Category: Reports

Australia Economy

• As predicted in March, consumers are saving as economic sentiment worsens, reducing consumption in wider economy.
• Consumer credit continues to increase as households struggle to make ends meet.
• Retail sales YoY in decline as consumer tighten belts to meet harder times.
• PMI hits 52.6 which is the strongest growth since Oct 2022. Supply shortages still a factor re shipping delays.
• New Orders increased due to perceived improvement in economy, increases in chemical exports and government stimulus re green industrial sectors
• Australian Imports represented in March are results of Jan 2025, demonstrating a decline of 0.3%. Predictions are further declines as consumers tighten.
• Yields are rising on the 10 Year Treasury indicating a lack of confidence in government as debt continues to rise and the economy continues to flounder.
• Government spending continues to rise as the Albanese government channels debt to pay off energy rebates, student debt and increase funding to public schools.
• Australian government borrowed $5billion over forecast, leveraging $100billion in newly issued bonds to fund cost of living crisis. This is predicted to climb to $150billion next year.

German Economy

Germany ranks as the world’s third-largest economy, yet it has faced significant challenges in recent years. The industrial sector has been steadily contracting
since 2018, and business performance is being negatively impacted by reduced demand for goods, a direct consequence of the strained global economy. The
automotive and engineering sectors are particularly vulnerable, with demand for German products in China and other Asian markets declining due to
weakened economic conditions in the region.
A key challenge lies in insufficient investment, particularly in education and infrastructure, areas that have been historically underfunded. Additionally,
excessive government regulation has compounded these issues, while energy policies have driven up operational costs and affected consumption patterns.
Germany’s GDP has contracted in recent years, leading to significant job losses across its manufacturing sector, which has traditionally been the backbone of
its economy.
The country’s heavy reliance on energy, especially natural gas, has been problematic, as skyrocketing energy prices and rising labour costs have placed further
strain on businesses. Moreover, Germany’s dependency on energy imports to support its export-driven economy exposes it to global macroeconomic risks,
threatening its ability to achieve sustained GDP growth. Investment has also been hindered by policies implemented by previous administrations.
For example, Angela Merkel’s Debt Brake, introduced in 2009, imposed a limit on government borrowing, restricting Germany’s fiscal flexibility. This has
impeded the government’s ability to fund costly initiatives such as infrastructure development and advancements in AI, creating a negative cycle as economic
contraction results in reduced investment, further hindering growth. The newly elected government faces the urgent task of reversing these trends. A major
investment plan, totalling $1 trillion, has been introduced to stimulate the economy, focusing on infrastructure and defence. However, this increase in debt is
expected to raise interest rates, placing additional pressure on future generations. To offset this spending, the government will need to reduce expenditure in
other areas, such as public wages and social security. Furthermore, increasing labour availability and boosting productivity will be essential to drive higher tax
revenues while also reducing income tax rates. Balancing these economic challenges will be difficult, as policies aimed at increasing immigration could further
exacerbate inflation, potentially inflating both corporate profits and wages

UK Economy

The Bank of England has significantly revised its growth forecast, halving expectations, and the January 2025 figures indicate a contraction in GDP.
Over the past decade, the UK has made limited progress, with its growth rate slowing from an average of 3% annually between 1993 and 2007 to just
1.5% between 2009 and 2023. Although no official tariffs have been introduced as of now, global tariff pressures are impacting the UK economy.
Business confidence is notably low, and economic sentiment plays a critical role in driving economic outcomes; just as depression can trigger physical
illness, low confidence can potentially spark a recession. Stagflation presents an additional threat, with the combination of low growth and rising prices
looming on the horizon.
The Bank of England has forecast inflation to remain above 2%, potentially rising to 3.5% by the end of the year. Persistent high inflation is likely to lead
to higher interest rates, which would result in reduced investment from both public and private sectors. Under the current political leadership, the UK is
simply not an attractive destination for investment. A fundamental issue for the UK economy is its stagnating productivity growth, which remains very
low. Increasing productivity is crucial to improving the debt-to-GDP ratio, and productivity is closely tied to investment levels. As the US makes its
investment environment more attractive, capital is increasingly fleeing the UK, with Australia and Canada also seeing similar trends. US companies are
bringing capital back home, while in the UK, many billionaires and businesses are relocating, and over 200,000 businesses have closed since Sir Keir
Starmer assumed office.
The UK’s aggressive tax policies are pushing wealth away rather than fostering growth. The government appears to misunderstand the principle of
expanding the economic pie and taking a smaller but more valuable share, instead opting to shrink the pie and take a larger portion. Another significant
issue is the size of the UK government, which, much like in Australia, is stifling genuine economic growth. Despite the expansion of government, there
has been little improvement in public amenities, safety, or overall infrastructure. This discrepancy raises concerns about the efficacy of government
spending. It may be worth considering following the US model and implementing a DOGE program, allowing the public greater transparency and
insight into how taxes are being utilized.

US & China (Tariffs & Control of Global Trade)

The tariff conflict has intensified as China has imposed import taxes on a range of U.S. goods, including coal, oil, utility trucks, and agricultural products,
with tariffs ranging from 10% to 15%. Additionally, China has added 15 U.S. companies to its export control list, prohibiting Chinese firms from selling
dual-use technologies to American businesses. These measures follow the U.S.’s imposition of 20% tariffs on Chinese imports. In response, China is
likely to strengthen its domestic supply chain efficiency and promote domestic consumption, as rising import costs and declining consumer wealth
create a strong impetus for shifting toward locally produced goods.
However, China is not the only country facing U.S. tariffs. Mexico, Canada, and Australia have also been targeted to ensure fair trade conditions for the
U.S. This has led to Canada threatening to limit U.S. energy supplies, with anticipation surrounding the response from Australian Prime Minister
Albanese. The U.S. appears to be adopting a nationalist stance, possibly even contemplating a withdrawal from NATO, yet it still insists on the U.S.
dollar remaining the global reserve currency. This is evident in its threat to the BRICS nations of imposing a 100% tariff on international trade if they
abandon the U.S. dollar. It appears that former President Trump is seeking to pivot away from the current global order but on terms favourable to the
U.S.
To nationalize the economy and position the U.S. as a creditor nation that manufactures and exports goods, the U.S. dollar cannot remain the global
reserve. However, as China aggressively buys gold and reduces its holdings of U.S. debt, the U.S. recognizes that this transition will require a gradual
devaluation of the dollar. The BRICS nations, along with China, are accelerating this process, potentially putting the U.S. at a disadvantage. While the
U.S. is determined to fight this transition; it has already imposed penalties on countries seeking energy from Venezuela and may look to weaponize the
Panama Canal, which has recently been acquired by BlackRock from Chinese interests.

Should the BRICS nations succeed in avoiding the U.S. dollar, both the U.S. and BRICS countries will face significant economic challenges. However,
the key question is which side will emerge stronger. Recently, China added 250 tons of gold to its reserves, signalling its intent to move away from the
U.S. dollar in favour of gold for international transactions. This would reduce the U.S.’s ability to impose economic sanctions. With diminished global
demand for U.S. debt, the U.S. will likely experience higher borrowing costs as its debt loses its status as a Tier 1 asset.
The U.S. is approaching the end of its current financial cycle and can no longer afford to rely on the accumulation of future liabilities, which have been
rolled over for the past 30 years. The cost of lending is now surpassing the defence budget, putting domestic security at risk. The impact of tariffs will be
severe on global supply chains. Production costs will rise, and margin compression will be inevitable across all sectors of cost of goods sold (COGS).
Companies will struggle to pass these costs onto consumers without risking a significant loss in market share, particularly in highly price-sensitive
markets. This will open the door for domestic competitors, cheaper alternatives, or product avoidance. The counterbalance to this will come from
reductions in operating expenses and investment, which will stifle innovation and slow economic advancement, ultimately leading to higher
unemployment rates. This will put pressure on businesses, reducing top-line revenue and squeezing margins, while straining government social
programs.
A prominent example of how tariffs are impacting businesses is Tesla. The company has lost 50% of its market value, with $800 million in market cap
evaporating, after its stock dropped 15% in a single day. This decline is partly due to Elon Musk’s political views, along with Chinese consumers’
growing preference for cheaper domestic alternatives as economic pressures mount and household wealth diminishes. Additionally, China has raised
taxes on Tesla from 15% to 25%, further impacting the company’s operations in the Chinese market, where its global market share has now fallen to
54%. Tesla will face significant challenges in improving both its pricing and technology to retain market share as demand weakens and market value
declines.
Another example is Walmart, which imports a substantial amount of merchandise from China. The company will now struggle to absorb the cost
increases without passing them onto customers, potentially leading to higher prices for consumers and putting pressure on Walmart’s business model.

Procurement Market Trends

The procurement market is currently experiencing a downturn as businesses struggle to manage the impact of rising costs, shrinking margins, and
declining revenues. While some procurement recruiters and professionals suggest this challenging environment presents an opportunity for
procurement to thrive, the increase in both the number of available and active procurement professionals indicates otherwise. A significant portion of
redundancies, both happening and anticipated, are occurring within large-scale operations with established procurement infrastructures, where
procurement teams exceed 50 FTEs.
As CFOs assess strategies to protect P&L statements, shared services—including procurement—are undergoing increased scrutiny. The primary
catalyst for change is the CFO’s shifting perspective on value. The concept of total cost of ownership, which served well in times of growth and low
interest rates, is now being replaced by more rapid and agile cost-reduction initiatives aimed at optimizing operational cash flows. With rising costs and
falling revenues, many organizations are scaling back on contract management (SRM) and enablement resources, focusing instead on sourcing projects
that can improve cash flow in the short term. Many candidates entering the market possess expertise in these areas, with trends emerging in retail,
services, finance, and government sectors.
As the supply of procurement professionals increases, wages are softening due to the imbalance between supply and demand. However, this correction
in procurement salaries is countered by the persistent rise in the cost of living, which shows no signs of slowing. In these challenging times,
procurement professionals will need to demonstrate immediate value, particularly in cost reduction, to CFOs and other senior stakeholders. This
requires the ability to evaluate and deliver deals quickly while balancing long-term goals, such as total cost of ownership (TCO). For those in
procurement who seek to drive value beyond just savings, this shift could prove frustrating, as many deals may not fully capture the broader spectrum
of value, including risk and quality considerations.
A notable trend in the market is the growing disconnect between procurement and business stakeholders, resulting in delays and unrealized value in
procurement projects. Category managers often struggle to engage key stakeholders, needing to actively “wrestle” for critical information to inform
evaluations and planning. This issue is often attributed to a lack of investment in, or adoption of, technology—though insufficient investment is the
most cited factor. As technology continues to evolve, communication remains a critical challenge for all corporate roles, particularly in procurement,
which relies heavily on relationships, data, and contracts. From managing downstream procurement teams to collaborating with cross-functional teams
and engaging suppliers, poor communication is leading to frustration, inefficiencies, and additional operational costs. Given these challenges, the
immediate priority for executives across shared services, including procurement, is job retention. Once the economy stabilizes, career progression will
once again take precedence.

July Market Summary

Sector Performance

• Inflows: Banking, Discretionary, Utilities, and Technology sectors attracted significant investor capital, reflecting defensive positioning and optimism around AI and semiconductor developments.
• Outflows: Materials, Industrials, Consumer Staples, and Telecoms saw capital outflows, driven by inflation risks and signs of weakening economic demand.

Commodities Overview

• Iron Ore: Influenced by China’s struggling property sector. Further analysis provided in this report.
• Copper: Challenges persist with China’s economic rebound, compounded by inventory drawdowns in manufacturing.
• Crude Oil: Prices supported by seasonal summer demand and short covering in futures markets.
• Natural Gas: Supply increases are outpacing summer demand, exerting downward pressure.
• Aluminum: Impacted by China’s sluggish recovery and weakening coal market.

Housing and Vehicle Trends

• Housing: May house prices rose by 6.8%, attributed to low supply and increased immigration.
• Vehicle Sales: April sales were down, though market data suggests recovery in May and June.

Macroeconomic Indicators

• GDP Per Capita: Declining due to the combined effects of inflation, immigration, and rising energy costs.
• Retail Sales: May expectations indicate a modest 0.7% increase, signaling constrained consumer activity.
• PMI: Falling at the fastest rate since 2020, reflecting slowing procurement activity.
• Producer Prices: Increased in Q1, with predictions of continued growth through Q2.

Trade and Exports

• New Orders: Weakening based on PMI and consumer data.
• Exports: April exports hit a 28-month low, driven by reduced commodity demand.
• Balance of Trade: Supported by weaker imports relative to exports; however, both contracted.

Interest Rates and Inflation

• 10-Year Yield: Rising amid inflationary pressures and expectations of further rate hikes.
• Inflation: Australia’s inflation rate rose to 4% in May.
• Deposit Rates: Unchanged at 3.5%, despite the Federal Funds rate at 4.35%, resulting in real rates yielding negative 0.5%.

Government Spending

• Fiscal Policy: Increased government spending, coupled with energy credits, is expected to contribute to inflationary tailwinds.

---

Sector Investment Trends

Investor capital has notably shifted into Banking, Technology, Discretionary, and Healthcare sectors, signaling optimism for potential market stimulus and renewed confidence in equities over debt markets. However, concerns remain about the Discretionary sector, given Australia’s real economic weakness.

• Global Inflation Rates:
  • New Zealand: 3.3%
  • United States: 3.0%
  • United Kingdom: 2.8%
  • Canada: 2.7%
  • Australia: 3.6% (Core: 4.0%)
  • Forecasted June Quarter inflation for Australia is 3.8% (refer to Slide 2).

---

Economic Indicators

• Currency: The Australian Dollar (AUD) is depreciating against a strong USD despite potential rate hikes (20% probability). Factors such as trade balance declines, increasing imports over exports, and global market AUD supply exacerbate the situation. A potential US rate cut could strengthen the AUD.
• US Debt Concerns:
  • Debt exceeds $35 trillion, with annual issuance surpassing $2 trillion.
  • Interest payments consume 75% of government revenues, an unsustainable trajectory.
  • Declining global demand for US debt could necessitate Federal Reserve intervention, expanding USD supply and weakening its value.
  • A weaker USD could relieve inflation for creditor nations reliant on USD for imports.

---

Banking and Liquidity Challenges

• Yield Curve: The US yield curve remains inverted, signaling constrained bank lending and a lack of credit expansion.
• Liquidity: Suppressed long-term yields and contracting money supply indicate ongoing liquidity challenges. M2 money supply recovery suggests stress in small-to-medium enterprises.
• Consumer Spending: Elevated spending and debt levels in May are indicative of economic strain rather than strength, with households increasingly reliant on credit to manage budgets.

---

Commodity Market Overview

• Copper: Prices have fallen 20% to a four-month low due to inventory surpluses and declining demand. Global PMIs suggest continued pricing pressures, though long-term demand may recover with electrification trends.
• Crude Oil: Prices have softened since early July, influenced by weak production activity in Germany and Japan. Declining US inventories suggest a potential price bottom, but geopolitical tensions (e.g., US-Iran dynamics) could push prices above $120 per barrel.
• Iron Ore: Prices are tied to China’s weakening property sector, deflation, and industrial shifts towards recycled steel, threatening Australia’s largest historic export.
• Aluminum: Despite US tariffs on Chinese imports, global oversupply—driven by China’s 60% share of primary production—continues to suppress prices.

---

Labour and Procurement Insights

• Employment Trends:
  • Rising demand in Utilities, FMCG, and Government sectors, while Professional Services face declines due to reduced government spending.
  • Labour inflation is expected to subside as businesses reduce headcount to manage wage increases, further straining Australia’s productivity rates.
• Procurement Challenges:
  • Structural issues in procurement departments—particularly flat hierarchies—constrain retention, progression, and remuneration growth.
  • Rapid salary escalation without corresponding capability development diminishes the value procurement delivers to businesses.
  • Increased training and mentoring, coupled with deeper technical development, are critical for sustainable value creation and function maturity.

---

Strategic Considerations for Procurement Evolution

• Capability Building: Transition from cost-focus to strategic third-party engagement, emphasizing revenue impact and collaborative design.
• Retention Strategies: Address remuneration imbalances and improve internal career progression pathways to enhance team stability and expertise.
• Technical Depth: Prioritize training investments to align remuneration with measurable technical capability and value delivery.

Procurement, as a function, must pivot towards delivering strategic shareholder value while overcoming its cost and capability challenges. Without this shift, businesses risk undervaluing the role of supply chain and procurement, missing opportunities for competitive advantage and performance enhancement.

October Market Report

Key Highlights:

Weakening Demand from China Amid Economic Woes

• Chinese demand continues to weaken as the country’s economic outlook deteriorates.
• Rising inventories in China highlight contracting domestic consumption.
• However, an uptick in trade activity suggests potential signs of demand recovery in select sectors.

Natural Gas and Energy Market Dynamics

• Asian demand for natural gas is rising as the region pivots from coal to cleaner energy sources.
• Oil prices exhibited sharp volatility. After breaking below a critical triangle pattern, crude oil experienced a sharp rebound, potentially retesting previous support levels in the coming months.
• Natural gas prices are likely to increase, driven by ongoing geopolitical tensions in Ukraine and Russia.

Metals and Precious Commodities

• Gold: Achieving new record highs weekly, gold remains a robust asset amid ongoing fiat currency debasement and central bank monetary policies. Banking system vulnerabilities and expanded global money supply have accelerated its price trajectory.
• Silver: Expected to rise due to both industrial demand and its role as a monetary asset.
• Copper: Fed rate cuts are bolstering demand, resulting in a positive outlook for prices.
• Cobalt: The commodity, essential for EV batteries, is experiencing structural decline due to diminishing global EV demand. Breach of critical support levels indicates further downside risk.

Agricultural Commodities

• Rice: Forecasted price declines due to increased exports and reduced tariffs.
• Protein and Jewelry (Gold): Exports in these sectors are driving an uptick in the balance of trade.
• Supply Concerns:
  • Weather and disease issues in West Africa are impacting supply.
  • Brazil faces shortages, driving price increases.
  • The U.S. supply surge, coupled with demand contraction, is likely to weaken prices in some categories.

Economic Indicators

• PMI has contracted for eight consecutive months, reflecting a persistent softening of manufacturing conditions.
• Production is contracting at its fastest pace since 2020.
• Elevated producer prices point to stubborn inflationary pressures.

Currency and Yield Outlook

• U.S. Dollar: Anticipated to weaken due to lower rates and developments in BRICS economies.
• Yield Curve: Expected normalization is likely to trigger a global recession and credit event, impacting borrowing costs and investment strategies.

Industrial Trends

• Imports are down, signaling slowing industrial consumption.
• Exports are up, primarily driven by agricultural and luxury goods.
• Balance of Trade exceeded expectations, buoyed by shrinking import volumes.

Iron Ore Market

• Iron ore has broken below its long-standing triangle pattern support, with follow-through selling reinforcing the bearish trend.
• Prices may revisit the $40 lows seen in previous years unless a significant global infrastructure boom materializes.

Broader Implications

• Businesses must adjust strategies to navigate shifting global market dynamics and persistent economic uncertainties. Emphasis should be placed on cost control, supply chain optimization, and exploring resilient investment opportunities.
• While the weakening U.S. dollar and potential normalization of the yield curve create challenges, they also present opportunities for diversification and hedging against systemic risks.

Summary

The October market environment underscores heightened volatility across commodities, currency, and economic indicators. Businesses and investors should remain vigilant, focusing on adapting to inflationary pressures, geopolitical uncertainties, and shifting consumer and industrial demand trends.

Germany

Germany was once the economic powerhouse of Europe, with an economy exceeding the combined strength of Finland, Sweden, Poland, Romania, Austria, Belarus, and Bulgaria. In 2020, I wrote extensively about the potential consequences of Germany’s decision to close its nuclear reactors in pursuit of its 2030 climate targets. At the time, it seemed clear that this policy would lead to industrial decline—a conclusion evident to anyone with a fundamental understanding of commerce. Now, the reality has materialized, and Germany faces significant economic challenges.

Intel recently announced the suspension of a $30 billion semiconductor chip factory project in Eastern Germany. This plant, which was projected to create 3,000 high-paying jobs, could have helped bridge the economic disparity between the eastern and western regions of the country. The cancellation has dampened investor sentiment regarding Germany’s attractiveness as a hub for capital investment. Ireland, in contrast, remains Intel’s primary European production center for the next 2-3 years.

Germany’s economic decline has been evident since 2018, with GDP per capita experiencing a sharp downturn. Further compounding these issues, Volkswagen has announced plans to lay off 30,000 workers across its German plants. This decision comes as electric vehicle (EV) sales stagnate and energy costs surge, with electricity prices in Germany being twice as high as in the United States. Industrial production in Germany has fallen by 25% since 2016, and while the war in Ukraine has played a role, the country’s energy policy has undoubtedly exacerbated the crisis.

The shift towards alternative energy sources—which I avoid calling “renewable” due to their inherent limitations—has proven unable to match the reliability and output of the previous nuclear infrastructure. This policy misstep has placed significant strain on Germany’s industrial sector and its broader economic stability.

Volkswagen Faces Challenges Amidst the Rise of Chinese EV Production

Volkswagen is reportedly planning to shut down certain manufacturing facilities in response to the rising dominance of Chinese electric vehicle (EV) producers. The transition to EV production, a segment not traditionally aligned with the German automotive industry’s focus on combustion engine vehicles, has become a significant point of concern. The overcapitalization in EV production is eroding profits, highlighting the increasing challenges faced by German manufacturers.

When we consider the disposable nature of EVs, which often retain minimal value in the secondary market, the cost of production and consumer pricing become pivotal. Chinese manufacturers are currently able to produce EVs at a significantly lower cost, with production prices as low as $10,000 USD. This enables them to drastically undercut Volkswagen and similar European alternatives, driven by heavy government subsidies, superior energy policies, and a more cost-efficient supply chain in China.

Furthermore, Germany’s infrastructure has been hindered by a lack of investment, contributing to rising strikes and declining wages. This situation serves as a stark warning to other nations, particularly Australia, which may find itself at a crossroads in the near future. A country once renowned for its economic complexity, driven by innovation and engineering, can deteriorate rapidly when faced with missteps in government policy—such as misguided narratives around nuclear energy, erroneous claims regarding alternative energies, and misallocation of public spending.

If Germany is unable to reverse its course, there is a tangible risk that the Eurozone—and potentially even the Euro currency—may not survive. This, in turn, could trigger a domino effect, ultimately challenging the broader global economic landscape and undermining U.S. hegemony. As such, businesses worldwide must remain vigilant to the shifts taking place in this critical region.

September Market Report: A Corporate Analysis

Economic Overview

Unemployment Trends

Unemployment rates are on the rise, driven by contractions in government spending, household consumption, and exports. With inflation adjustments, the overall economic contraction paints a challenging picture for the labor market. This scenario reflects diminished household savings and increased reliance on consumer credit to offset the escalating cost of living.

Consumer Behavior and Credit Trends

Household savings have reached critically low levels, prompting a significant expansion in consumer credit. As living costs rise, many households are leveraging credit to sustain their financial obligations. This trend underscores the vulnerabilities in consumer resilience.

Property Market Dynamics

The property market is softening under sustained cost-of-living pressures and elevated unemployment rates. Declining consumer confidence and tighter financial conditions contribute to a slowdown in housing activity.

Vehicle Sales and Registrations

While vehicle sales have increased, a decline in new car registrations reveals a potential shift in consumer preferences or financial constraints, highlighting the complexities of interpreting consumer spending patterns.

Manufacturing Sector Insights

The Manufacturing Purchasing Managers’ Index (PMI) is declining, albeit at a slower pace. New orders have reached a three-month low, indicating weakening demand. Rising producer prices signal persistent inflationary pressures within the supply chain.

Trade Performance

Imports have contracted, aligning with reduced consumption, depleted savings, and weak economic conditions. Similarly, export contractions emphasize Australia’s reliance on core trading partners, particularly China and Japan, and its primary export commodity, iron ore. The balance of trade is deteriorating, a trend likely to exacerbate fiscal pressures over the next 24 months, potentially necessitating higher taxation.

Financial Markets and Yields

Short-term yields are declining as investors anticipate economic weakness, while long-term yields are expected to rise in response to inflationary pressures. Inflation remains persistent, partly due to the Reserve Bank of Australia’s (RBA) monetary expansion during the pandemic. The deposit rate remains at 3.5%, but real returns are negative, reflecting erosion from both official and unofficial inflation estimates.

Commodity Markets

Natural Gas and Crude Oil

Natural gas prices have plummeted to 18-year lows, signaling bearish market conditions. Oil prices are consolidating within the range established post-2020 lows, with potential for a significant trend breach.

Iron Ore

Iron ore’s breach of long-term support levels has profound implications for government revenues and national income. As one of Australia’s most critical exports, declining iron ore prices may severely impact fiscal stability and export income.

Other Commodities

• Copper: Continues to show bullish strength, though potential risks remain.
• Aluminum: Prices are stable but vulnerable to a breach of support, which could drive prices towards long-term trend levels.

Global Economic Factors

Japan

Japanese monetary policy volatility poses risks to global investments and supply chains. The Bank of Japan’s limited policy options, coupled with high debt levels, constrain its ability to manage economic challenges effectively.

China

China faces economic headwinds, including a deflating property sector, slowing fixed asset investments, and declining consumer confidence. While industrial output and retail sales show modest growth, these figures fall short of the government’s GDP targets. Capital flight and equity market declines compound the challenges, while geopolitical tensions, including EV trade wars and tariffs, add complexity to China’s economic pivot.

United States

Macro data indicates a looming recession. Disappointing non-farm payrolls data and corporate earnings have triggered significant market reversals, emphasizing vulnerabilities in the U.S. economy. Cheap Japanese debt, which has historically supported Australian financial markets, may now be a source of instability as the yen faces challenges.

Domestic Challenges in Australia

Government Spending and Business Impact

Reduced government spending is contracting sectors such as professional services, manufacturing, and retail. Recruitment and consulting firms face a tightening market, with interim managers struggling to secure new projects. Layoffs among Tier 1 candidates further exacerbate the labor market’s challenges.

Consumer Conditions

Households are grappling with rising mortgage costs, negative savings, and declining real wages, which have returned to 2010 levels when adjusted for inflation. Retail revenues are declining despite inflationary price increases, with discretionary spending showing pronounced weakness.

Strategic Business Implications

The bleak economic landscape requires businesses to adopt a strategic focus on cost management and operational efficiency. Companies with strong balance sheets may seek acquisitions to optimize supply chains and diversify revenue streams. Smaller businesses should explore collaborative approaches to maintain stability.

Currency Projections

The Australian dollar (AUD) faces downward pressure, potentially dropping below USD 0.60 in the event of a credit collapse. Weak domestic conditions and global monetary trends suggest limited upside for the currency.

Recommendations

• Corporate Strategy: Revise cost structures to account for higher regulatory and operational expenses. Focus on innovation and lean operations to navigate economic challenges.
• Supply Chain Management: Emphasize flexibility and collaboration to mitigate volatility in demand and costs.
• Market Adaptation: Monitor global trends and policy shifts to anticipate and adapt to changing economic conditions.

Conclusion

Australia’s economic environment is increasingly challenging, characterized by rising unemployment, weak consumer confidence, and structural pressures on key industries. Strategic adaptability and resilience will be critical for businesses to navigate these turbulent times.

What is Inflation?

Inflation is primarily driven by monetary factors rather than supply chain disruptions. While supply chain issues and demand shocks can influence prices within certain sectors, they are not the root cause of inflation. The fundamental driver of inflation occurs when the supply of broad money (M2) exceeds the volume of goods and services produced within the economy. This imbalance results in rising prices.

Monetary policy, controlled by central banks, and fiscal policy, enacted by governments, aim to manage economic conditions and prevent overheating or excessive cooling. However, when a nation loses control over its ability to produce goods or its own monetary policy—such as is the case with the Eurozone—the challenge of controlling inflation becomes significantly more complex.

Commodities like oil play a pivotal role in the broader economy by influencing costs associated with essential goods and services, including clothing, energy, commuting, and food. Rising energy prices can drive inflation across various sectors until demand adjusts. Notably, energy commodities, especially oil, have an outsized impact on global inflation due to their linkage to the U.S. dollar and the U.S. Treasury market. These fiscal asset classes are central to global trade, with the U.S. consumption machine being funded by deficit spending in exchange for imported tangible goods.

How Did We Get Here?

The Reserve Bank of Australia (RBA), like many central banks globally, can influence the short end of the yield curve and participate in open market operations. However, it is retail banks that ultimately drive the expansion of the M2 money supply through credit creation. When the RBA keeps interest rates low, banks and investors are incentivized to chase yield, resulting in increased borrowing at short-term rates and lending at longer-term rates.

This dynamic leads to a flattening of the yield curve from the suppressed Federal Funds (FF) rate to the 10-year bond. As a result, asset bubbles emerge, with investor capital flowing into corporate bonds and equities in search of yield targets around 7%. Simultaneously, banks ramp up lending to corporate real estate and residential mortgages, further inflating property demand and prices.

Low interest rates accelerate the velocity of money, pushing more capital into stocks, bonds, and real estate, thereby increasing asset prices and supporting equity values. The wealth effect that follows drives consumption across the economy, as individuals tap into home equity to finance lifestyle choices such as home renovations, vacations, luxury purchases, or even property investment. With low rates a global phenomenon and manufacturing outsourced to low-cost economies, consumable inflation was delayed but eventually surged—like a coiled spring—when cheap Chinese imports flooded the market, pressuring domestic producers.

As employment surged in the services and gig economy, fuelled by abundant capital and easy access to credit, low unemployment and high demand for talent pushed up wages. However, wages could never rise at a pace to match escalating property prices. Meanwhile, government-sponsored capital inflows from China helped perpetuate this trend, effectively trapping middle-aged children in the family home, unable to save for their own properties. This in turn further supported demand in sectors like restaurants, gyms, and the automobile market, as personal savings took a back seat.

The Road to Rising Inflation

As global economies struggled to recover from the economic impact of lockdowns, inflation began to take hold in Western economies, exacerbated by poorly executed monetary policies. Central banks initially promised that inflation would be transitory, but this forecast proved to be inaccurate. Inflation did not subside as expected, and the reality of the situation began to unfold with stark consequences.

Inflationary pressures intensified over an 18-month period as the vast increase in the money supply started to be absorbed by the economy. A significant portion of the economy is driven by services (80%) and government spending (65%), making inflation harder to mitigate. From 2021 through 2023, Western nations experienced some of the most aggressive interest rate hikes in recent history, further squeezing household budgets. As a result, in 2024, families are facing the difficult task of managing their cost of living amidst soaring prices.

The Impact of Inflation on the Economy and the Government’s Role in Stimulus Policy

Inflation, when left unchecked, can have profound negative effects on the broader economy, even as it provides certain benefits to governments that have leveraged Keynesian economic theories. The concept of government stimulus, championed by British economist John Maynard Keynes, was initially designed to address economic stagnation. Keynes believed that economies could experience periods of inefficiency where supply and demand diverged, thus challenging the classical economic theory posited by French economist Jean-Baptiste Say. Say’s Law, which argued that “supply creates its own demand,” was effectively discredited by Keynes, who asserted that economies could falter without proper intervention.

While Keynes was correct in challenging Say’s Law, questions remain as to whether his prescribed solutions were optimal. Keynes likened money to water, believing that the velocity of money could be hindered by high interest rates or mismatched supply, thereby stalling investment and causing economic stagnation. To remedy this, Keynes advocated for a consumer-driven economy, where individuals were encouraged to spend rather than save. This policy sought to stimulate investment and bolster consumer confidence by enabling central banks to lower interest rates and inject government stimulus into the economy.

Keynesian economics, however, has been misinterpreted and misapplied by politicians and central banks over the past 80 years. What was initially intended as a tool to jump-start the economy during times of recession or depression has evolved into an ongoing justification for excessive government spending, irrespective of the prevailing economic conditions. Western governments have consistently spent more than they receive in tax revenue, often implementing schemes such as Self-Managed Superannuation Funds (SMSFs) to create a captive market for government debt. These policies effectively devalue the credit extended to the government, reducing the purchasing power of those holding such debt.

Many individuals attribute economic hardship to rising interest rates, echoing the sentiments of economists like J. Chalmers, who argue that high interest rates slow down economic activity. However, the primary issue is not the absolute level of interest rates, but the rate of change. Predictability is a fundamental requirement for healthy economies, and stable currency plays a key role in maintaining that predictability. If currency is not stable, there must at least be a widespread agreement on a consistent rate of devaluation, typically around 2% annually, to maintain confidence in its value.

Historically, the natural rate of interest has hovered around 6.5%, prior to the establishment of the Federal Reserve in 1912. Higher interest rates lead to a stronger currency with increased purchasing power, helping to keep asset prices in check and aligning economic growth with actual production. In contrast, low interest rates tend to encourage capital flow into non-productive assets, thereby expanding the money supply without a corresponding increase in goods and services. This imbalance fuels inflation.

While higher interest rates may slow consumption and growth, they also foster sustainable and progressive economic development. With higher rates, consumers can save without the pressure of taking on excessive risk to beat inflation. Though debt servicing costs may rise, asset prices generally decline, improving the ratio of savings and earnings to asset values.

Moreover, elevated interest rates can limit excessive government intervention in the economy, fostering a larger, more vibrant private sector. A healthy balance between the public and private sectors contributes to greater domestic economic independence and increases revenue from exports. Under such conditions, government debt as a percentage of tax receipts rises, ensuring that governments are using tax revenues and debt more efficiently allocating funds to projects with a positive return on investment rather than borrowing against future tax receipts for projects with questionable economic returns

The Impact of Shareholder Primacy and Government Expansion on the Economy

As businesses globally increasingly prioritize shareholder returns over the interests of consumers, the long-term stability of the commercial ecosystem is jeopardized. When short-term financial metrics such as share prices and quarterly results overshadow the pursuit of long-term value creation, the market inevitably faces a crisis. This approach, when aggregated across industries, leads to a collapse as the pursuit of immediate financial gains undermines the sustainability of the broader economy.

Similarly, the expansion of government, which has absorbed a growing number of private-sector workers displaced by globalization and technological advancements, cannot indefinitely perpetuate the illusion of economic health. Eventually, the accumulation of debt and misallocation of tax revenue leads to a decline in productivity, consumption, and rising inflation. As private sector income tax revenues diminish, alternative taxation measures are introduced, enabling the government to recover lost funds to sustain its expanding bureaucratic apparatus and central economic planning.

US Public Debt and Its Broader Implications

In the private sector, cost-cutting and technological innovation are crucial for survival. However, when these strategies are implemented across the entire economy, they diminish the demand for goods and services, further exacerbating economic contraction. As the government expands, it competes directly with the shrinking private sector workforce. The government holds a distinct advantage in this competition—it makes the rules, essentially creating a scenario where private sector competition is continually disadvantaged.

The rise of artificial intelligence (AI) compounds this issue. In the late 1990s, the internet emerged as a powerful tool, though its potential was not fully realized at the time. Today, AI is seen as the next frontier, with widespread hype surrounding its potential to drive productivity and GDP growth. While AI may contribute to efficiency, there is a real risk that, like outsourcing and offshoring, it could ultimately prove disruptive. If AI replaces up to 50% of the remaining private sector labor force, the government may be forced to continue its expansion, funding more public sector jobs through taxpayer debt. For instance, in August 2024, the Albanese government in Australia created 47,000 jobs, all funded by government debt. While additional government employment may increase tax revenues, the question remains: from whom will these taxes be collected?

The scenario described here may sound extreme, but the evidence suggests it is increasingly plausible. As inflation rises and government borrowing capacity wanes, the ability to sustain such economic models diminishes. The chart of U.S. public debt, currently accumulating at a rate of $82 billion every two days, illustrates the unsustainable trajectory. This situation cannot be rectified simply by changing political leadership—it will likely require a large-scale credit event that could trigger a global economic downturn.

The Australian Economy: Productivity Concerns and the Risk of a Corporate Real Estate Collapse

Turning to Australia, the issue of stagnating productivity remains a key concern. While construction and development companies are pivoting to new strategies, such as focusing on residential build-to-rent projects, these efforts may not shield them from the looming corporate real estate collapse. It is worth noting that despite significant investments in construction jobs, Australia has built fewer free-standing houses today than it did in 1995.

While demand for goods and services may persist, if the means to fulfill that demand are lacking, or if broader economic issues prevent fulfillment, this imbalance could lead to serious economic misadventures. As the global economy faces structural challenges, businesses must prepare for the possibility of further disruption and adapt to the shifting economic landscape

November Market Overview

Crude Oil
Crude oil prices have experienced a decline of 8.5%, largely driven by China’s economic slowdown, with a mixed outlook influenced by ongoing geopolitical tensions, particularly surrounding Iran. The current support level stands at $66 USD, with resistance observed at $78.50 USD.

Natural Gas
Natural gas is approaching its support level around $2 USD. Market predictions indicate a potential surge in prices as demand is expected to outpace supply. A combination of reduced drilling activity, lower overall production, and capital withdrawal from the market is expected to drive prices higher, with SKILLSOOP forecasting a significant increase.

Gold
Gold is anticipated to continue its upward trajectory due to heightened risks associated with US Treasuries. Specifically, the short-term default risk and long-term inflation risk contribute to gold’s price rally. While gold is currently rising alongside a strengthening USD, a weakening dollar in the future could accelerate its price surge.

Silver
The gold-to-silver ratio is currently around 80:1, significantly above the historical average of 60:1 in recent years, and the long-term average of 20:1. Given these dynamics, silver is expected to touch $45 USD in the near term, with potential to exceed $100 USD in the future.

Copper
Copper prices are finding support at $4.28 USD, with resistance forming at $4.66 USD. Slightly improved economic conditions in China have bolstered overall sentiment, providing some stability to copper prices.

Iron Ore
Iron ore prices have risen, driven by stimulus measures from China. Deutsche Bank forecasts that prices could reach $130 USD in 2025. However, SKILLSOOP remains cautious, anticipating that long-term prices will remain subdued due to Brazil’s increased production capacity, which will apply further pressure on prices.

Aluminium
Aluminium prices are on the rise, influenced by an imbalance between supply and demand in the alumina market. A key driver of this imbalance is the supply chain issues associated with bauxite, particularly with China’s growing reliance on imports from Guinea, which faces challenges related to weather and labor strikes. Australia benefits from this dynamic, contributing 23% of China’s imports, particularly in light of the Indonesian export ban and Guinea’s supply disruptions. However, the cost of alumina, which constitutes 40% of smelter input costs, remains a critical challenge for aluminium producers.

Agricultural Commodities

• Corn: Prices have weakened, primarily due to oversupply, with grain (wheat) and soybeans contributing to the market softness.
• Cocoa: While the stronger dollar has provided some price relief, supply issues persist, further exacerbating market pressures.

Economic Indicators

• Consumer Credit: Consumer credit continues to expand as households struggle to manage mortgage and rent payments, alongside discretionary spending. This is compounded by rising taxation and inflation, further depleting personal savings.
• Private Sector Employment: The private sector is experiencing a contraction, highlighting broader economic weakness.
• New Home Sales: Sales have decreased due to supply chain challenges, with Queensland particularly impacted. Mortgage stress is contributing to an increase in properties on the market.
• Vehicle Sales: Vehicle sales are down, reflecting increased bankruptcy rates within the private sector.
• Retail Sales: Retail sales have increased by 3.1% in August, reaching $36,376.4 million. However, this increase is likely driven by rising prices rather than higher consumption levels.
• Manufacturing PMI: The PMI continues to show signs of weakness in the private sector, indicating ongoing economic contraction.

Trade and Government Metrics

• Imports: Trade imports have declined, driven by contractions in consumer goods demand (down 4.2%) and vehicle parts (down 7.5%).
• Exports: Trade exports have contracted, with meat exports, grains, minerals, and metals showing negative growth.
• Government Debt: Australian government debt has increased in August 2024, with the current account balance falling by $4.4 billion to a deficit of $10.7 billion in Q2, primarily due to lower commodity prices and increased income flows to non-residents.

Bond and Interest Rate Markets

• 10-Year Bond: Capital is increasingly shifting from debt markets to haven assets such as silver and gold, as market sentiment remains cautious.
• Inflation Rate: The most recent inflation figures are not yet updated, but inflation remains understated relative to the actual economic conditions. The latest recorded inflation rates were as follows:
  • October: 4.37%
  • August: 3.8%
  • July: 3.35% (down 0.45%)

Banking and Government Policy

• Deposit Rates: Deposit rates have declined in tandem with the cash rate, which remains at 4.35%, increasing bank margins but disadvantaging savers.
• Government Spending: Government spending has risen in Q2, as have revenue levels in August, with increased debt accumulation seen across the public sector.

Procurement Insights: Bridging Theory and Operational Reality

With extensive experience across multiple industries and having interviewed over 2,000 candidates, I have gained invaluable insights into the successes and challenges businesses face when developing procurement capabilities. The reality is that the procurement function has seen more failures than successes, with a significant amount of rhetoric, jargon, and a persistent disconnect between theoretical frameworks and operational execution.

One of procurement’s most significant limitations is its ability to gain traction and buy-in from key stakeholders. Often, procurement is perceived as a non-exclusive function, with many stakeholders failing to recognize its strategic value.

This perception is not entirely unfounded. Procurement, at its core, is something we all engage with, even at a young age. The basic principles of sourcing and purchasing are learned early on, often when we head to the store with pocket money. As consumers, we interact with platforms like Amazon, making us aware of what a good purchasing experience can look like, especially in the realm of e-commerce. The concept of procurement, however, transcends basic consumer behaviour and requires a more structured, strategic approach in the business environment.

Looking back, the fundamentals of procurement were evident in everyday family life. Growing up in a working-class family, my parents had to meticulously plan and manage household finances to ensure we didn’t go without. Key life events such as family holidays, birthdays, and other cash-intensive moments had to be balanced with ongoing expenses like groceries, utilities, and other essential needs. If we break down the categories of spending, we can see how procurement principles applied in a practical setting:

• A car purchase could be categorized as capital expenditure (CapEx),
• Grocery shopping as consumables,
• Utility bills for electricity and water as operating expenses (OpEx),
• Home renovations and extensions as project sourcing.

These experiences provided an early foundation in understanding the intricacies of procurement, illustrating how essential this function is in both personal and professional settings.

Procurement: A Strategic Imperative for Success

In the context of household management, procurement decisions were made with careful attention to value and efficiency. For example, when it came to weekly shopping, the list was strategically organized. While cheaper white-label products were available, they were often discarded because they did not deliver the expected value, turning what seemed like a cost-saving measure into an actual loss. Instead, purchasing smaller volumes and opting for preferred brands ensured greater overall value. Similarly, by aggregating services like the phone and TV networks, costs were reduced—effectively applying the principles of supplier aggregation.

This concept of procurement was evident in everyday life. When my mother went to the supermarket, selecting products and passing them through the checkout, she was engaged in a purchasing decision. When new recruits join Jigsaw, I often use such examples to simplify the procurement process and ensure it is clearly understood.

In contrast to other business functions like accounting, marketing, R&D, and engineering, which require specialized expertise, procurement often faces a unique challenge in gaining credibility. To be credible, procurement must be exceptional, and to achieve that level of excellence, it must balance speed of execution with deep knowledge of the portfolio. This is complemented by expertise in market dynamics, finance, and negotiation.

Since these functions must be executed at scale, enablement is critical. This involves the integration of technology, systems, and processes to support procurement initiatives. However, the order of investment is key, as many organizations fail to succeed when they attempt to build on weak foundational elements. With that in mind, let’s explore what often goes wrong in the procurement process.

Does Procurement Perform During a Recession?

One of the most frequently asked questions I encounter is whether procurement can deliver value during a recession. With revenues down, the business may push for a 15% reduction in the supply base. However, when examining the dynamics of a recession, it becomes clear that this approach is not always effective.

In a recession, consumer spending typically contracts, which results in a decrease in revenues. Consequently, the cost of goods sold (COGS) naturally contracts as supply and demand become misaligned initially, while operating expenses (OPEX) also decrease as businesses scale back on discretionary spending such as marketing, recruitment, travel, and other operational costs.

The idea that procurement can drive savings while simultaneously reducing the number of orders and shrinking supplier revenue is highly unlikely. If a supplier agrees to such terms, it’s often a sign of instability, and they may not be able to sustain the relationship in the long term. While some businesses may consider reducing supply risk by consolidating with a sole supplier, this strategy introduces significant risk. In a recession, the potential for supplier insolvency or inability to manage increased capacity is heightened, making this a perilous approach.

Procurement Maturity Curve

For businesses that have invested in procurement over the past 15-20 years and undergone multiple transformations, the opportunities for cost cutting through traditional sourcing (i.e., price reductions) are often exhausted. What is typically lacking are key elements such as robust data analytics, supplier relationship management (SRM), technology adoption, and effective contract management—each of which carries a substantial cost base.

As revenue shrinks, it is unlikely that a business will approve significant investments in procurement enablement—such as technology, systems, and additional headcount—if no further cost reductions can be achieved in terms of supply chain costs. In many cases, businesses respond by reducing headcount and decentralizing procurement, shifting accountability back to business units. Pricing expectations may remain stable due to years of standard contract renewals, allowing departments like marketing to maintain cost levels for a limited period, while procurement resources are cut.

In many organizations, this scenario is unfolding right now, as businesses struggle to balance cost-cutting measures with the need for procurement efficiency.

Small Businesses and Procurement in a Shrinking Market

For smaller businesses that have not invested in procurement infrastructure, there is potential to achieve savings during a recession. These organizations are often at a scale where they may not have the capital to invest in comprehensive, end-to-end procurement frameworks that incorporate technology and personnel. In such cases, a procurement resource might be hired on a reactive basis, tasked with generating savings without the benefit of structured data or clear purchase order records.

This situation often leads to procurement operating in an environment where decisions are made based on instinct and stakeholder input, rather than informed data. The result is reminiscent of procurement practices from the 1980s, where deals were negotiated and contracts signed, but there were insufficient resources to execute on the value promised. In these cases, the procurement process becomes a psychological exercise rather than a value-generating function.

Procurement’s Value in a Growing Business vs. Shrinking Business

Procurement typically adds the most value when a business is experiencing growth. In such environments, procurement has significant leverage in negotiations, as suppliers are eager to expand their revenue. The skill lies in slowing down suppliers’ profit growth on a per-unit basis while increasing the volume of sales. As a business grows its OPEX, CAPEX, and COGS, procurement can play a pivotal role in driving efficiencies between sales and costs.

However, in a shrinking market, the dynamics shift. To maintain profitability, businesses must focus on increasing margins per unit, driven by the fundamental supply and demand principles. While procurement can still add value in this context, it requires a different approach.

Innovation as a Key Lever

For organizations that have made substantial investments in procurement, innovation becomes the key driver during a recession. By leveraging innovation, procurement can help navigate the challenges posed by shrinking revenues and maximize value for the business. However, this is a strategy that remains underutilized and is relatively rare in practice

Does a Dollar Saved Hold More Value Than a Dollar Sold?

The question of whether a dollar saved is more valuable than a dollar earned through sales is a pertinent one. To illustrate this concept, consider the following example: If a company sells a unit for $1, after accounting for costs such as COGS, OPEX, CAPEX, and taxes, the net contribution to the bottom line is only $0.10. This means that 90% of the revenue generated from the sale is consumed by operational expenses.

Conversely, if the same dollar is saved through procurement by negotiating a 10% reduction in the price of goods, the value of the dollar saved is fully realized, contributing $1 directly to the bottom line, with no tax implications. This approach clearly presents a more attractive financial proposition. So, where is the procurement team to make this happen?

The Strategic Business Sense of Procurement

This scenario makes intuitive business sense: by focusing on procurement savings, the company can increase its EBIT and operational cash flow. The savings achieved on the cost base can have a direct impact on profitability, with 100% of the savings realized rather than being eroded by taxes and operational costs. However, achieving these savings requires investment, both in procurement and in complementary services such as professional consulting, technology, and performance-based incentives.

As such, the calculation of savings becomes more nuanced. On one hand, the net savings achieved through procurement may be eroded by the associated costs of securing those savings, such as the investment in procurement resources and external services. On the other hand, these savings are still advantageous, even if the full value is not fully realized in a direct, unencumbered form.

The Impact of Cost Management on Business Performance

While savings and cost management are clearly beneficial, it’s important to recognize that aggressive cost-cutting can have unintended consequences. Often, as businesses focus on reducing costs, customer satisfaction may suffer, resulting in reduced service quality or product offerings. This can further impact top-line revenue, as customers may respond negatively to inferior products or services.

From a revenue perspective, a business’s net margin per unit sold is sustainable over time and can be adjusted for inflation. However, savings on the cost base are finite, and the ability to continue cutting costs diminishes over time, especially if revenues stagnate. This is particularly true when the business reaches a point where cost savings become increasingly difficult to achieve without impacting the quality of the product or service.

Procurement, in mature operations, often delivers value primarily through supporting growth. As a result, businesses may find that procurement’s ability to drive cost savings becomes less effective as growth slows or revenues decline. Eventually, the business may reach a breakeven point in terms of cost-to-sales (CTS), at which point procurement leverage will no longer yield the desired results. If procurement continues to push for savings at this stage, the risk of supplier insolvency or operational instability may increase.

The Diminishing Returns of Procurement in a Recession

In a recession, procurement can become an even less effective lever. Consider the scenario where, as CFO, the contribution margin per unit drops from $0.10 to $0.08 due to increased costs in procurement, recruitment, and professional services. As procurement’s role expands, OPEX increases, which results in further pressure on the profit margin.

At this point, procurement’s role in reducing costs may no longer be enough to sustain profitability. To offset the reduced volume of sales, the business may be forced to increase prices or reduce the complexity of shared services, including procurement, in order to maintain a sufficient return on capital employed (ROCE). In such cases, procurement becomes part of the broader operational restructuring, with the focus shifting back to core business operations and the allocation of capital to areas that drive direct value.

Ultimately, procurement can provide value in both growth and recessionary periods, but its effectiveness depends on the broader context of the business. In times of economic downturn, businesses must focus on improving core operational efficiencies and adjusting their cost structures in a way that maintains sustainable growth and profitability

Why Procurement Transformations Often Fail

In my experience, the number of failed procurement transformations far outweighs the successful ones. As someone who has witnessed numerous attempts at transforming procurement functions, I feel suitably qualified to highlight some of the primary reasons behind this high rate of failure.

As outlined earlier, procurement is a skill set that integrates seamlessly into all aspects of our lives. At a superficial level, it is not a specialized corporate skill set in the same way that HR or sales might be. This naturally raises the question: what distinguishes professional procurement from everyday purchasing practices?

The Key Differences Between Household Budgeting and Professional Procurement

The distinction between a procurement manager and a household budget controller is significant. One of the most notable differences is leverage. In a professional setting, having access to substantial spend or the backing of a major brand allows procurement managers to act as price makers rather than price takers. In contrast, an individual buyer, like a consumer managing a household budget, is limited to sourcing the best available option in the market without the same ability to influence prices.

Scale also plays a critical role. A professional buyer is tasked with managing large, complex categories, often serving multiple internal customers. This requires breaking down spend into segments (not just category management) and employing tailored strategies for each segment. Furthermore, contracts in a professional procurement context are more complex. Unlike an amateur buyer who receives standard invoices without much involvement in contract negotiations, a professional buyer plays a key role in shaping terms, conditions, and the overall contract lifecycle.

Lastly, data and processes are fundamental to professional procurement. Thousands of transactions need to be accurately processed and recorded, ensuring that spending patterns and insights can be captured and analyzed to drive better outcomes.

While we all engage in some form of procurement in our daily lives—whether sourcing products for a renovation or managing a personal budget—most of us lack the specialized expertise required in procurement, such as legal, financial, and negotiation skills. True professional category management demands a combination of all these competencies, and it is the absence of these skills that often contributes to procurement transformation failures.

The Core Reason for Procurement Transformation Failures: Unrealistic Expectations and Misguided Phases

The primary reason procurement transformations fail lies in the approach businesses take to development and the expectations they set. Many organizations assume they can transition from a transactional purchasing environment to advanced category management in just 3–5 years, which is nearly impossible for large businesses.

Instead of following a structured, phased development process, organizations often rush headlong into adopting “best practice” category management frameworks. This term, which is frequently used as a buzzword, is nothing more than a marketing label designed to sell turnkey services at scale. In the worst cases, businesses fail to invest in necessary tools like data management systems and SRM platforms, choosing to hire category managers—often in title only—and appoint policy and governance professionals to enforce rules. This approach is akin to constructing a house by starting with the roof.

The Role of Leadership and Realistic Investment in Procurement

While it is not entirely the procurement lead’s fault, the pressure from CFOs and Boards for immediate ROI is a major contributing factor. If a company is investing millions into procurement to realize an immediate, tangible return on investment, the pressure for results becomes overwhelming. This compressed timeline benefits transformation firms, who are often paid based on projected savings, leading to a focus on short-term results rather than long-term value creation.

To ensure long-term success, businesses must be prepared to delay gratification. Phase 1 of any procurement transformation should focus on enablement, not immediately diving into category management and sourcing. The procurement model must first be tailored to fit the organizational structure, followed by the adoption of the appropriate technology, systems, and processes.

Key considerations at this phase include determining whether the organization operates with a single or multiple P&Ls, whether decision-making is fragmented across the business, and how technology and systems can effectively support all stakeholders. These foundational steps take time, and businesses must first adopt new methods of transaction management before making any changes to procurement behavior.

The Importance of Data, Technology, and System Integration

During this initial phase, the primary goal should be to integrate procurement with finance, ensuring accurate spend tracking through the proper systems and processes. At this stage, procurement is still reactive to the business’s needs, but it can provide valuable data and insights, increasing operational efficiency and driving supplier margin reductions. It is crucial to hire talent that can follow processes and demonstrate solid business acumen, but not expect advanced category management maturity at this point. This helps keep salary costs in check and aligns investment with achievable results.

The bulk of the initial investment should focus on setting up procurement for long-term success. Once the business has fully integrated its systems and data and completed some basic sourcing activities, it can begin to implement more sophisticated procurement strategies, such as outsourcing, offshoring, and category management.

Transitioning to Advanced Procurement Practices

Once the business has matured in its procurement practices, the transition to advanced category management should be gradual. This process involves developing the skills necessary for true category management, which requires legal, financial, sales, and negotiation expertise. At this stage, it may make sense to appoint Portfolio Managers to oversee category managers and facilitate the transition from sourcing to advanced category management.

The most successful procurement operations are those that adopt a methodical, phased approach, avoiding the boom-and-bust cycles that result in recurring transformations every 5 years. By investing in the right foundations, businesses can set up procurement for long-term value and success.

The Misconception of Category Management as Best Practice

Category management has garnered an elevated status as the target for “best practice” procurement—though it remains unclear what exactly constitutes best practice. While it is true that category management can deliver substantial benefits, not every business requires it, and in some cases, implementing a category management approach may even prove detrimental.

For category management to be effective, a company must possess a demand arc, where historical data informs future demand. This allows for constant adjustments to pricing, value, innovation, and risk elements. Industries such as manufacturing, retail, and pharmaceuticals are prime examples of sectors where category management thrives, particularly for spend portfolios that include packaging, ingredients, chemicals, and distribution. These are typically high-value components of COGS or critical OPEX that are directly tied to customer fulfillment or act as barriers to entry. As a result, such businesses can leverage more than just price in their spend portfolios, incorporating strategic positioning and revenue considerations.

When Category Management Is Not the Right Fit

However, for businesses focused on project-based work—such as construction, civil engineering, and mining—the category management model is often not applicable. In these industries, historical demand has little bearing on future projects, and the uniqueness of each project means that what transpired previously is of minimal relevance. Furthermore, many projects use diverse pricing models, which can completely eliminate the leverage of price, rendering category management less effective.

Additionally, spend portfolios that fall under OPEX often operate within price-driven parameters, where the primary objective is cost reduction. While a category management approach may sometimes be appropriate in these cases, it is not always the best fit, particularly if the company’s top-down management or policy does not align with the structure of category management. The process of implementing category management is typically a high-investment, high-cost initiative, which can yield a poor return on investment if it is misapplied.

The Risks of Misapplying Category Management

Calling a function “category management” when it isn’t truly category management only adds unnecessary costs. In such cases, a company may find itself hiring higher-level capabilities that are ultimately underutilized, leading to higher retention volatility as resources become disenchanted with the lack of sophistication in the function.

In many cases, it may be more effective to label the function as what it truly is—a tendering team—and avoid the high costs associated with category management salaries and technology implementations that are poorly leveraged. By doing so, businesses can still achieve some value through basic negotiation tactics without significantly impacting net margins on sales revenue.

Conclusion

In conclusion, while category management can be highly beneficial for certain industries, it is not a one-size-fits-all solution. It is important to assess the needs and structure of the business before implementing such a model. In many cases, simpler procurement strategies, such as tendering and basic negotiations, can provide sufficient value without the need for the high investments associated with category management. The key is to align procurement strategies with business objectives and avoid the trap of adopting “best practice” frameworks that may not be suitable for the company’s operations

In our November report, SKILLSOOP forecasted rising natural gas prices due to capital constraints and investment shortfalls. This trend appears to be unfolding as expected. As winter intensifies in Europe and North America, increased demand is expected to push prices higher.

Oil prices are experiencing a mild decline, with support holding at $66 per barrel as indicated in November. Geopolitical tensions, particularly a potential direct conflict between Russia and the U.S. or between Iran and the U.S., could lead to significant price increases. In the interim, a weakening global economy, particularly in China, the U.S., and Japan, is suppressing oil prices. If this economic weakness persists, oil prices could dip to $50 per barrel. At the time of writing, Ukraine has launched long-range U.S. missiles into Russia, which places various regions of Europe at heightened risk.

Copper prices are expected to continue their downward trend, having already declined since their May peak. Weak stimulus from China and the strength of the U.S. dollar will continue to exert downward pressure on commodity prices. Additionally, former President Trump’s focus on tariffs may disrupt global trade and growth expectations.

As forecasted in SKILLSOOP’s November report, iron ore prices are on a steady decline. China’s stimulus efforts have proven insufficient, while advancements in recycling technologies are contributing to the downward pressure on iron ore. As Rio Tinto’s Simandou supply increases, we anticipate an eventual market surplus, which will push iron ore prices down to approximately $80.

Aluminium prices have surged due to the removal of tax rebates on Chinese exports. If this rebate is passed on to importers—as is possible, given the contraction in Chinese supply—aluminum prices may increase further. This rebate withdrawal could be part of a broader strategy to counteract potential U.S. tariffs.

In the agricultural sector, corn export inspections increased slightly week-over-week, reaching 32.3 million bushels, which is on the higher end of analyst estimates ranging from 25.6 million to 35.4 million bushels. Mexico remains the top destination for corn exports, receiving 15.6 million bushels. Cumulative totals for the 2024/25 marketing year are ahead of last year’s pace, with a total of 356.8 million bushels.

Wheat export inspections, however, were disappointing, reaching only 7.2 million bushels, which fell below analyst estimates of 11.0 to 15.6 million bushels. Mexico again was the largest destination, importing 2.3 million bushels. Nevertheless, cumulative totals for the 2024/25 marketing year remain moderately ahead of last year’s pace, totalling 379.4 million bushels. Ukraine’s agricultural ministry reported grain exports through November 18, including 306.8 million bushels of wheat and 238.2 million bushels of corn. Both figures exceed sales from the 2023/24 marketing year.

Cocoa prices continue to rise due to ongoing supply shortages, which are impacting profit forecasts for major manufacturers reliant on this commodity. Contributing factors include European deforestation regulations set to be enforced from December 30, 2024, as well as structural declines in the Ivory Coast and Ghana due to aging crops and viral insect infestations.

Gold has experienced a healthy pullback, with suppression driven by bullion bank manipulation in paper markets. A strong U.S. dollar will push global inflation higher, particularly in the context of geopolitical instability. As nations attempt to lower interest rates to stimulate their economies, inflation is expected to surge, causing gold prices to surpass $3,000 per ounce.

The U.S. dollar continues to rise, largely driven by investor confidence in the Trump administration’s economic policies. This trend has led to capital flowing from bonds into equities. However, a strong dollar hampers the U.S.’s ability to re-industrialize, which may prompt President Trump to weaken the dollar through stimulus, leading to further rejection of U.S. treasuries.

The silver deficit is projected to decrease by 4%, as production increases by 1% from Chile, Mexico, and the U.S., while recycling efforts grow by 5%. Overall, a 2% increase in silver supply is expected to offset a 1% growth in demand. Despite this, analysts continue to forecast a rapid decline in silver availability. The long-term outlook predicts silver prices could exceed $200 per ounce over the next decade.

U.S. 10-year Treasury yields are expected to rise as creditor nations seek to avoid U.S. risk, and investor confidence in the Federal Reserve’s ability to manage inflation and the government’s ability to control its budget wanes. We predict an initial flight to safety, which will temporarily lower yields, before rates gradually climb towards 6% over the longer cycle.

Sourcing Your Next Procurement Role

Navigating the job market can be a daunting experience, especially when you’re unhappy in your current role, unemployed, or seeking new challenges. The journey from deciding to make a change to securing a new role is fraught with obstacles. From drafting your resume to sourcing opportunities, engaging with recruiters (if fortunate enough), and attending interviews, each step presents unique challenges. Moreover, balancing this process with the demands of daily life—such as managing a household or parenting—only adds to the complexity.

Amidst ongoing global economic volatility, marked by persistent threats of war, inflation, fluctuating interest rates, and continued supply chain disruptions, many procurement professionals find themselves unemployed or at risk as companies restructure in response to cost pressures. As businesses face contracting revenues, they merge P&L statements to capitalize on economies of scale. In lean times, employees are often viewed as liabilities rather than assets in accounting terms, underscoring the importance of strategically positioning oneself in the job market.

Given that each organization faces unique challenges based on factors such as market, scale, maturity, supply chain, and liquidity, it is important to recognize that, despite the financial view of employees as liabilities, individuals can still be valuable assets under the right circumstances. The key lies in identifying when labor transitions from a liability to a vital asset. This understanding is central to a recruiter’s role in aligning knowledge, circumstances, and opportunities to deliver value.

Targeting the Right Role

Securing the right role is a pivotal step in your job search. If you misalign your target position, you may find yourself facing prolonged unemployment or stagnation in your current role. Before engaging with the job market, it is critical to define the type of role you are seeking. Are you looking for a promotion—from category manager to portfolio manager or vendor manager to category manager? Or are you exploring a shift in responsibilities, such as changing your area of spend from marketing to packaging? Perhaps you’re considering a complete career shift, such as moving from procurement to logistics or project management.

Many candidates seek leadership experience or more strategic positions. However, these aspirations may present a challenge if you lack the relevant experience for the role. While it is not to say that these goals are unachievable, it is important to acknowledge that your motivations might not align with the requirements outlined in a potential employer’s position description. The role’s expectations may not align with your current skill set, creating a risk for both you and the hiring organization.

If you are seeking a position where you lack direct experience, internal mobility is often the best route to progression. When considering external opportunities, it may be more effective to pitch yourself directly to the business, bypassing recruitment firms. Recruitment firms tend to focus on candidates who closely match the job description, as they are paid to reconcile the resume with the job brief.

This leads to an important question: If you are capable of handling a role with increased responsibility or a shift in focus, why hasn’t your current employer offered you such an opportunity? If the reasons involve a lack of available positions, inadequate skill sets, or compensation issues, seeking external opportunities makes sense. However, if your colleagues have been promoted or the company has recruited externally, it may indicate that you are not yet seen as ready by those who know you best. A self-assessment is crucial before pursuing roles that may be above your current level.

Understanding Your Skills

Procurement encompasses a broad range of skills, including legal, analytics, financial, sales, marketing, negotiation, process, systems, technology, and stakeholder management. Many businesses develop their own internal labels for these skills, which may not align with industry standards. This can result in resumes that lack consistency, blurring career progression or overcomplicating experience histories. These discrepancies can be further exacerbated when you verbally present your experience or when technology filters or recruiters reject the information.

For example, the role once known as “Vendor Management” has evolved into multiple variations, such as “Contract Management,” “Category Management,” “Supplier Management,” “Business Partner,” and “Commercial Manager.” This proliferation of terms can lead to confusion, both in drafting resumes and in reading job descriptions.

A term I’ve observed recently is “Procurement Enablement,” which appears to be a catch-all label for functions like Framework Development, Policy, Governance, and Systems. While it is an improvement over previous terminology, it still adds complexity when trying to ensure that your experience is communicated clearly.

To avoid such issues, I recommend working with a recruiter who can help you navigate these various labels and ensure that your skills and achievements are communicated effectively. Additionally, detailing your skills, outcomes, and solutions will help clarify your capabilities and reduce the risk of misunderstandings.

Leveraging Your Achievements for Impact

While not all interviews will require you to articulate every achievement, it’s crucial that you have them readily available—especially when preparing your resume. In recent years, interviews have often focused on culture rather than technical skills, driven by the rapid growth and expansion of non-core operations. However, with interest rates expected to stabilize at 6% over the next five years, which will increase capital structuring costs and reduce consumer cash flow, technical expertise will likely gain more prominence in hiring decisions.

When discussing your achievements, it is important to distinguish between what is expected as part of the role and what goes beyond the typical scope. For example, many candidates highlight stakeholder management or cost savings of 10% in a new category, but these may be considered baseline expectations rather than standout accomplishments.

An achievement, in the context of a job search, is not simply personal recognition; it is a result that delivers significant value beyond what is expected in the role. Strong narratives that provide context and highlight the problem, solution, and outcome structure are essential to making a lasting impact.

Summary

To achieve the best results in your job search, alignment is key. Your resume, the recruiter’s pitch, and your interview presentation should all reflect a coherent narrative. When these elements are synchronized, you maximize your chances of success. Often, alignment can outweigh having the perfect skills or experience, as expectations play a crucial role.

Consider the analogy of a McDonald’s meal. While it may not be a fine dining experience, it consistently meets expectations. Similarly, when your resume, recruiter’s pitch, and interview performance align, you provide a clear and consistent message, boosting your chances of success.

It’s essential to ensure that your resume accurately reflects your skills and capabilities in a market-friendly way, with the recruiter’s understanding of procurement and your abilities guiding the process. The key is to ensure you are neither over-sold, under-sold, nor left unnoticed in the competitive market.