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A World In Recovery

September 17, 2009

Are we recovering? That is the question that seems to be on every commentator’s lips right now. And while the consensus appears to be that there are indeed a number of ‘green shoots’, there are also many warnings over the fragility of improvement and of continuing pain in areas like rising unemployment.

And then, of course, there is the question of how governments will re-balance the books, what adjustments and cuts will be needed to spending plans or what increases there will be in taxation. Many industries – especially defense, but also in areas such as IT services – wait with baited breath to discover the fate of major projects.

Those in the world of contracting are at the forefront of these issues. We observe the shifts in demand, reflected in the focus of our work. For example, in times of growth our resources are deployed primarily on structuring and negotiating new deals and relationships. At a time of recession, the focus shifts to re-negotiation or taking action on failing contracts.

Until recently, there was no doubt that most IACCM members were engaged in tactical actions to reduce costs and to push for – or resist – re-negotiation of existing agreements. Volume reductions, schedule delays, adjustments to service levels were high on the agenda. And these were inevitably accompanied (often overwhelmed) by demands for price cuts.

It was interesting to observe the buy-side focus on driving down input costs (while at the same time expressing fears about the financial stability of the supply base); and watching sell-side negotiators fighting hard to resist price reductions. Once again, this illustrated the extent of the disconnect between Procurement and Sales Contracting in many organizations. Since driving out cost appeared to be a universal occupation for buyers, then surely there was at least some lee-way for price cuts on their sales? Yet I found very few companies where this conversation and flow of information was taking place.

Similarly, the connections between accounts payable and accounts receivable often appear weak. As a result, key information about the health of suppliers and customers coud not readily be shared, even though many trading relationships cover several dimensions.

It would be nice if I could report that one ‘lesson learned’ during this recession was an understanding of the benefit that could flow from greater collaboration and better information within corporations – in particular between the sell-side and buy-side of operations. But it is clear that in general this is not the case, that there is little sharing of data or strategy between the customer and supplier negotiators and deal-makers.

A lesson that has been learned is the extent to which the worldwide IACCM member community can offer insights to the state of the global economy.  With an on-line mailing list of more than 25,000 spread over almost 120 countries, IACCM is uniquely positioned to take the pulse of trading conditions. So we are running a short survey to understand whether recovery is indeed under way (see https://www.etouches.com/Globaleconomy).

One question we are asking – also on the lips of some commentators – is what impact the recession is having on ethical standards. When financial services collapsed, many said that the world would never be the same again, that values would be for ever changed and ‘materialism’ was on the decline. Some forecasters suggested that this would reflect in more ethical corporate behavior, in areas such as terms and conditions. So what is the truth? Our study aims to find out and to launch a more substantial investigation into the question of whether the world and its values have changed.

So in a few days, we will offer our insights to whether and where recovery is occuring – and the extent to which the experience of recession has impacted ethical principles in the world of business.

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