Procurement Values in a Tough Economy March 20, 2019, 4:37 p.m.

Economic Values

Many businesses in Kenya went through a huge struggle in last three years of tough economic times. The struggle was experienced both in SME sector and large corporates. At least six quoted companies issued profit warning in 2018, twelve issued profit warning in 2017 and eleven in 2016.

The good news is that World Bank projected a good economy for Kenya in 2019 with a GDP growth of 6.01 up from 5.475 in 2018.

A good economy is characterized by consumers having money, people have jobs, consumers having confidence, and consumers having good experiences that keep them spending.

When people have jobs, they have money to spend.  When people spend money, businesses produce more products and services.  When businesses produce more products and services, they spend more with suppliers.  When businesses produce more products and services and spend more with suppliers, they all hire more people.  When businesses and their suppliers hire more people, the unemployment rate drops further, encouraging more consumer spending and multiplying all of the positive effects.

It’s an upward spiral.  So, why would it ever stop? Well, all good things must come to an end.

In the economy, there is a breaking point as witnessed in 2017 and 2018 in Kenya.  There is a point where businesses cannot find enough resources to support the increased amount of products and services that confident, well-compensated consumers are demanding. The impacts start a new spiral.  Suppliers fail to meet timelines and other standards.  Production and projects fall behind. Businesses start raising prices. They deliver late and increase their lead time. Orders are cancelled. Things don’t get done.  And the economy feels the effect.  Consumer confidence declines.  Business spending is restrained.

Well, in procurement, we have a unique opportunity to observe the leading indicators of a strain in economy and act for the benefit of our organizations.

Keep eyes on the ball for sustained value.

In order to realize sustainable value over time and help your organization withstand erratic economic situations, you need to play a broader than traditional job of negotiating with suppliers and stick to the following procurement values;

Be a trusted advisors: Act as trusted advisers to top management on supplier knowledge, how to attract innovation, how the market can create the circular value and how new partners and suppliers can be developed. Procurement can as well provide fresh insights into key supplier data, predictive analytics and deeper view of the markets.  

Involving suppliers in the innovation: Suppliers as well as procurement professionals should be involved in “the innovation life cycle,” from initial idea all the way to manufacturing and continuous improvement. Innovation is happening with or without the involvement of procurement. The key question is how procurement can build competences to enable the transition.

Help manage and alleviate supply-chain risk. In many cases, procurement will have a sharper view of that area than any other part the organization and provide guidance with a formal risk-management program.

Think sustainability. Procurement should encourage and support improvements in environmental, social and economic sustainability with a balance between economic/social development, environmental protection and business needs.

Be role models of ethics and transparency. Far too often, we witness massive cost overruns, outright fraud, and the absence of oversight and accountability. In some cases, contracts are awarded without competition. In others, award committee members double as contractors! Procurement should expose and address ethical breaches in the supply chain, and develop systems to prevent them.

Develop local capacity and employment. Affirmative action by the procurement profession is important to ensure that local capacities are created and developed, especially considering the several millions of people that are still unemployed.