Many key commodities (Copper, Nickel, Zinc, Aluminum, Lead, Rubber, Resins, etc.) that go into the parts that we buy and the energy (Crude oil, Furnace Oil, Coal etc.) our suppliers are using to convert the raw materials into finished goods are at two, three and in some cases four year lows. Due to excess capacity in many transportation lanes and the relatively low cost of oil, the costs to move these parts are also at the lowest they have been in years. For example the Baltic Panamax Freight Index has dropped 90% since May of this year!

The opportunity is not just in Direct Materials and Logistics. With unemployment approaching 7%, many Indirect categories are also at multi-year lows. It is a great time to source labor dependent services like IT consulting, Contract Labor, Security and Janitorial Services, Call Centers, etc.

This is the best sourcing market we have seen in years, so why is there so little sourcing going on?

Could it be that everyone is waiting to see the impact of the financial bailout, the auto industry loans, the Obama administration? Could it be, many of us are spending a significant amount of time managing supply base risk or even shoring up the financial position of a key supplier, and do not have the time to execute a lot of sourcing projects? Or could it be, we can not get the stakeholder buy-in for our high-priority savings categories?

It is probably a combination of all three. However, when everything is “on sale”, it is a good time to buy and leading companies are pushing through these barriers and are aggressively capitalizing on these current market conditions. Specifically they are:

1. Direct Materials - Restructuring contracts, implementing price adjustment clauses, and accelerating their sourcing/re-sourcing efforts - several leveraging eSourcing to maximize throughput.
2. Logistics - Sourcing most modes to take advantage of available capacity in the market, many are focused on historically capacity-constrained lanes to lock in competitive rates while they have the chance.
3. Indirect Spend - Aggressively sourcing all categories where labor is a primary cost driver, including marketing, legal and other non-traditional spend areas. Unlike some Direct Materials categories that may require specific approval processes, many of these savings can be implemented immediately

The market conditions that are causing many companies to hunker down and be conservative are the same market conditions that are providing the best sourcing market in years. By taking action now, it is likely that we can look back on this period as one of outstanding sourcing performance rather than as one of missed opportunity.

If you’re not actively engaged in sourcing projects right now, we (myself and the other readers) would love to hear why. So please, leave a comment (anonymously if you must) or post to the related discussion in the Strategic Sourcing & Procurement group on LinkedIn.

Dan Kowal is Vice President of Strategy & Sourcing Services at Ariba. Dan has over 20 years of combined industry and consulting experience in strategic sourcing projects, with a particular focus in purchasing, supply chain, logistics, and operational transformation and turnaround in the automotive industry.