As our analysis of 20 ways in which the falling Euro and Eurozone volatility might impact sourcing, procurement and supply chain strategies continues, we’ll turn our attention to technology, beginning with one of our favorite topics on Spend Matters: e-sourcing.
11) It’s our view that procurement and supply chain leaders will leverage the situation in the EU to get more creative with sourcing strategies and take advantage in the latest optimization technology offered by providers such as CombineNet, Trade Extensions, BravoSolution, Iasta, Zycus and Emptoris. If your current sourcing package does not support optimization-based events that enable suppliers to submit alternative bid specifications and options as well as constraint-based analysis on the back-end of a process (e.g., no less than 50% of a given line item in an award split decision must be given to suppliers willing to hold quoted prices for at least a 12 month period), then it’s high time that you consider a supplemental or alternative tool given the current currency volatility. You’ll be leaving money on the table while likely increasing risk if you force suppliers into a bid-package box in the current market.
12) We believe that the Euro crisis will lead procurement organizations to more aggressively implement and track contract value, exposure and risk, along with implemented savings, factoring in not only commodity volatility but other underlying pricing elements. Under this model, the first step will be for companies to embrace leading contracting management tools from providers like Upside, which enables not only the active management (and creation) of contracts based upon complex clauses from libraries which can rank and rate risk exposure (e.g., currency) but also drives compliance across transactional purchasing, invoicing and payment systems based on actual buying activity and supplier management activities.
13) Following on 12, above, we believe the second component that leaders will take when tracking and implementing contract agreements will be to focus on the realization and tracking of identified savings or in the case of categories and supply markets where cost containment and risk reduction (e.g., currency, commodity) take priority, the tracking of forecast vs. actualized results. Such an approach can provide immediate visibility to organizations that not only enables them to measure how they are doing against an agreed-upon finance/procurement standard, but can also then make adjustments in strategies based on the actual impact of changing market conditions in real-time, rather than having to wait for the next spend analysis refresh or category strategy quarterly/annual review. Here at Spend Matters, we’ve seen some pretty exciting things in this area from providers including Sievo, Zycus and ICG Commerce.
14) The fourteenth way that Euro and Eurozone volatility may impact sourcing, procurement and supply chain strategies as we see it is that supply chain and procurement decisions based in part of tax credits, VAT rebates and generally tax-optimized supply chains within the EU may become less important than strategies that reduce actual unit costs and take currency risk off the table. If some of our sample calculations are accurate, then credits become less valuable in a deflationary currency environment. Moreover, in certain cases, there is a higher probability that when government rebates are involved (which include an actual refund of past levies) that countries facing the most difficult times refinancing debt and keeping up with collections are likely to “pay” more slowly, even if what they owe is theoretically due. Even in the US, certain deficit-facing states like Illinois have become infamous for a failure to refund taxes to businesses in a timely manner.
15) We suspect that as the Euro and Eurozone crisis continues to impact economic growth — or a lack of it — throughout the region that supply risk is likely to increase and the management of extended supply chain risk will take on new significance as a top priority for North American and European companies alike. However, from a supply risk perspective, leaders will realize that in many cases the best defense against supply risk will come from monitoring their own supply chain more aggressively for supplier performance degradations and other behavioral changes. Many of these changes may show up before a credit rating or other leading indicator change and when they occur at the same time, can provide further evidence that a certain supplier or sub-tier supplier requires significant development activities and focus.
Stay tuned as we conclude our analysis about the top twenty ways that a falling Euro and instability in the Eurozone are likely to impact procurement, supply chain and procurement organizations.