionals can ensure their organizations emerge stronger from any economic downturn. Book a demo with Delta eSourcing today to see how we can help you.
