Why a Recession Is a Good Time to Propose Strategic Initiatives

The?600 point decline of the Dow Jones Industrial Average, just after Blue Monday, on January 18, 2023 was partially anticipated as investors sold their well-performing shares after the weak?December retail numbers increased fears of an economic recession. The recent rate increases by central banks is also having a strong negative impact on bank stocks as the market prepares for increases in debt delinquency and debtor insolvency.

Recessions = Labour Reduction

In preparation for recession, operational cost savings will be the first area many companies will look to turn as the cost of debt continues to climb. Companies will resort to drastic cuts in labour and freeze hiring to reduce costs and maintain profitability. The recent wave of layoffs by some of the largest tech companies will have significant reduction on labour costs, but to what end?

This approach can lead to unfavourable reputations and higher costs in rehiring. Will companies still be able to compete for profitable revenue if those costs come too deep and in turn impact overtime hours, customer service, or quality?

While a recession can bring uncertainty and stress, it also presents an opportunity for companies to reassess their strategies and emerge stronger. Two ways a company can create opportunity during this time without (or in addition to) impacting labour is: 1) negotiating with suppliers, and 2) finding automation efficiencies

Negotiating with Suppliers

Cash-positive companies can easily benefit from the high cost of carrying payables, through opportunistic negotiations with small and mid-sized suppliers who are more interested in a positive cash position than long-term revenue. If your company's payment terms can reach sub-30 days you could work on negotiating cost savings of greater than 5%, and in some cases 15%, instead of the standard 2 net 30.?

For a company who has COGS of $300M and are able to work with 45% of their suppliers to achieve a 5% cost reduction this could bring in a substantial $6.75M annual savings!

Automation Efficiencies

A better long-term solution is through organizational efficiency through the use of automation tools. This will result in permanent cost savings and a competitive advantage when demand recovers. Companies that are hesitant to invest during this time will require robust business cases focusing on immediate gains over the long-term payoffs, which any time investing in automation will do, but may not be of the highest priority for companies at this time.

For some companies interested in capturing the above supplier negotiations savings, it likely means transforming their procure-to-pay process first in order to achieve the pay period of less than 30 days, and in some cases as fast at 15 days.

Solutions, like our Rapid Vendor Portal, make SAP-run organizations run more efficiently from onboarding new suppliers, calculating varying tax rates, automatic matching invoices to POs, and eliminating back-and-forth emails.

Regardless, automating procurement and making it easier for accounts payable to predict outgoing payables starts with discovering where manual intervention tasks are being preformed and how your company can significantly reduce, or better yet, eliminate those tasks. Starting now will allow you to champion corporate savings and bring a positive return on investment which will show a bottom line impact this fiscal year. Imagine being the company showing greater profitability at the end of 2023!

Recessions can be times for cost cutting, but for the strongest companies, they take this as an opportunity to build a stronger company overall.

You can start with downloading the business plan template here.