Supply Excellence — Postcards from Europe: Supply Crunch Knows No Borders

Postcards from Europe: Supply Crunch Knows No Borders

February 19th, 2008 · by Tim Minahan · No Comments · supply management, supply market dynamics

I was fortunate enough to spend last week crisscrossing Europe, meeting with procurement executives about their supply management challenges and initiatives for the coming year. It quickly became clear from my discussions that, while Supply Excellence has focused (possibly myopically) on the impact of the declining U.S. dollar and economy have had on American companies, European firms have not been insulated from these effects. Far from it.

In fact, during my visit, news broke that gross domestic product (GDP) in the European Union slowed dramatically to less than half a percent last quarter. (Bleak growth indeed. Yet, still a notch above the anemic 0.2% GDP growth in the U.S. during the same period.) Pundits said growth in the EU was hit by a comparatively strong euro, higher interest rates, and aftershocks from declines in the financial sector.

Yet, European procurement execs were most troubled by continued upticks in supply prices. Inflation in the region hit a 14-year high, reaching 3.2%.

In fact, rising commodity prices and tightening supply markets were top of mind for several of the CPOs and supply execs I met. (Other issues focused on program adoption, skills augmentation, and spend visibility – all issues I will grapple with in later posts.) And for good reason.

According to a Daily Mail article last week, prices U.K. manufacturers paid for raw materials were at record highs, with overall commodities index prices up more than 19%. Key culprits include a 70.3% hike in crude oil prices and a record 36% increase in food prices.

The pinch of inflation stretched across the continent too. One Nordic-based food and beverage company exec I spoke with stated plainly that “rising grain costs are killing us.” He said his team is actively rethinking its sourcing strategy for these commodities, augmenting local supply with new – albeit possibly more unreliable and cycle time challenged – supplies from Asia. “We’ve got to constantly reevaluate our sourcing approach” to counter rising costs.

Another sourcing manager from a European transportation firm indicated that the climb in fuel prices has magnified pressures for his team to reduce costs in other areas.

Overall, European procurement execs view the economic crunch as a mixed blessing. On the one hand, it elevates the visibility and strategic clout of their groups within the enterprise. Yet, this greater attention begets greater expectations for quick and sustained returns. These dynamics reaffirm the old saw: supply managers hoping for greater visibility and support within their organizations should be careful what you wish for.

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