Ivalua: How Cost Pressures are Leading to ‘Skimpflation’

More than half (52%) of businesses say that cost pressure is driving ‘skimpflation’ in their supply chain – so states a new report from Ivalua, the enterprise AI platform for procurement.

This is leading to quietly trading down on component or ingredient quality to protect margins. In the UK, this rises to 64% – the highest of any market surveyed.

The report found that businesses are facing struggles to balance cost, risk and resilience. And those facing constraints from manual processes and limited supplier visibility – the fastest route to saving is ‘skimpflation’.

The silent inflation

Businesses are seeing this unfold in two ways. Either it is by reworking product specifications to bring the cost of goods down (59%) or switching to cheaper suppliers or goods outright (36%).

There is also the issue that these savings are not reaching the customer. The Ivalua report states that just 10% cut their prices, while 43% raised them and 47% left them unchanged.

This is leading to a quiet trade-down where shoppers pay the same, or more, for products and goods made to a lower standard.

There is also increased pressure, with more than half (53%) of businesses experiencing delayed product launches, likely tied to supplier quality issues, poor collaboration or missed warnings of disruptions.

It is not only the consumer being affected by this, as 49% of businesses are seeing ‘skimpflation’ from their own suppliers.

“Skimpflation is the silent inflation. It never shows up in the headline CPI figure but consumers feel it every time something breaks sooner, wears thinner or runs out faster,” says Alex Saric, Smart Procurement Expert at Ivalua.

“But short-term cost and quality decisions can conceal long-term risk. Businesses spend years building brand loyalty, then a single reformulated product or cheaper component undoes it. The firms cutting hardest today aren’t just protecting margins. They’re borrowing against their reputation, and that debt comes due the moment consumers notice the difference.”

Supply chains in constant flux

Reshaped by rising costs, shortages and trade disruptions, modern supply chains are in constant flux.

Over the past year, organisations aggressively diversified away from major sourcing regions, including Eastern Europe (44%), China (43%) and Western Europe/UK (40%).

This restructuring is primarily driven by supplier inflation (33%), parts shortages (32%) and tariff risks (30%). To navigate these rapid shifts, 90% of companies are turning to or planning for AI, with early adopters reporting an 89% success rate in finding new suppliers.

However, a major hurdle remains: 44% admit their data isn't AI-ready. Until data quality improves, AI will only expose existing supply chain vulnerabilities rather than fix them.

AI as the sat-nav for suppliers

Alex adds: "When companies are pulling out of so many parts of the world at once, the easy answer is to just buy whatever's cheapest. Quality quietly slips, until customers notice and turn on the brand.

"AI is starting to change that. Think of it like a sat-nav for a company's suppliers; it can flag a better, safer option, rather than just chasing the lowest price. But a sat-nav is only as good as its map.

"Feed it patchy, scattered information and it sends you the wrong way with total confidence. Get the full picture in one place and businesses no longer have to choose between protecting their margins and protecting their customers."