The Times here in London greeted its readers (the majority of whom would have picked up the newspaper to read on their daily commute) with the rather cheerful news that 300,000 jobs were under threat as the economic slowdown in the US, and across Europe takes hold.

Hardly what you’re looking for on a Monday morning in one of the coldest August’s we here at Procurement Leaders can remember, but a rather sombre reflection of the difficult times procurement finds itself operating in.

The BCC also became the first major body to stick its neck out and predict that Britain would fall into a recession – again, hardly what you want to hear after a relaxing weekend.

The question here, of course, is whether those job cuts the harbingers of doom at the British Chambers of Commerce (BCC) predict, will effect procurement.

Our sense is that procurement, possibly more than any other business area, should get off fairly lightly as companies place greater emphasis on cost cutting and supply chain efficiencies.

Whether we’re right, and whether this trend is reflected across the rest of Europe, only time will tell.

The latest drop in oil prices – which could soon be negated by the ongoing violence in the Caucasus – may have handed those in procurement some much-needed respite but, here in the UK, producer prices are still causing a considerable headache.

According to figures published today, manufacturing input costs fell in July, helped in no small part  by oil's slide, but producer prices rose 0.4 per cent in the last month.

This rise, which means that factory gate prices are now over 30 per cent higher than they were a year ago, comes as figures from the Office for National Statistics showed that the price of goods rose a further  0.8 percent to 10.8 per cent in the year to July. 

So, while oil prices fall, cost increases look set to continue as a top concern – and for procurement operations that stopped hoping for the best and began preparing for the worst a long time ago, the latest news will come as no surprise. 

When the cost of oil was circling around the $150 a barrel mark, it’s little surprise that CPO’s who hadn’t adopted a hedging strategy were sweating nervously.

Now, after oil fell below the $120 a barrel mark in Tuesday trading, the same procurement organisations will have a warm glow of satisfaction – the soaking palms and sleepless nights will have been transferred to those that jumped in to secure long-term pricing deals when the market was at its peak.

At the present time, most companies – particularly those in the aviation industry – are unlikely to be adversely effected if prices stay at their current level. Volatility, however, is still very much a watchword in the oil markets, and if the cost of crude continues to fall then there could be more casualties on oil’s battlefield as the year draws to a close.

Speaking of airlines in the US aviation industry, Brian Nelson, equity analyst at Morningstar told Reuters earlier this week that: “Given some of the hedging mechanisms they are using, they are going to be subject to significant losses on those portfolios. We've never seen such volatility on oil prices.

"They're going to see significant losses if crude oil continues to fall."

It’s a scenario that looked unlikely just a matter of weeks ago, but merely serves to illustrate procurement’s increasingly precarious position.

Companies are raising prices at some of the fastest rates on record, and the services sector is shrinking quicker than at any time since October 2001 – just two of the findings of the latest PMI survey and a couple of very good reasons to believe that the UK, like the US, is slipping into recession.

Most interestingly, the Chartered Institute of Purchasing and Supply(CIPS)/Markit survey suggests that input prices are soaring at breakneck speed – with June’s reading of 71.7 up markedly on the 67.7 figure recorded in May.

In response companies are aggressively raising their prices – leaving the prices charged index standing at 56.0 in June, up from 55.8 in May. But already the third highest reading in the survey’s 12 year history looks set to go up, rather than down, as economic conditions worsen.

These findings are likely to place already over-stretched procurement organisations in an even more awkward position in the second half of the year, as companies look to remain competitive by keeping costs down - despite almost unprecedented external price pressures.

Activity in the service sector offers little respite, with the survey showing activity falling faster than even the most downbeat of analysts had expected. Activity hit a low of 47.1 in June, down from 49.8 in May, and with the magic 50 figure (which provides the cut-off point between expansion and contraction) looking ever further away it’s little wonder that the ‘r’ word is starting to cast an increasingly long shadow across the City of London and beyond.

"The services report confirms the broad-based deterioration in UK economic activity, with the composite PMI heading towards unprecedented (for the UK PMI surveys) recession territory," said Paul Smith, senior economist at Markit Economics.

"The issues facing the service sector are rooted in the dual shocks of both the financial crisis and -- of rapidly increasing concern to service providers -- surging global oil prices."

With neither showing any sign of letting-up it appears that things could get worse (perhaps a lot worse) before they get better.

It’s not just executives at the world’s major airlines who have been left shaking their heads in collective disbelief at the astronomical price rise of fuel in recent months – those charged with managing companies’ travel spend aren’t having things too easy either.

The soaring cost of fuel has sent flights prices through the stratosphere in recent months – even the seemingly recession-proof Ryanair has said that it may only break even in 2009 – meaning that procurement travel costs have gone the same way.

However, some companies, and countries too, are taking an innovative approach to cost cutting. Over on BusinessGreen.com, a report claims that Cisco has saved 16,000 journeys at a cost of $141million by replacing expensive business travel with teleconferencing.

"We are beginning to see some really interesting case studies which highlight the scale of the savings that can be realised," said Tim Stone, the company’s senior marketing manager for unified communications. "Internally we have had 214 TelePresence units deployed.”

It’s an impressive figure, which seems to suggest that on-screen communication and virtual handshakes could soon replace the real thing. And whereas nothing will ever replace the face-to-face interaction that is so crucial in forming lasting relationships with both suppliers and vendors, teleconferencing could soon represent the kind of cost savings that are hard to ignore.

Those who work in procurement are accustomed to dealing with inflationary pressures, but a quick glance through the daily headlines suggest that after a period of relatively benign price increases we are about to enter a far tougher period.

Even the daily cup of tea (complete with chocolate bar) and, of course, the soothing evening glass of wine are hitting companies, and individuals, in the pocket.

The soaring price of sugar, coupled with ongoing concerns over tea supply from Kenya, not to mention a drought in Australia which is reeking havoc with the country’s vineyards, is having a worldwide impact.

However, of greatest concern, will be the potential effect of the decision from South Korean and Japanese steel mills to pay the Brazilian miner Vale 65 per cent more over the next 12 months (read here) – a decision that will undoubtedly place those sourcing from Asia under even greater pressure as the year unfolds.

Something that already stretched procurement operations could well do without.

As both sides of the Atlantic continue to be bombarded with depressing statement after depressing statement AMR’s report on supply management technology spend brightened the mood somewhat yesterday.

After worrying reports from some of the world’s largest companies sent stocks plummeting for the third day in succession – much to the chagrin of the Federal Reserve, who have barely had time to give themselves a celebratory pat on the back after their huge interest rate cut – the news that companies are preparing to up their supply management spend by as much as 14 percent over the next 12 months suggests that things aren’t as bleak as many would have us believe.

Of course, given recent events this figure could decrease significantly in the not-too-distant future, but as Jason Busch quite rightly states in his spendmatters blog on the subject - “sometimes you've got to spend a little to save a lot.” Lets hope that sentiment still resonates when times get tough.

The soaring price of raw materials is having repercussions that may surprise some of those working in procurement.

And whilst the high cost of oil is nothing new – the rising cost of crude drove up input prices by 3.2 percent in September, more than double the expected figure – global metal prices have also surged since the turn of the year, attributed, in main, to China’s insatiable appetite for metals such as copper.

In the US, the price of copper has leapt by 60 percent since February and is currently trading at around $4 - a four-fold leap in just five years. Now, the increase is leading to a worldwide crime waves as unscrupulous thieves look to cash in.

Last week in Detroit, six people were left dead after being electrocuted whilst trying to steal copper wires for a couple of hundred dollars. Meanwhile, police forces in the UK have also said that the country is experiencing a massive increase in incidences of metal theft, with nothing too big (or too small) for a new generation of scrap metal “dealers”.

In one case an entire bus shelter was seized, an audacious heist that has left police baffled. Some estimates claim that a select band of thieves specialising in the metal’s market are now making as much as £200,000 a week, all of which would seem to suggest that this new trading place is unlikely to close down any time soon.

For any company looking to implement a spend analysis solution then this afternoon’s webinar on the subject, “Spend Analysis: A European Perspective”, would have made interesting listening.

According to Andrew Bartels of Forrester, the use of automated spend solutions has increased hugely over the past 12 months, and as more and more companies search for a solution that gives them clear, simple and manageable data, it’s easy to see why.

Although Bartels was keen to stress there is no ‘quick fix’ to spend analysis issues, he did outline the main ways in which many multi-national companies would benefit from implementing an automated spend analysis solution.

He believes for companies with a high volume of complex spending the benefits can be seen in several ways. Firstly, it makes the consolidation of spending easier – or as Bartels put it: “you know what you’re buying and you know who you’re buying it from”. Secondly, he believes categorising spend means you can concentrate valuable time on sourcing. Finally it assisted those companies that have to comply with SarBox, by making the identification of rogue spending a simpler task.

Add to these increased supplier compliance and improved procurement satisfaction and you’ve got a number of very good reasons why automated spend analysis is one subject most procurement professionals just can’t get enough of right now.

Bartels’ insight was swiftly followed by a great example of what spend analysis can do for a large multi-national company. Edgar Heitmann, a senior project manager at Orkla ASA detailed how a spend analysis solution has helped Norway’s largest public listed company achieve both huge savings and increased transparency.

If your company thought it had a big job on its hands, the tale of how Orkla managed to consolidate data from fragments of 50 companies into a system that now offers the company up-to-date spend analysis data on a monthly basis, should offer everyone hope.

The blogsphere has been ablaze lately with debate over the best approaches and solutions for spend visibility and analysis. (Indeed, ELP's own Editor-in-Chief Mark Perera recent chimed into the debate on these pages.) Solution providers and consultants have been beating their respective soap boxes, each trying to focus the debate on the portion of the challenge for which they have a solution. And the resulting crescendo is a confusing cacophony of advice.

I liken the arguments to the age-old monkey conudrum: hear, see, and speak no evil. (If this analogy doesn’t work for you, feel free to pick your own — possibly three card monte or the shell game.) I’ve even pulled together a simple-to-understand graphic to illustrate this point:

As the above graphic indicates, spend visibility and analysis vendors typically fall into one of three camps:

• Data-wrangling experts argue that you can’t truly analyze spending without capturing all spend data and classifying it to a common classification schema (e.g., UNSPSC) at a level of detail that’s meaningful for analysis. They are right! Alliant Techsystems Director of Spend Management Greg Shifflett gives a perfect example of the power of detailed classification: “[Prior to using an automated spend analysis solution] we knew what we spend on adhesives and with which suppliers, but we don’t know the detail on what types of adhesives we have bought from whom.” However, data-classification only solves just one-part of the larger challenge — albeit the most challenging and burdensome part.
• ERP, business intelligence (BI), and even some supply management solution providers promote their reporting and analysis capabilities as the solution to the spend analysis dilemma. Their argument: “We can provide all the reports you need and even let you drill into your spend…Just give us your spend data in a structured format.” And, for those of you thinking “but my ERP captures all my spend data in a structured format,” think again. Important spend data (e.g., ACH, P-card, outsourced spend, etc.) exists outside your ERP system. Even worse, as cited here earlier by Pricewaterhouse Cooper (PwC) consultant Jason Josko: “ERP systems were built for high-level financial analysis. The attribute and classified data procurement managers require to develop informed sourcing strategies is often missing from standard ERP reporting.”
• Supplier intelligence service vendors focus on the importance of data enrichment, enabling parent-child matching, diversity tracking, and financial, performance, and balance of trade information. And project management solution providers note that data is useless unless you have the ability to take action on it by establishing and monitoring category management plans. Both are right about the importance of these capabilities. (This point is reinforced in Aberdeen Group’s latest Spend Intelligence Benchmark report.) But the value of such features are limited (and can even be dangerous) if built upon incomplete or misclassified spend data (i.e., efficiently getting to the wrong decision can be worse than making no decision at all.)

My point (in case you missed it): effectively managing spend requires all of the above capabilities.

You must have the ability to repeatedly access and classify all your spend data at detailed level. Each  supply management team member and business stakeholder must be able to quickly report on and analyze spend, compliance, and category information that’s most relevant to them. And you need to have the ability to define, share, and track category management plans based on this new-found intelligence. Settling for anything less is an incomplete solution to your spend management challenge.