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16 August 2011 | Adam Leach
A lack of practical experience dealing with inflation means companies are unprepared to cope.
Research by The Hackett Group found that while most expect commodity prices to increase by 6.3 per cent over the next 12 months, many have not decided how to deal with the rises.
The report, which polled executives at global corporations, found that while most can effectively anticipate rising prices, more than 60 per cent are yet to find an effective method of mitigating increases.
One of the main reasons for the lack of readiness, according to the report, is that few executives have experience of dealing with the strategic sourcing challenge of extreme inflation because the last time it hit these levels was 1981.
Michel Janssen, chief research officer at The Hackett Group, said: “Like the proverbial deer in the headlights, many companies see the approaching danger, but don’t know how to get out of the way. There’s real potential for all this to have an impact on growth, profitability and consumer prices. It’s very tough to keep your promises to Wall Street when you can’t accurately forecast or control your expenses.”
According to the findings, when it comes to procurement strategies, most companies tend to take a fragmented approach to mitigating costs, spreading responsibility across departments. More proactive companies are forecasting prices and hedging risk by adapting contract length, purchasing volumes or inventory levels. But few companies surveyed reported having a clear direction or policy on how to deal with volatile prices.