Key Takeaways
- The WARN Act can help employees and procurement departments stay atop layoffs across a wide variety of sectors and states.
- Layoffs could affect supplier fulfillment and negotiations, as well as harbor other hidden costs that could impact procurement.
- Procurement must take the initiative and communicate directly with suppliers experiencing or planning layoffs so that their supply chains remain intact.
We’re only three months into 2023 and procurement has faced more challenges than ever, including mass layoffs across various industries and a seemingly inevitable recession.
While the impact of layoffs in 2023 will have wide-ranging effects beyond procurement, job cuts across massive sectors, like technology and manufacturing, have the potential to radically alter the sourcing landscape.
In part one of our two-part series, we covered the WARN Act and the top five sectors facing the most layoffs. In part two, let’s take a look at how the layoffs will affect your suppliers and your sourcing strategy.
How does the WARN Act help you prepare for supplier layoffs?
Whether the layoffs are due to copycat behavior, rising costs, or overhiring after pandemic restrictions eased, you must consider how these events will affect your suppliers, your supply chain, and your ability to meet cost savings goals.
Using the WARN Act and the measures outlined in part one, you can identify which categories you, your team, and your department cover that are undergoing or likely to experience layoffs in 2023. From there, you can identify if any of your suppliers have given layoff notices through the WARN Act, then take measures to ensure your sourcing strategy accounts for supplier layoffs.
But don’t be afraid of querying your suppliers directly about their employment plans for 2023 and if they’re planning any hiring cutbacks or layoffs. The WARN Act only covers United States-based employers of more than 100 people. Your team should constantly communicate with your suppliers regarding any potential actions that may affect their ability to deliver the agreed-upon goods and services in your contracts.
How could layoffs affect supplier negotiations?
For suppliers that have cited reduced demand and order volumes as principal drivers of layoffs, buyers will find increased leverage during negotiations as reduced demand pressures prices downward and restricts price growth. With a lack of demand, suppliers are more likely to consider buying conditions and requests that may be otherwise rejected to ensure deals make it over the finish line.
You can also have greater assurance that the ongoing digitization and optimization in nearly all sectors will lead to higher productivity at reduced costs in the future, which should increase suppliers’ profit margins. Not only do higher margins reduce vendors’ financial risk and decrease the likelihood of supply chain disruptions, but with higher profit margins, suppliers will eventually have an increased capacity to negotiate prices.
There are several hidden costs associated with layoffs, particularly regarding employee satisfaction and productivity. Your supplier should clearly outline how buyers are protected from such costs and explain what strategies are in place to mitigate negative implications for their clients.
What are some challenges your suppliers might face?
Layoffs can indicate decreased demand for goods and services, which could result in lower purchasing volumes for procurement departments. Procurement teams may need to adjust their strategies and negotiate with suppliers on smaller orders.
Suppliers may also merge with other companies or go out of business. This could impact procurement departments’ supplier portfolios and require you to find new suppliers or renegotiate contracts with existing suppliers.
What are questions you should ask suppliers experiencing layoffs?
- How will layoffs or hiring freezes affect the quality of goods and services you provide?
- How will layoffs affect your delivery timeline of goods and services?
- What measures are you taking to ensure there are no disruptions to our supply chain?
- How will layoffs affect your ability to fulfill orders?
- Will there be any changes to pricing due to layoffs?
- Can you provide us with a list of the roles and responsibilities of employees that were laid off?
- Do you have contingency plans to deal with any unforeseen disruptions resulting from layoffs?
What are some challenges your procurement department may face?
Unfortunately, we’ve seen procurement departments experience their share of layoffs over the last few months, with more expected to occur throughout 2023. In addition to aggressive cost-saving goals to prepare for a recession, procurement departments may be forced to pursue these goals with a fraction of the manpower it’s used to.
Layoffs in particular may be followed by other budgetary cuts, which could impact your ability to invest in new technologies, hire new staff, or engage in strategic initiatives. A reduced staff will also likely increase the workload on remaining category managers, affecting their ability to meet deadlines, deliver high-quality work, and meet cost-saving goals.
What can procurement do to weather layoffs and an impending recession?
Recessions, layoffs, and hiring cutbacks are out of procurement’s hands. There are several processes, however, that you can focus on to help your company save money and withstand the uncertainty of our current economic landscape.
- Focus on creating value. You can help your company weather layoffs and a recession by focusing on creating value instead of just cost-cutting. This can take the form of identifying opportunities to improve product quality, collaborating with suppliers to find innovative ideas and solutions that can help you develop new products or services, and evaluating the feasibility and ROI of new product and service ideas.
- Implement inventory management processes. Your company may face challenges with cash flow due to a declining level of demand for your product or service. By forecasting demand and monitoring inventory, you can reduce inventory holding costs and ensure you have the right amount of inventory on hand to meet demand.
- Analyze spending and identify cost-saving opportunities. This has always been procurement’s focus, and it’s more important now than ever. Between consolidating your supplier base to negotiate better deals or sourcing products and services from inexpensive alternatives, finding areas to cut costs will always be an area procurement can deliver value.
- Double down on your digital transformation efforts. As artificial intelligence becomes more prevalent in a variety of industries, procurement may need to seriously consider integrating digital tools that can free employees from menial tasks.
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