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Did We Learn From The Recession?

March 28, 2010

 Another of the fascinating discussions at the IACCM Americas conference centered on the question: “What did we learn from the recession?”

 The audience was divided on the question of whether the recession is behind us, continuing, or simply in abeyance and due for a double-dip. This view is not surprising, and reflects our most recent survey on the state of the global economy. This showed substantial variations between industries, and some strong contrasts between companies within industries.

 Terms and conditions were impacted at the on-set of the recession. As moderator Tim McCarthy observed: “It felt like all the buyers had been on the same program – suddenly everyone wanted net 120 day payment terms”. Many participants in the conference reported strong pressure from their Finance department to manage credit. Although at one level this resulted in greater scrutiny of suppliers (to see whether they would stay afloat), many found great difficulty in gaining reliable information. A few buyers highlighted steps they took to protect vulnerable suppliers, but a majority acknowledged that they had pushed out the payment period. “We were using suppliers to fund our business”, confessed one.

 Renegotiation of existing contracts was a major trend in early 2009 – but again, many acknowledge that it was not really ‘renegotiation’ so much as unilateral demands for price decreases. Few suppliers reported success in seeking discussions on rebalancing the contract to achieve mutual value. Several commented that they pushed suppliers for earlier payment, but those who succeeded were the exception.

 Other terms that were highlighted as ‘lessons learned’ included those relating to recovery of goods (for example when customers declared insolvency); currency risks;; and delays / deferrals.

 But these operational challenges – while interesting – are lessons of detail, rather than substance. It was when the conversation switched to more fundamental issues that it became interesting. For example, the audience was united in its view that, despite all the disruption, there had been very little churn in relationships, in terms of gaining or losing suppliers or customers. Most buyers in the session thought that relationships became stronger because it forced conversations with a wide range of their suppliers, and these engendered a view that ‘we are in this together’. However, suppliers did not agree. They felt that trust had been undermined by ‘aggressive’ and ‘one-sided’ behavior. “Yes, there was more conversation”, agreed one. “But it was not equitable”.

 For the suppliers, there was a general observation that the recession caused ethics to suffer, both in the way that many buyers forced contract renegotiation on price and also the behavior it induced in the Sales organization, desperate to win business. Another comment related to the lack of internal coordination between Procurement and Sales contracting, to discuss their respective pressures and strategies. And finally, the conversation turned briefly to the fact that ‘this might all happen again – are we in fact any better prepared?’ To which the answer, sadly, appeared to be “No”.

 In conclusion, the lesson we should take from the recession is that relationships can survive tremendous shocks, but if they are to flourish we must become better at enabling and ensuring regular, open discussion; we must institute procedures that leave the parties with a sense of balance and equity (give and take);  and we must also address the quality of communication and collaboration within our businesses, to facilitate better coordination and more coherent responses to shifting market conditions.

 Since sudden and dramatic change appears to be a more regular feature of our world today, the fundamental lesson is perhaps that we have not engineered our businesses, our contracts and our relationship management processes in a way that gives us agility to respond. And creating this agility should be our immediate strategic focus – before the next crisis strikes.

One Comment
  1. Suresh S permalink

    I believe the recession is still continuing and the imbalance between buyer/ seller give and take to be checked and monitored regularly for better market conditions.

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