By David Rae

As the global economic turndown continues to bite, there have been many optimistic views expressed over the supposed appearance of ‘green shoots’ of recovery. Whether this is the case or not, we shall have to wait and see, but it is a different kind of ‘green’ that I am relieved to have seen, not just now, but all the way through this economic crisis.

The green I am referring to is, of course, the type which is synonymous with environmental and sustainable business.

Contrary to some commentators’ beliefs, corporate sustainable initiatives were maintained despite the economic downturn. Many were predicting that they would be forgotten about in the scramble to save money, safeguard profits and weather the storm.

Just a couple of weeks ago, the UK’s National Grid won the Procurement Leaders Award for CSR for its SpirIT programme – an initiative conducted in partnership with three major Indian IT partners (Wipro, Tata and Zensar) to help thousands of impoverished Indian children.

Richard Cribb, National Grid’s contract and relationship manager, had visited the region in question and felt he had to do something. But the power of the programme really came into its own when National Grid’s suppliers also became involved. “Using these strategic partners over the last three years, a number of suppliers have joined us on the journey,” said Cribb. “The most deep-seated relationships you can build are the ones where you can go out into the community together.”

It’s a gratifying story about how 3,000 children have been helped by the work of a UK company working in close partnership with many of its global suppliers.

Thankfully National Grid wasn’t the only one. The shortlist for the CSR category was particularly strong with entries from Absa Bank, PricewaterhouseCoopers, Sainsbury’s and Transport for London making life extremely difficult for the judges.

Although there was only one winner of the Procurement Leaders CSR award, the fact that the shortlist was so strong (and, come to think of it, all of the entries we received) is testament to how ingrained it now is in corporate psyches.

Like it or not, sustainability is here to stay – global recession or not.

Colin Maund, CEO of sustainable procurement specialist Achilles, believes that many companies are now extremely fearful that key suppliers are simply going to disappear – a concern that is placing procurement under increasing pressure.

“We’ve reached the stage where it’s not just about prices, it’s about something far more fundamental,” he told Procurement Leaders.

“Companies are starting to ask questions about the financial solvency of their suppliers, and with things getting progressively worse this is now becoming a major issue.

“In the past suppliers would occasionally disappear but it was never an every day occurrence, now there’s a genuine fear that a large number of suppliers could just disappear overnight.

“The priority order for sustainability is moving away from climate change towards ensuring that key suppliers will still be in business.”

Despite these worries, however, Maund believes that the current situation does place procurement in a strong position when it comes to introducing and enforcing a more ethical approach across their entire supply chain.

“Buyers are now in a stronger position that they ever have been,” he said. “In a sense suppliers are more malleable. During the boom time a company faced with a sustainability study could brush it off – now no one wants to upset a purchaser, particularly in a highly susceptible sector.

“People in these positions can now be completely clear with suppliers on what they want and expect.”

The global scope of these supply chains does though, pose a growing headache for procurement operations.

“Companies have got very large and complex supply chain,” Maund said. “Ten years ago, for example, procurement knew it could get suppliers on the phone and manage any problem in what was a relatively short and simple supply chain in a fairly short space of time. This has completely changed.”

Whereas the initial economic crisis appeared to be restricted to the banking industry, Maund now believes there’s a growing realisation across all sectors that these issues are spreading well beyond “a few naughty banks”.

“In the past month there has been a dramatic change in mindset,” he said.

“Now companies are beginning to question three things; firstly whether they themselves will go bust; secondly whether their major suppliers will go bust; and thirdly the potential price impact of businesses inability to raise credit – something that could potentially force prices up extremely quickly, even though commodity prices are coming down.

“I think the scale of the impending situation is only just beginning to sink in.”

Neil Deverill

I love economic downturns, even better a recession. It’s the time when those dodgy sourcing decisions come home to roost, the time that sorts out the serious players from the also-rans. Every generation of procurement should experience it – it’s only a pity that they don’t always arrive in time for everyone to learn.

The impact of a financial slump is like an urge to spring clean, to reduce working capital and ensure costs are right for the markets. It’s a time to make sure that key suppliers will still be around when most needed – and when competition for supply is fiercest.

The truth of the matter is, however, that these values should be used as benchmarks throughout the business cycle rather than just when the going gets tough. That way we would be better prepared for when the hard times inevitably do come.

But with this comes a problem. You would be hard-pressed to find a procurement leader who has yet to receive a call from the executive management team, asking them to do their bit in the current downturn. Procurement must renegotiate prices, reschedule deliveries to improve efficiencies and pay suppliers later than normal to help squeeze the most out of corporate cash.

For procurement professionals who are on top of their game, however, key suppliers might already be getting paid at exactly the right time in order to minimise working capital while maintaining key strategic partnerships; prices might have already been squeezed and logistics networks made as efficient as they can possibly be. And what then?

The net result is that underperforming CPOs stand a better chance to shine during a downturn than those who have been diligent throughout the business cycle. What happens if, having been challenged by your finance director or CEO, you return empty handed because best practice has already been built into day-to-day operations? It’s not a pretty thought. Thankfully, I suspect that neither is it a common scenario.

The expectation that procurement executives are allowing suppliers to hedge prices and are lax in material planning and payment management is partly a hangover from history, when that tended to be the rule rather than the exception. But I have a suspicion that, while things may have improved, the vast majority of us would be able to find at least some of those extra opportunities the board is desperate to locate.

The cynics might suggest that procurement leaves a little bit in hand for this kind of situation, but that would imply dereliction of duty and a compromise of ethics. So why do we almost always find that little bit extra when pushed? It suggests to me that procurement routinely under-performs (although this might be because targets are too low rather than outright negligence or incompetence).

My question, therefore, is this – if we routinely find sustainable benefits from suppliers when the pressure is applied from executive level, why can we not raise our game and provide those benefits as part of our day-to-day job? And, perhaps more importantly, why do we not routinely inform, educate and advise the same executive team that they can have more than they ask for?

Some will claim that it’s human nature to deliver what is asked for and little else. And perhaps that’s one of the issues holding back some procurement organisations, both in the perception of other business units and in reality.

Only when procurement steps up to the challenge and offers management the big prize in terms of inbound cost, quality, priority, capacity et al and, at the same time, justifies the investment required to capture and sustain it, will the perception of procurement within the business move to a different plane.

Then the questions about varying cost levels in good times and bad can be flushed out, issues about delaying payments and corporate inter-dependencies in the supply chain can be recognised and valued. And, above all, the levels and types of talent required in procurement to deliver all of the above can be discussed and properly understood.

If we have not yet taken the necessary steps to convince the wider business of the potential and competitive opportunities that excellent procurement offers, I propose that now, of all times, is the time. The paradox is that procurement may well continue to promulgate the trompe d’oeil that it can be relied upon in hard times, all the while being resented by the wider business which thinks that we should be doing this as a matter of routine.

It’s better than being fired I suppose.