Regardless of who might have authorship rights (Pimco? Ariba? Others?), the concept of “The New Normal” has definitely caught on in both the mainstream media and spend management circles .

However, it’s important to remember that “the New Normal” doesn’t translate directly to “permanent low GDP growth” as has been put forth by some investment advisors.

Instead, the New Normal is characterized by several trends that will, over time, become “SOP” for most large organizations:

1. Increased need for agility to respond more quickly to rapid change whether that’s in commodity markets, geopolitical supply risk, regulatory environments, or good old-fashioned competition.

2. Fewer permanent resources and increased reliance

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The global financial crisis has taken supply risk to a new level. More than 75,000 businesses in the US have filed for bankruptcy since the beginning of 2008 and the number is expected to rise again this year. Credit remains extremely tight. Inventory and capacity reductions, layoffs and hiring freezes have reduced suppliers’ abilities to respond to fluctuations in demand. Companies that take these issues head on and attack risk now will gain not only a valuable insurance policy against disruptions to their business, but also competitive advantage and substantial bottom-line savings. But doing so requires a new approach.

How can companies effectively minimize their risk under current conditions? Based on lessons learned throughout the recession (and my helping to organize the input from a lot of our risk experts in the field for a Supply Risk Center), I’d like to offer the following tips:

1. Don’t be fooled. Supply risk is not going away just because the economy is improving. No one can be sure when the recession will end. But one thing is clear: companies will face more supply risks and challenges than ever before. Make sure your organization has the right tools and processes in place to effectively manage and overcome them. Include risk management in your sourcing strategy. Audit the financial, operational, and balance of trade exposure of your most strategic and mission-critical suppliers. Look for early warning signs such as drops
   
   

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The recent economic turmoil not only forced many small and large companies in the private sector to rethink their cost management strategies, but also prompted governmental bodies and not-for profits to emphasize agility and be more efficient. With fewer tax dollars collected in the past year, governmental agencies - particularly those at the state and local level - have been hard pressed to “do more with less.” With this backdrop, it not surprising for public sectors to follow the lead of private companies in using advanced Sourcing and purchasing technologies hitherto available only to large organizations to drive down cost and improve efficiency.

For example, eGov Monitor recently published a case study on the Leeds Council Housing Organization, which leveraged On-Demand sourcing technology (full disclosure: it’s Ariba’s solution) to identify opportunities, save money and improve performance.

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SaaS has been gaining traction partially due to it’s ability to help companies adapt to the new state of “normal” they will face as we emerge from the global recession. SaaS and the “cloud” computing model help contain costs, shorten implementation cycles and enable CIOs to focus on more strategic initiatives rather than expensive hardware and personnel management. And according to some reports, we can also add improved energy efficiency - along with the associated cost savings and sustainability benefits - to the list of potential benefits.

The Cloud Clinic covered the rise in SaaS applications as a means for companies to “green” up their operations and cut costs.

“One area in which cloud computing is proving particularly useful is the data center. With the ability to store data and apps online rather than on energy-guzzling servers, IT managers are able to scale down their equipment while scaling up their IT capabilities.”

Much of this energy and equipment cost reduction is a result of economies of scale. Most companies simply aren’t capable of taking their data center operations to the extremes - in terms of energy efficiency and capacity - that SaaS providers are naturally incentivized to do, simply to keep costs in line.

Google Apps is a perfect example

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This week in San Francisco I spoke with Jonathan Evans, Director of Vendor Relations at DonorsChoose.org, about their organization’s use of spend management tools and principals to move from a manual, paper process to a scalable, efficient model. To the “customers” (innovative teachers, their students, and the donors who select which projects to support), this procurement transformation looked like…

“The teacher posted the project on a Monday. The project was funded on a Tuesday. We purchased the materials on a Wednesday. The materials arrived in the teacher’s classroom on a Friday. And we had digital photos and thank-you notes to send back to the donor the following Monday.”

***The video interviews from the NY, Chicago and San Francisco Ariba LIVE World Tour events are now in a playlist on YouTube.***

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

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