5 Tips for Preventing a Recession From Hurting Your Procurement

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According to experts, procurement teams need to move quickly to future-proof supply chains as warnings about future recessions in many countries' economies are being heard.

The International Monetary Fund has warned that the US, China, and eurozone economies will collapse in 2023. The decline is predicted to be most acute in Europe, where the energy crisis is projected to continue to wreak havoc on businesses, lowering growth to 0.5% in 2023. In the United Kingdom, growth is predicted to fall to 0.3%.

Companies that emerge stronger from recessions must detect risk and changes in spending patterns immediately and make strategic decisions that ensure financial stability.

Here are five ways procurement can prepare for an economic recession.

1. Recognize how this recession differs from previous recessions.

"The supply chain itself is substantially and meaningfully different moving into a probable recession in 2022 or 2023 than it has been in the past," Petrusic (research director at Gartner) added. It would be a mistake to treat an impending recession as if it were the same as the 2008 financial catastrophe because market circumstances now are supply-strained rather than demand-strained. "A recession currently gives a chance for the supply chain to rebalance demand and supply while remaining prepared for further disruption," Petrusic added.

2. Delayed major expenses or project costs.

When there is business uncertainty, the simplest choice is to postpone major expenditures. Most corporate executives can immediately identify 2-3 initiatives that can be postponed.

To do so, however, you must have clear visibility into spending patterns, contract renewals, and open purchase order (PO) data. Analytics and insights aid in making faster and more informed decisions. Insights into spending patterns demonstrate when substantial increases arise from budget holders around the organization. Contract lifecycle management identifies contracts that are due for renewal and can be postponed or canceled.

Visibility into open purchase orders reveals the business's committed spend that may be postponed or renegotiated.

3. Increase expenditure on inspection.

The increased levels of expenditure will be familiar to any professional who has experienced a recession. According to the Suplari poll, 60% of businesses plan to scrutinize travel more closely. But 50% of merchants will concentrate on tighter oversight of PO approval.

Even though budget cuts could be necessary, there is good news for procurement during a downturn. The "burning platform" that CPOs have been waiting for may finally arrive during a downturn. A downturn is also likely to have a negative impact on CPOs' and their teams' ability to influence the company.

4. Monitor risk and ESG performance during a recession.

The top businesses understand that they need to make investments to adapt to changing risk environments. Companies must make investments, which include monitoring suppliers for warning signals of trouble as well as keeping up with evolving ESG and other laws. But as of right now, just 30% of businesses have a supply risk strategy in place.

5. Track down a solution with immediate cost and benefit reductions.

More than ever, businesses now must discover methods to save costs and increase efficiency in a relatively short amount of time. There is no longer a choice about whether to fund lengthy re-engineering initiatives that promise future cost reductions. A lot of people are using technology that offers ROI in a few months. Knowing where your money is going and finding practical strategies to minimize expenditures are crucial when times are tough.

Smart businesses are also keeping an eye out for possibilities with a longer time horizon. They are strategically concentrating on important purchasing areas, reaping the benefits of process improvements, and managing their cash flow and working capital more efficiently throughout the supply chain by utilizing automated procure-to-pay systems. They are gaining crucial competitive advantages by utilizing technology for tactical, short-term, and long-term gains.