While there may be some early signs that the global economic recovery has begun, there is still a need to proceed with caution. The recession has sparked deep and widespread structural changes into how businesses operate, organize, capitalize and manage costs.

It has also created new state of normal for business — one in which supply volatility, capacity constraints, and global uncertainty will be commonplace and must be carefully managed. Some early signs of this:

• Oil prices are slowly but steadily rising - now just under $70 per barrel.
• Metal prices are also climbing, with increases in steel, zinc, copper, gold, and silver.
• Prices in several segments of the electronics sector are up - particularly silicon — and wafer fab utilization rates are also increasing.

With business bankruptcies and insolvencies up and credit still extremely tight, the available supply base has shrunk dramatically over the past 12 - 18 months. Remaining suppliers have leaned out their inventories, cut back on capacity, and laid off skilled laborers. As a result, many may not be able to ramp up quickly and will be reluctant or unable to invest in additional infrastructure and rehire and retrain the staff needed to accommodate significant rises in demand.

Companies that don’t act now to deal with these issues will not only be at a cost disadvantage to their competitors, but could also be unable to secure necessary supply needed to ramp up production when the economy does rebound, resulting in lost sales.

To emerge from the recession more strongly positioned to compete, businesses of all sizes across industries need to move quickly to get out in front of this wave and lock in rates before inflation strikes, shore up supply in their core commodities, and optimize cash flows across their supply chain.

Agility is the key to surviving the current downturn and thriving in the post-recession economy. Leading companies will enable this agility by better anticipating fluctuations in market conditions. They will balance internal capabilities with external solutions and expertise delivered via flexible, technology-enabled service models, such as SaaS and business services delivered in the Cloud.

And, of course, they will maintain a laser focus on costs, watching both the front and back doors. Cost reduction initiatives are prudent in good economic times. But in the current environment, they are critical to survival. Companies that recognize and accept this and implement solutions and processes that enable them to effectively manage every dollar they spend will be well-positioned to weather the storm and effectively compete in the new state of normal - whatever that may be.

Kevin Costello is President of Ariba. In this role, he is responsible for directing all of Ariba’s integrated global sales, marketing, services and channel organizations. Prior to Ariba, Mr. Costello held a number of senior management positions with Andersen Business Consulting. Most recently, he was the global managing partner of Andersen’s Market Solutions Team, where he was responsible for the supply chain, customer and channel, and technology integration services practice areas.