Procurement Activity Should Reflect Economy’s Ups and Downs

Trucking industry executives polled by the American Transportation Research Institute say the economy is one of the top five issues facing commercial trucking. In the fourth installment in an AmeriQuest blog series in which company executives examine each issue, we are taking a look at issue No.4, the state of the economy.

Economy

Image source: http://www.aei-ideas.org/

Recent media reports on a U.S. Labor Department study are showing a gleam of good news about the U.S. economy. Overall unemployment fell to its lowest level in seven years, while at least 30,500 jobs were added to the transportation and warehouse sector, which includes trucking. In addition, consumer spending was up. Good economic news is not something we hear often and is of special concern to the leadership of the trucking industry.

Experience has shown, though, that it’s probably premature to celebrate a major upturn in the economy. Since the long term outlook is still hazy, the right thing for a fleet manager to do now is to maintain a world view of current economic conditions and trends. Once all the factors are examined, we recommend making conservative “timed purchasing” decisions based on a good or bad economy.

Be sure to study market trends, including unemployment. The report noted above says unemployment is down but what will we hear in the next news cycle? High unemployment leads to a reduction in manufacturing, so the fleet owner may need to acquire capital equipment now to guarantee delivery. And when interest rates rise, as they were just predicted to do, lock in prevailing lower rates now. If the supplier is a public company and its stock is going up (as the market did when the stimulus was scaled back on Dec. 18), be sure the markup matches the increase.

Purchasing experts in the transportation industry should always be concerned about the prices of raw materials, including rubber, steel, copper and oil. Whenever there is a dramatic jump in prices, a shortage may be coming. Pay attention to the distribution channels through which you receive your supplies. Make sure the distributor is fully supported by the manufacturers they represent. Local dealers likewise should have influence with their suppliers so that you can get the equipment you need in a timely manner.

Rather than finding multiple suppliers which deliver the best pricing, it’s a good idea to be open to outsourcing supply management, maybe for the first time. There are service providers that undoubtedly have better leverage buying in bulk and can secure the lowest prices from respected manufacturers. They also have established relationships with many suppliers so preferential pricing structures have already been negotiated. Taking this approach always saves on labor costs, including yours as well as the necessary administrative support that’s needed.

Also be sure to network with peers to share problems and solutions experienced by fleet manager or procurement executives. Group gatherings, such as a business symposium, can give leaders a wider view of the forces that are affecting purchasing decisions.

Finally, one of the most important steps purchasing professionals can take is to develop a collaborative relationship with suppliers. The supplier should be regarded as a partner in your success, so it makes sense to nurture that relationship. Let your suppliers be a conduit of valuable market information that will help you in decision making. And create a tiered base of suppliers so that if one source is unable to deliver a product, another is standing by to assist.

By following some of these tips, purchasing experts can stay current with a constantly changing purchasing landscape.

About the Author: David Nitzsche is Vice President, Supply Management, for AmeriQuest Business Services. A supply management veteran with more than 25 years of experience, he is well versed in diverse sourcing and procurement operations.


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