Can Procurement Adapt to a Bull Market?

Throughout the past five years of recession, UK businesses have witnessed procurement functions reign supreme, while their suppliers have strived to succeed in a less than lack lustre economy. Many have had their margins suppressed by procurement functions who have forced price competition upon them; where once before discounts and special offers were primarily utilised to clear a backlog of stock, we now operate in a market where consumers have come to expect them as standard.

Although initially implemented with the aim of driving an increase in demand, continued cost reductions have not delivered the expected results. With the majority of businesses lowering their margins at the same time, they have witnessed little growth in terms of demand and market share. The Recruitment and Employment Confederation’s (REC) 2012/2013 survey found that while the recruitment industry has seen a 12% increase in the volume of permanent placements made over the past year and a 2% increase in temporary/contractor placements, the recruitment workforce itself has grown by less than 1%. In other words, the recruitment industry, alongside many others, is being squeezed to deliver more for less. Quite simply, such a trajectory cannot continue without resulting in the demise of more businesses than we have witnessed already.

In a recent report by KMPG on the importance of pricing, it was noted that “a customer’s perception of value (which sits at the core of their purchase decision) is the relationship between a product’s benefit to its price, relative to alternatives”; this is known as the value equation. For too long now, businesses have been lead by procurement functions and, as a result, pricing has been focussed on driving volume sales rather than on the actual value of the product to the buyer. It seems that both consumers and businesses have lost sight of the concept of value for money, and consequently, the reality that you get what you pay for. Therefore, as we start to make progressive steps out of recession, suppliers should be focussing on the value that their service provides consumers in order to command a better price.

We are now coming to the end of 2013 and at long last the employment market appears to be heating up. Before the war on talent resumes, now is the time for businesses to talk to those suppliers who have remained loyal throughout the often heavy handed price cuts that have been thrown at them. If they don’t, I can’t help but wonder what the backlash will be for them once the boot is firmly on the foot of the suppliers who will want to be paid for the valuable services they have to offer?

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