Research: Inflationary disruption to procurement

Research from Ivalua, has revealed 90% of businesses’ supply chains have been disrupted by inflation in the past 12 months. As a result of higher inflation and rising costs, organisations have been hampered in their efforts to improve supply chain sustainability (64%) and labour standards (63%). 

The Ivalua-commissioned study, conducted by Sapio Research, surveyed 850 procurement leaders in the UK, US , Germany, France, Sweden, Netherlands and Italy.

Key findings 

• Cost trumps sustainability – More than half of organisations (57%) have been working with cheaper rather than greener suppliers due to rising costs.
• Firms onshoring to reduce uncertainty – More than a third (35%) of organisations have shifted towards more local operations in their supply chain in the last 12 months to deal with uncertainty, with a further 42% planning to do so.
• The return of the cost-cuts – Organisations have responded to high inflation by increasing their focus on cost-cutting (50%), operational efficiency (40%), and increasing the weighting of cost in supplier selection (26%). 

Impact on ESG progress

“Inflation has taken its toll on ESG progress. As businesses cut costs to weather the storm of inflation, environmental and modern slavery protections have fallen by the wayside. This will leave organisations at risk of missing net zero targets, greenwashing, and failing to meet ESG regulatory requirements,” comments Alex Saric, smart procurement expert at Ivalua.

“Many organisations are also onshoring supply chain operations to lower costs and reduce risk from geopolitical disruptions. But those opting to onshore must keep some diversity in the risk profiles of their supply chains to reduce the impact of local disruption.”

How procurement can mitigate disruption 

The executives surveyed suggested that in the last calendar year they have been disrupted by the rising cost of energy and fuel (86%) and raw materials (84%). The war in Ukraine is still disrupting European businesses, particularly in France (83%), Italy (82%), and Germany (79%).

Almost half  of procurement leaders agreed in the research their organisation has been ill-equipped to deal with and react to uncertainty. Over two-thirds of procurement leaders want more responsibility to help manage this uncertainty, but only 37% feel empowered enough by their organisation. 

“Procurement has the power to help businesses reduce the impact of inflation. Empowered by technology, procurement teams can improve chain visibility and collaboration to help identify opportunities to work with suppliers on long-term cost savings,” concludes Saric. “For example, early payments or bulk purchasing can help curb the impact of inflation, securing discounts for the buyer while reducing risk for the supplier. This will help organisations to foster strong supplier relationships, so they can continue to collaborate on ESG initiatives without sacrificing relationships through a focus on cost savings.”

Read more on eight steps you can take to navigate the headwinds of cost inflation and ten tips on how to fight inflation in procurement.

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Other magazines that may be of interest - Supply Chain Magazine | Sustainability Magazine

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