The US economy has shown itself to be resilient in the face of a global economic downturn, with GDP growing at a faster pace than many economists predicted. As we kick off the new year, the US economy is seeing growth and reduced inflation.
As forecasts continue to roll in on the outlook for the US economy, there is cautious optimism that the US is moving towards a soft landing and avoiding the dreaded recession. The consumer price index (CPI) fell from 3.7% in September to 3.2% in October and it looks like US inflation is coming down.
While this is certainly cause for optimism, businesses in the US must still be considerate in their decision-making to support the economy beyond the so-called soft landing. One critical way of achieving this is through cost optimization and smart spending, placing procurement teams in a crucial role. Through elevating procurement and closely aligning approaches to business strategy, the sector can truly level up the US economy.
The critical role of procurement
Bain & Company’s recent survey of 300 chief procurement officers and other procurement leaders found that mature procurement organizations expect to realize 1.5 times the savings of their less mature peers. For the largest companies, this 150% difference can represent millions of dollars. This is capital that can then be invested in growth and innovation, which will be critical as we look beyond the soft landing towards positive economic growth.
The concerning statistic from the survey is that nearly 80% of companies across industries say that their procurement capabilities aren’t mature enough to meet their business requirements. In this scenario, procurement teams are not properly aligned with enterprise strategy and are therefore unable to make smart business investments and spend decisions.
There are three key areas where mature procurement teams deliver outstanding results.
- Category management: The digitalization of category management means that businesses are able to take data-led spending decisions across critical categories. This streamlining of processes leads to smarter spending that can be closely aligned with business strategy.
- Supplier management: In the face of continued economic uncertainty, effective supplier management resulting in strengthened relationships across the supplier base is critical. This will enable procurement teams to mobilize the supply base to secure cost savings and support business growth.
- Closed loop budgeting: Cost savings alone will not accelerate business growth. Businesses that connect procurement strategies to company financial performance are able to identify where savings are being reinvested into growth. This is critical to demonstrating the impact of cost management on the business and creating a culture to support that.
Businesses that aren’t delivering on the above are essentially holding themselves back when it comes to business growth. As we look ahead into 2024 with increased optimism about the state of the US economy, businesses should look at procurement as a way of improving financial performance. Establishing a best-in-class procurement function will ensure that businesses are taking advantage of the soft landing and building toward a brighter economic future.