I’m at Jaggaer REV this week, giving a keynote presentation on the need behind what the firm is calling “Autonomous Commerce.”
On a personal note, the event has reunited me with Peter Smith, (who used to run Spend Matters UK/Europe and is speaking on ESG) and several old friends from FreeMarkets (who are aging far better than me).
But back to business. Regardless of how one defines ‘autonomous commerce,’ my concept is that the world is changing fast: it’s becoming increasingly challenging to make decisions with sufficient speed and information without a push from smart systems (fed by data) behind the scenes.
Based on some of the background research I did, I was surprised about just how much has changed for procurement this year looking at markets and inputs. Last December, capital markets were stable (and enjoying solid gains), mortgage rates were close to 3.2% for a 30-year fixed and Ukraine was a sovereign nation that did not need to defend itself with force.
Less than a year onward, famed investor and Bridgewater founder Ray Dalio quipped on Twitter this week: “As John Maynard Keynes is credited with saying: ‘When the facts change, I change my mind. What do you do, sir?’ Along these lines, the facts have changed, and I’ve changed my mind about cash as an asset: I no longer think cash is trash.”
“At existing interest rates and with the Fed shrinking the balance sheet, it is now about neutral … in other words, the short-term interest rate is now about right,” he went on to say in a second tweet. For a speculator like Mr. Dalio to suggest we should park investments in short duration T-Bills (as good as cash) is remarkable. And it should sufficiently freak out procurement and supply chain teams.
So much has happened this year: the S&P is down over 20%. The Nasdaq in firm bear territory, having dropped 30%. And the pound nearly achieved parity with the dollar late last month. Commodity and energy inflation is high. So high, in fact, that COGs for private companies — which comprise the long-tail of our supply base — have increased by a factor of as much as 5X (NOT A MISPRINT) compared with public companies (based on Rapid Ratings data) during this time. Energy costs are up by a factor of 10X in Germany. And the cost of production for a metric ton of aluminum in Europe is roughly 2X what it is actually selling for on the world market (which is why smelters are shuttering production).
Yep. The procurement world has changed dramatically. Supply chain risk, supply risk and supplier risk are off the charts. Borrowing costs are spiraling out of control (which will have a major impact on debt restructuring for firms, further driving supplier bankruptcy risk into 2023). Commodity prices are volatile (and all over the map for short- and long-term contracts). And future demand is in question (which makes contracting strategies with suppliers even more challenging with volume commits).
As a sourcing geek at heart, I feel like a young kid calling for mom and breaking into tears when I hear all this. We are living in crazy times for procurement. More than ever, we need better data to feed our decisions (plus technology to sharpen and help guide them) and networked capabilities with suppliers to drive speed, visibility and connectivity. Not to mention internal visibility and data to drive consensus making for the biggest decisions within our firms.
Jaggaer calls the tech and their vision to enable this (and more) Autonomous Commerce. I don’t have a better phrase for it myself.
But whatever it is, I’ll take two.
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