Last week, my colleague Dan Kowal posed the question - if you’re not sourcing now, why not? Plummeting prices and demand make it a buyer’s market for indirect and direct goods. But as Dan pointed out, many buyers are still sitting on the sidelines. Why?

In my observations from the trenches, I think you can chalk up the hesitation of many organizations to a mix of once-bitten-twice-shy jitters, patiently waiting for “the bottom”, overstocked inventory of direct materials and a lack of demand for their finished products.

Buying organizations are gun shy right now. After all, it was only 3 months ago that headlines screaming that commodity prices would never come down. $200/barrel oil was imminent, metal prices were still climbing and the purchasing power of the USD was sliding. Many seasoned procurement professionals were rushed into executive meetings where they were peppered with questions about how to survive the onslaught of pricing pressures. And under those circumstances, many companies made purchasing decisions based on fear. In anticipation of further price increases, contracts and pricing were locked down or raw materials were purchased, and in many cases, put on the shelf in warehouses waiting to be used in production. In the case of metals and many other materials, those overstocked materials now occupying warehouse space are worth about half of their purchase price from the summer months. It’s no wonder people are afraid to make a move right now. They simply don’t want to buy into the hype of pressure to “act now before it’s too late” having been burned by that behavior in the very recent past.

And if there is one lesson everyone learned in the last year, it’s that making financially prudent decision during a time of intense volatility is extremely difficult. So faced with trend lines that are still heading south, many procurement organizations are content to ride things out until the market has truly hit bottom. If a buyer can make purchasing decisions when prices hit rock bottom, it will go a long way towards reestablishing trust with the c-suite and delivering savings to the bottom line. And if the inventory of direct materials they purchased during the summer pricing panic are still plentiful, they have no incentive to hurry. (This only re-enforces the need to have index-based pricing put in place. If you aren’t at the bottom, it will allow you to continue down, and when things do settle out, it will allow your suppliers to stay whole as well. I’m planning a full post on this in the next week using some real examples.)

Finally, the lack of demand - either due to consumer belt tightening or credit crunch issues for business customers - has many companies cutting spending. So without signs of increased demand, procurement organizations face a tough sell securing the finances internally to exploit the current situation.

None of this is to dispel the idea that it currently is a buyer’s market. In fact, these observations only reinforce that fact for companies that can act now will benefit from extremely favorable buying conditions. Obviously, not every company can take full advantage of these circumstances. But for those with the finances and top line sales numbers to justify it, there are certainly sourcing and procurement opportunities out there.

Ed Bockman is a Director in Ariba’s Spend Management Services Group. Ed leads the practice focused on providing spend management solutions to the diversified manufacturing sector.