Buyers Strategy in Recession : Business Consolidation

The times are tough for most companies globally including both OEM and suppliers. The buzz word during any recession is cost cutting. With declining revenues, companies are looking to reduce costs to preserve profit margins. Now how can a buyer manage sourcing decisions during recession while achieving both business continuity and cost savings targets.

There are lots of factors in favor of buyers:

· Opportunity to have a discussion with your supplier to have cost savings. In times when you are under extreme pressure of savings target you can ask the same to your key suppliers for cost savings and make them recognize the need. It’s perfect opportunity to start a discussion.
· Business consolidation is key. You may have five suppliers for a particular product and you have given all equal share of business. Now is the time to consolidate. Suppliers will be more than willing to have additional business as overall volume has reduced while providing you the most competitive pricing. It’s a win win situation for both parties as more business with key suppliers will bring cost down.
· Lower Commodity pricing are there lowest since 2005, this helps in making a strong business case with your existing supplier base to pass on the cost savings.

There are few factors unfavorable also:

· Suppliers unwilling to hold prices due to extremely low volume. You might be producing 1000 parts in good times but with reduced volume of 500 parts the complete costing of the part goes for a toss.
· Supplier must be fighting to save his operations and would have no opportunity to have any new initiative for you.

Overall it’s a tightrope for a buyer. The mantra for success is consolidation of supplier base by identifying key long term players and focusing your purchasing strategy around them. Offer them more business by cutting the smaller player and push them to work harder.