Proactive strategies for thriving amid demand fluctuations
Portfolio companies with a strong procurement department, supplier optionality, and an integrated approach to logistics, operations, and procurement are well on their way to not only survive but thrive during periods of demand fluctuations. In his recent article in PE Hub, “Creating sustainable value in times of uncertainty,” Joseph Esteves, Head of Private Equity at SGS Maine Pointe, cautions that “navigating periods of reduced demand requires proactive steps rather than reactive measures.”
He warns that even consistent demand can be affected by economic downturns and unforeseen global crises beyond the control of private equity sponsors and CEOs. A combination of cost reduction, improved efficiencies, risk mitigation, and enhanced cash flow allows companies to adapt quickly to this ever-changing market landscape.
For example, an SGS Maine Pointe study revealed that up to 50% of price increases passed on since the Covid-era pricing frenzy are not linked to raw material costs, labor, or freight. Therefore, companies that have built a strong procurement department and strategy have a significant opportunity to revisit agreements/contracts and negotiate better pricing and terms.
Esteves recommends Total Value Optimization™ (TVO), which is endorsed by the Global Supply Chain Institute for achieving “excellence in logistics, operations, and procurement.” He cites several case studies in which TVO resulted in multi-million dollar annualized savings and an increase in EBITDA of up to 41%.
“Every company will encounter unexpected demand anomalies,” Esteves concludes. Therefore, portfolio company CEOs should strengthen their supply chain now. Only then will they have the agility an ever-changing market demands.