Tackle the tough stuff in '04
Anne Millen Porter, Managing Editor -- Purchasing, 2/19/2004 2:00:00 AM
The simultaneous revving up of most major industrial and developing economies has forecasters predicting the strongest annual growth rate the U.S. has seen in some 19 years. The weaker dollar, meantime, has created a complicated set of global financial market dynamics that are spilling over into global commodity markets, bidding up prices, creating physical shortages of key raw materials and services (such as ocean freight), and generally causing global commodity supplies to tighten. So far, the biggest global supply problems are showing up in metals, but high-tech industries look primed for trouble as well. Our index tracking computer buying plans just broke into growth territory, suggesting the long-awaited corporate replacement cycle has begun. Electronics buyers' inflation expectations for semiconductors also continue to rise (see report on page 28 of this issue).
Whether supply problems will persist, worsen or spread to other areas like packaging, chemicals, and plastics is still up for debate, but it seems safe to surmise that what passed for good supply strategies in 2002-2003 won't fly in 2004-2005. Two predictions:
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U.S. finished goods producers will continue to meet strong consumer resistance to higher product prices, which means management pressure to cut supply-side costs will remain very much in play. With commodity market leverage shifting—even gradually—to sellers, materials sourcing organizations need to get more creative in their efforts to cut costs. They'll need to tackle the opportunities they've been shying away from like supplier performance improvement (see our cover story starting on page 30), product standardization, reducing supply base complexity, and fortifying their demand management and spend control capabilities.
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Electronic auctions are not likely to generate the kinds of dramatic price compression they did in 2002-2003—so, it's probably a bad time to be jumping on that bandwagon for the first time. That's not to say the tools become useless, rather, that there's going to be less room for learning by trial and error and greater need for research, planning, and increased flexibility in the structuring and timing of bidding events. There are many who believe suppliers will have their revenge on big e-auction users, giving them short shrift on pricing and capacity allocation as supplies tighten. You can join an online debate on the topic right now at purchasing.com.
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