Three strategies to 'blunt the impact' of inflation

12 December 2022

Procurement teams should adopt three strategies to “blunt the impact” of inflation, according to a report.

The report from Ivalua said managing inflation required procurement professionals to collaborate with suppliers on internal and external factors simultaneously.

The report stressed: “Procurement’s job isn’t to bring all spend under management, but rather to influence 100% of spend.”

This would enable teams to identify where the most important avenues to cutting inflation were.

The three strategies are:

1. Work at the category level

Company-wide communications across every category and department were key to identifying the best way forward. Working with current suppliers can help identify areas for procurement to leverage pricing, or alter specifications to lower costs. Packaging, materials, and transportation were key areas for consideration.

Ensuring supplier competitiveness across categories is also key – giving high-efficiency suppliers more volume, or going back to market to bring in new suppliers can reduce cost pressures. Tracking prices, including input costs and commodity indices, will help connect the price paid to changes in the market, protecting the company against overpayment. 

2. Manage cash on hand

With more working capital, companies have opportunities to buy at higher volumes and plan ahead to achieve lower effective prices. The report advised working closely with finance to actively manage contracts, invoking any terms or conditions to present an a advantage when working capital is low. 

The report warned: “Be advised, however, that today’s economy is as unpredictable as it is challenging. Many of the companies that invested in inventory to get themselves through supply chain disruption ended up regretting that choice when consumer demand changed and they were left with unwanted inventory that strained their cash position.”

3. Oversee orders, inventory and demand

Procurement can establish frameworks to ensure low-value purchases are handled by the business itself. This will allow teams to focus on higher-value processes earlier on, where they can optimise specifications and service levels, introduce alternate potential suppliers, and negotiate the best possible terms.

The report added: “Working in an inflationary economy is no one’s first choice, but since macro conditions are beyond the control of procurement and their suppliers, the best available option is often to collaborate and weather the storm together.

“Being cautious and analytical will serve procurement well, and hopefully the company’s key suppliers are similarly predisposed to take a thoughtful approach. If nothing else, challenging economic conditions present an opportunity for each company (and procurement team) to learn about themselves as well as the suppliers they have chosen to partner with.”

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London (Central), London (Greater)
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Insight Executive Group
London (Central), London (Greater)
Circa £60K
Insight Executive Group
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