Pass on lower supply costs or 'lose customers' firms warned

22 May 2023

Firms failing to pass on falls in supply chain costs face losing business to competitors, a consultancy has warned.

Supply chain management consultancy, Inverto, claims the cost of key goods are starting to fall – including sawn wood (the price of which is down 8%), structural steel (down 5%), and steel rebar (down 7%). 

As such, it is warning businesses to bring prices down to reflect these reductions.

“Businesses must now renegotiate with their suppliers to bring prices down – or lose out to their competitors as price competition heats up,” Inverto said.  

According to the Office for National Statistics, inflation hit 10.1% in the 12 months to March 2023, down from 10.4% in February, and from a recent peak of 11.1% in October 2022.

Construction materials have fallen significantly from their November 2022 peaks while milk, for emaple, is down 7% compared to peak prices seen in December 2022.

Inverto managing director, Sushank Agarwal, said: “The coming months are going to see significant price competition as costs come down, especially in certain commodities. Those businesses that are unable to cut prices in line with the rest of the market could lose out significantly.”

Firms have recently come under criticism for maintaining higher profit margins at a time when raw materials and supply chain costs have fallen. 

He added: “Some of the major supermarket groups are already starting to compete more heavily on price – milk is one product where we’re seeing price cuts. This trend is going to be repeated across a whole range of industries.”

But, he noted: “A lot of businesses have fallen out of the habit of negotiating prices down over the last couple of years. They need to get back to doing that and doing that quickly.”

Agarwal said new levels of transparency will be needed between suppliers and buyers. 

“Few suppliers are likely to want to share their input costs,” he said. “But bridging that information gap is the most effective way of reaching an agreement that works for both parties. Customers that can come to a negotiation armed with that data put themselves in the best position to bring their costs down.”

Prices have begun to fall after a lengthy period of record inflation.

The Bank of England anticipates inflation to fall to 7.9% in July, but this is still some way off the government’s target to get inflation down to 2% by the end of the year. 

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