The global economy continues to struggle with rising prices for goods and services. As a result, companies are paying closer attention to procurement inflation strategies.
The higher costs of what your enterprise needs can take big bites out of profit margins and the bottom line. Identifying and implementing the best procurement strategies are essential amid rising prices and lower purchasing power.
If you, like so many procurement managers, are struggling to achieve lower costs while maintaining a robust, responsive supply chain, keep reading. We at CenterPoint Group have insights and advice that can help you.
The International Monetary Fund forecasts inflation will fall in 2023 (before rising again next year). But the course and pace of recovery are uncertain due to the aftereffects of supply chain disruptions during the height of the COVID-19 pandemic as well as higher costs for food, energy, and raw materials, driven in large part by the war in Ukraine.
How does inflation affect purchasing power? As a procurement manager, you know the answer to that question. Inflation increases the cost of doing business—including the price of managing MRO (Maintenance, Repair, and Operations) supply chains.
You can’t control the rate of inflation. But you can implement procurement inflation strategies to control and bring down costs, while also making your processes more efficient.
Here are some approaches procurement teams can take to mitigate inflation’s impact on their supply chain:
Auditing your procurement spend is a smart idea no matter the state of the economy. Doing so during a period of inflation is critical.
Without accurate, real-time procurement data, you can’t know whether you’re paying too much for goods and services your business needs—or perhaps even paying for those it doesn’t.
Armed with accurate data, you’ll likely identify areas in which you can immediately improve your procurement processes. One obvious example? Cutting out unnecessary spending—perhaps even entire spend categories—as well as maverick spend.
Once you’re certain all of your spending is necessary, start looking for lower prices. You may also be able to work with your organization’s design and production teams to make changes to end products that would involve procuring different, less costly raw materials.
If you haven’t already been hedging your spend, start. It’s a critical way to guard against the continuing impact of inflation on business.
When you use a buying hedge, you’re locking in the current price of raw materials you know you’ll need. This futures contract shields your business from possible price increases to come.
You can also hedge by purchasing frequently needed items in bulk. Be aware you'll have to determine whether what you could save justifies the increased storage costs you may incur.
Even though you’re pursuing cost reduction, strategic spending on technology to improve your procurement processes can be a smart move. Examples include:
Strong relationships with the vendors in your supply chain will serve you well during inflationary periods. You want suppliers who share your commitment to strategic thinking and who’ve proven themselves responsive to changing conditions.
The time may be right for renegotiating contracts. If you’re seeking lower prices, you may be able to offer a long-term commitment to the supplier in exchange.
Also, look outside your current vendor pool. Making the effort to diversify your supplier base may lead you to vendors who charge lower prices or who can help you consolidate your procurement by sourcing multiple goods and services for you.
A sixth important procurement inflation strategy you can pursue is working with a group purchasing organization (GPO).
Because inflation affects purchasing power for every business, when businesses exercise combined power through a GPO, they’re able to achieve lower prices, stronger service, and access to more suppliers.
CenterPoint Group is an industry-leading, certified minority GPO. Our extensive experience and the purchasing power of our Fortune 500 clients equip us to secure the best possible prices for procurement teams, even in periods of high inflation.
Would you like to know how CenterPoint can help your business mitigate inflation’s impact? Request your free pricing analysis today, or call us at 866-229-6205.