How suppliers are weathering the recession
The economic downturn has also been a challenge for suppliers to the government market, but suppliers see a closer working partnership with customers as an approach that works for everyone.
The downturn has forced many agencies to consider extending the replacement cycle of their current fleet of equipment, or to extend maintenance cycles beyond factory recommendations, says Paula Sliefert, senior marketing manager, sports fields and grounds, commercial division, The Toro Company. “Many are waiting until the new fiscal year to make new purchases,” Sliefert says. The “wait-and-see” attitude has forced manufacturers to adjust projections and production schedules.
Agencies are also more likely to consider used equipment as a cost-saving measure, Sliefert says. Possible financing options, product standardization and leveraging existing state contracts are ways that Toro can work with local governments to help them through the economic crisis, she adds.
More government agencies are leasing equipment rather than buying, agrees Steve Hinton of Caterpillar. “With the current budget shortfalls, agencies are finding that monthly lease payments are more appetizing than a large upfront capital expenditure,” he says. Caterpillar is also seeing more interest in used equipment. “In times like these, our dealer network truly distinguishes itself from the competition by offering long-term stability, financial product offerings, used equipment and rental options.”
Graybar, an electrical distributor, has seen an increase in agencies looking to use electronic purchasing, and the most progressive customers look to take out even more costs through electronic invoicing and payment systems, according to Rob Bezjak, director, corporate accounts for Graybar. Many agencies are interested in energy efficiency, which is good in the short term (lower operating costs) and the long term (less environmental impact), he adds. “We are also seeing an increase in integrated building management, which is a great long-term strategy.”
“The better we understand our agency’s challenges — budget, space, projects, energy goals, etc. — the more effective we are at matching our contracts, logistics and services to fit their needs,” Bezjak says. “I think the communication in the buyer/supplier relationship has improved over the last few years.”
Procurement professionals see the same trend: “We are very frank in our discussions with contractors,” says Paul J. Brennan, director of purchasing, Rockland County, N.Y. “They understand the issues and financial constraints the county has. Our intent is not to beat down our vendors. Sometimes they have no choice but to increase prices. We do a lot of research before we go into negotiations with a vendor, so we know what is going on in the market.”
Kirk Buffington, Fort Lauderdale’s director of procurement services, agrees: “In some of our construction projects, we are trying to engage construction suppliers earlier in the process to tweak delivery schedules, or suppliers might have a better idea of something we can do. We have previously not had those discussions with the suppliers.”
David Davis, purchasing and materials manager, Washington State Department of Transportation, says that working with suppliers is critical to his department. In the case of buying guardrails, for example, the department works with contractors to manage the risk of swings in the price of steel, agreeing to pay based on a standard index. “We have quarterly business reviews with that supplier to talk about our future plans to help them lay out long-term strategies for how much inventory they need based on our projected orders. We’re sharing more information back and forth. It helps us keep down our inventory costs if they have adequate inventory. On our end, we do as much as we can to simplify business processes to get them paid sooner to help with cash flow.”
U.S. Communities, a nationwide purchasing cooperative, has seen purchases in some categories (office supplies, classroom furniture) drop in the first half of calendar year 2009, other categories remain flat (office furniture, electrical supplies) and some categories show growth (maintenance, repair and operations products, and automotive parts). Overall, the purchasing program had single-digit growth in the first half of 2009 compared to double-digit growth for the first half of 2008.
U.S. Communities’ mission is both to save money for local and state governments and to offer proof of those savings. “We can prove that we can save money for a contract you don’t have to solicit on your own,” says Kevin Juhring of U.S. Communities. “You have just made your resources go that much further.”
“We are all living through unprecedented times, and practicing prudence is paramount,” says Sliefert of Toro. “We believe 2010 may begin to show some signs of a slow turnaround with the possibility of stabilization in the public sector business in 2011.”
Larry Anderson is editor of Go Pro.
Read the main story, Working Harder to Spend Less, to learn how procurement professionals are using proven strategies to manage the economic doldrums, but are still seeing their resources stretched to the limit.
