Preparedness

Market conditions are always in constant flux and across enterprises, dealing with uncertainties is essentially the air that buyers breathe. Part of this “gray” scenario includes changes evolving within industries, economy, politics, even events unfolding in a region. Key in this year’s domestic agenda is the upcoming change of political guard in May, and quantifying expectations how a revised leadership structure would alter cost structures from key expenditures to indirect spending.

Within equities investing, specific weights are assigned to country political risk premiums, especially if one wishes to identify an appropriate weighted average capital cost (WACC) structure. Here, elements that are considered in the equation include an assumed risk-free rate (usually a counterpart rate of return had funds been invested elsewhere), inflation and “beta,” or what is most aptly referred to as “risk” coefficient.   Once an expected stream of future cash flows is forecast for companies that have already open their doors for public ownership, the cash flows are discounted according to an assumed WACC, to arrive at a decision if it would be cheap to purchase a stock, or otherwise.

Within the wider world of supply chain management, purchasers, as co-decision-makers, must carefully identify contingency routes within the negotiation process, especially after thoroughly analyzing which among the expected changes would be classified as “artificial” versus “official.” Typically, those grouped under the “artificial” umbrella are regarded as “temporary,” sometimes “nuisance,” while “official” usually covers events that may create permanent or long-lasting impact on the demand-supply landscape.

Let’s take a quick glance on pressing issues. Industry leaders are trying their best to minimize occurrences of rotational power outages, partly attributable to a weak level of water supply from energy sources. While some might argue that power is not necessarily their underlying key business model, this event is enough to create sizeable weight in terms of potential interruption to production for manufacturers, or lost productivity time for service-oriented firms. Although purchasing personnel might be quick to address near-term concerns through the use of generator sets for example, such a solution only resolves the problem “temporarily.” If we were to review time allotted by the key personnel involved, a random survey would show 70 percent-30 percent mix, in favor of administration-related, and less for planning, joint ventures, coordination, even strategizing. Meanwhile, those who outsourced their indirect spending through e-Marketplaces are more apt in responding to the situation, formulating energy derivation as well as saving devices that create “protection blankets” before circumstances get worse.

In the same manner, preludes to political election as well as transitions to new government create “gyrations” in pricing. Winnowing out this “imbalance” is best addressed when negotiations are channeled through e-Marketplaces, especially when commitments need to be undertaken to cover extended contracts or long-term supply for a stock. In fact, information technology has aided in the proper breakdown of costing, providing more room for decision-makers to carefully identify which among enumerated variables will be subject to renegotiation clauses. For instance, very little time is spent analyzing prospective suppliers’ debt-equity mix, as more concentration is given on a buying firm’s “payment term” policy. Such a “disproportionate” requirement as well as financial status matching often creates abrasion within the order fulfillment procedure, and precious time is wasted in “resolving” issues. While we all recognize that buyers and suppliers need to thrive on “comfortable” margins to continue doing business, significant directions in terms of a buying firm’s aggressive capex expansion, for example, must be adequately matched by supplier partners. If this does not become feasible, additional selection can be met through e-Marketplaces on the back of their expanding reach. More importantly, e-Marketplaces facilitate data organization, defraying the need for possible “double-counting” of the “risk premium” range, which is typically imbedded in the overall financing cost structure.

Enterprises’ maneuverability in appropriately predicting future trends as well as responding to day-to-day challenges are best tested when complemented by their participation in e-Marketplaces.   Opportunities become more visible when pressed to overcome rough terrain, especially when the technical competence of buyers and sellers is sharpened.

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