Inflation is on the rise. In March, it almost doubled on the month before. Most forecasts suggest it will keep rising. Fortunately, inflation is growing from a historically low level and is still significantly below the Bank of England’s 2% target – but businesses do need to plan for how they will manage inflation-linked cost increases with the help of procurement.
What is driving inflation?
There are a range of factors. The Covid-19 pandemic and increased container demand (due to the increase in demand for PPE) has forced global shipping costs significantly higher. This has been exacerbated by the recent blockage of the Suez Canal by The Ever Given cargo ship. Domestic factors also play a role – fuel prices, minimum and national living wages have risen, and Brexit has added additional costs to goods entering the UK and to companies exporting to Europe.
Put together, this all means that businesses across the UK will face stubbornly high costs over the next year. This risks putting a squeeze on margins, so businesses will need to box clever to keep their costs under control. What advice are our procurement consultants giving clients?
Here are our top three tips to beat inflation with procurement:
Look again at your financial risk strategy
Many businesses that deal in commodities will use measures such as hedging to insulate them from rising costs. Is now the time to be re-thinking your appetite to financial and you should be hedging more, decreasing the level of risk you face from rising costs.
The answer will be different for every business depending on the commodities that you rely on, but ultimately you should be taking a close look at your forecasts and financial models to determine whether your assumptions about future price changes still hold true and the impact price rises would have on your business.
Identify efficiency gains in your supply chain
In almost every business there will be further efficiencies that you can get from your supply chain. There are many ways you can do this but obvious examples are increasing order quantities or changing the exact product you are ordering to get better value.
This is about methodically looking at your costs – going contract by contract and finding where you can do things differently to either control costs or reduce them (giving you greater flexibility to absorb cost increases in other areas that you have less control over).
Work with your suppliers to find solutions
Our advice is always that the strongest supplier relationships are ones that are true partnerships. One of the best ways to manage rising costs is to sit down with your suppliers and share your problem with them. You’ll often find that they’ll be willing to collaborate with you to develop new solutions.
The changes you make in partnership with your suppliers will often not only help you control costs, but we also regularly see such changes lead to new options that drive efficiency and improved ways of working.
How Proxima can help
If you’re looking for more information on implementing these actions, simply get in touch.
We regularly help our clients reduce spend, increase cost savings, and avoid risk from inflation – all through procurement. And as leading procurement consultants, the specialist experience we bring through years in the field is unlike any other.