The place of procurement in the fight against inflation

According to Supply Management, supply chains are the first industries hit by inflation and recessions. Procurement professionals therefore have a critical role to play in preparing businesses for rising prices, by building strong supplier relationships and implementing resilient sourcing strategies.

Already facing the unpredictability and instability of longstanding supply chain disruptions, procurement leaders are now being urged to boost financial risk management against the threat of inflation. With supply chain management companies anticipating a decline in manufacturing next year (by 5% in the UK), many large companies, including Tesco and the Coop, have already started to reduce their inventories and intensify waste management ahead of the anticipated recession.

“It is difficult to beat inflation in today’s market, but it is possible to outperform the competition and emerge stronger. By eliminating waste and taking more care when it comes to relationships with suppliers, businesses can become more resilient and productive and look ahead to a better future,” Ed Winterschladen, Executive Vice President of Europe at Proxima, told Supply Management.

Changing procurement strategies to build a resilient supply chain  

Highly skilled procurement professionals are growing in value as businesses search for the best ways to protect themselves against rising prices. Cost-effective procurement strategies have always been highly sought after, but now the procurement role also involves managing risk and promoting sustainability.

“The light in the darkness could well be found in supply chains. Businesses are rightly looking to the future, but this requires investment in talent and technology,” said Winterschladen.

Many procurement risk management partners have initiatives in place to improve visibility and resilience along the supply chain. Advising clients on the top hidden risks they need to guard against along the supply chain, Avetta emphasises the importance of reviewing suppliers’ financial health before making business partnerships.

The Energy Procurement Supply Association (EPSA) is also helping businesses across Asia and Australia manage their supply chains amidst ongoing energy shortages and the trending commitment to net zero.

“Delivering value to businesses has always been a top priority for the procurement function, and now more than at any other time in recent years, negotiating price to counter world events is key,” Charles Hollis, President of EPSA, told Supply Management.

The company’s recent report, ‘Procurement and Supply Chain in a Changing World’, outlines emerging trends, opportunities and technologies in the procurement sector. This involves improving visibility along the supply chain by creating effective and cost-efficient business partnerships that provide security against rising prices and shortages.

“However, actively pursuing security of supply and sustainability, risk reduction, supplier base diversification and supporting fair work practices throughout the supply chain is also one of the value drivers of the future,” Hollis added.

Supporting local businesses could be the answer to procurement

Rising fuel costs is another major issue threatening the financial and operational stability of the supply chain. As well as improving visibility by fostering a digital supply chain, using local suppliers would drastically minimise the need for transport costs over land and overseas.  

“Just as today, the recession of 2008 came on the back of a period of high fuel costs. While the main driver for change was the significantly reduced economic activities over the period, the impact of high fuel costs should not be overlooked. 10% of companies switched to local suppliers when possible, reflecting a desire to shorten product lead-times and reduce transportation costs,” said David Jinks, Head of Consumer Research at ParcelHero.

Supporting local businesses through regular procurement would not only overcome the issue of relying on long-distance transport, but it would also have a major impact on environmental, social and governance (ESG) initiatives. By committing to local suppliers, businesses would be reducing their carbon footprint as well as giving back to local communities – therefore fulfilling both environmental and social responsibility goals.

Tackling rising inflation is not an easy job. However, with effective risk management strategies and strong supplier relationships in place, procurement professionals can minimise financial disruptions and help to develop a sustainable and resilient supply chain.