Inflation is a word that there is no getting away from: we are currently seeing a sustained period of supply and labour shortages and price volatility of the kind that most procurement managers will not previously have experienced in their working lives.
The causes of this period of inflation are multiple and complex. Factors such as COVID and the conflict in Ukraine have played a part, along with the availability of raw materials, people, and infrastructure. For procurement managers, the outcomes have been the same universally: availability drops and prices increase. Service levels may also be affected.
It may be easy to assume that for the foreseeable future, we must all be a slave to price. However, we should actually be viewing this as a time to think differently about how to create value, and procurement is ideally positioned to do this.
How procurement managers can respond to inflation
In this period of inflation and volatility, procurement professionals should of course be focused on cost, but more importantly on value. We should be taking this opportunity to eliminate waste and assess supplier relationships; both ways.
Your attention should not be on beating inflation: with prices so unpredictable and volatile at present, this may be an impossible task. Instead, focus on outperforming your peers, improving your business and staying ahead of the pack.
Let’s discuss some of the ways procurement professionals can do this…
Monitor your outgoing spend
Right now, keeping close tabs on outgoing spend is essential. As ever in procurement, getting to grips with your data will be key to success. All spend should be monitored and assessed to ensure it is making a positive difference. Don’t simply ask what you are spending your money on: ask why. Try to understand what is powering growth, and importantly, where is there waste, and how can it be eliminated?
Assess your supplier relationships
Shortages, price rises, and potential supply chain issues are just a handful of the challenges that the procurement sector is currently facing, and which are making price savings hard to come by. We can no longer look solely at ‘price’ as a way to define value: in the current market, value must be framed differently with a focus on how your suppliers enable your business and what positive difference they bring. Your supplier partners should ideally support you in cost reduction and a performance boost, ensuring that any money spent is working hard for you.
Conduct an assessment of your current suppliers: are your existing contracts still relevant, and do you have any options to reconfigure goods, services, or commercial terms? Are there any back-benched ideas that today are highly relevant and credible to warrant re-review?
As with so much of procurement, successful supplier relationships are based on strong, personal connections. It’s important to never underestimate the importance of the human aspect of business and its impact on success. Remember that many supplier partners will have resources, ideas, and capabilities that far exceed what a business has inside its own four walls. The key is to ensure that these are the type of supplier relationships that you build and maintain.
In this challenging economic period, procurement professionals who can build mutually-beneficial supplier partnerships can unlock potential for business growth.
Reassess your own ways of working
Whilst the key to weathering the current storm is partially down to changing procurement tactics and the way we look at ‘value’, it may also be that your business and your team need to change too.
Many businesses and procurement teams are used to buying in deflationary markets, and may not have previously experienced anything like the current marketplace. New and challenging times require positive mindsets and different techniques. For procurement managers, it’s important to be aware that while your team will require guidance and innovative leadership, they may also require support and reassurance. Procurement leaders need to make it clear to teams that inflation and volatility are real, and sometimes impossible to ‘beat’. However there is still value to be unlocked, and with savvy thinking, tactics and resilience, it is still possible to outperform competitors.
How Accelerate Procurement can help
In challenging times, it can sometimes be difficult to see a clear path forwards, especially when you are in the thick of it every day. However, a different perspective can illuminate new possibilities, and at Accelerate we bring that different perspective.
We are a team of experienced, entrepreneurial procurement leaders who have led and transformed global procurement functions and service provider organisations. We are creative problem solvers who can bring new insight to help solve business challenges and uncover opportunities you may not have even thought possible. We regularly help our clients reduce spend, increase cost savings, and avoid risk from inflation.
If you are a business leader or procurement manager who wants to find out more about how you can overcome the challenges of inflation, get in touch today for a friendly, confidential chat with one of our expert team.