12 Ways Procurement can help fight Inflation

An Inflation Robot Eating Cash - made with DALL E

How Procurement can Fight Inflation in the Supply Chain

Inflation is a massive challenge to Procurement Professionals. Procurement is a business function that has not changed much in many years. However, times have changed, especially in 2022. And it is time for procurement professionals to realise this and adapt their working methods. 

Inflation remains one of the biggest challenges facing companies today, with a wide range of industries struggling against rising prices year after year. The Russian invasion of Ukraine, global warming, and ever-increasing nationalism have caused worldwide trade and supply chain breakdown. 

This means businesses need to adopt new ways of doing things to stay competitive and survive in today's market climate. Here are twelve ways you can fight inflation as a procurement pro.

1 - Procurement strategy in a disruptive environment

In a disruptive environment, you must continuously ask yourself: 

• What are the opportunities and threats in my environment?

• How does this impact my business strategy?

• How does Procurement fit into that strategy?

• What actions can I take to ensure my procurement strategy is aligned with the business strategy?

Some companies have retained their competitive advantage by using technology to deliver a superior procurement experience. Using Digital Procurement and Procurement Technology could give an avenue of success to Procurement Professionals. More on that next. 

In other cases, however, these companies have seen their profit margins shrink or disappear, mainly when they don't keep up with changing conditions.

So how do you adapt your procurement strategy to market disruptions like new technologies or changing customer expectations?

2 - Making use of Procurement Technology

Inflation is a serious issue that has the potential to affect your business. To fight it, you must use procurement technology.

Procurement technology refers to the tools and systems used by organisations to manage their procurement processes efficiently and effectively. These include e-commerce platforms, bid management systems and asset management software. However, Procurement Tech will be prominent here in AI Sourcing Solutions, such as Globality, Arkestro and Fairmarkit on the sourcing front. Market Intelligence Solutions will be vital here to help ensure we're buying at the right price and time. 

In the future, Procurement Tech will be more intelligent and innovative than it is today. This means all Procurement Professionals need to get ahead, learn how to implement and use it, and drive the ROI of a Digital-first vision of Procurement. 

3 - Working with External Experts

Procurement Consultancies and Contingent Labour could prove to be invaluable during this period, such as Procurement Heads.

Seasoned Procurement Pros who have been there and done that when it comes to inflationary control will be your best friends. You can access them via the traditional consultancy or Contingent Labour Partners. Don't overlook the small consultancy setups here, either.

These Procurement Consultants could help you with your:

• Procurement strategy

• Supply chain management

• Supplier relationship management

• Supplier risk management

• Contract Management

In summary, they could be the people who could unlock the actual supplier contract value. Ideally, you want this expertise in-house, but this isn't always possible. 

4 - Becoming an agile organisation

The best way to fight inflation is by becoming an agile organisation. Agile Procurement is a way of working based on principles and values designed to help companies be more efficient and effective. 

It focuses on continuous improvement in all areas of the organisation, including procurement processes.

While agile Procurement can help your company save money in the short term, it can also lead to cost savings in the long run through increased efficiencies and streamlined processes. 

In addition, once Agile Procurement is implemented, you can reduce your reliance on contractors for specific tasks or even eliminate them altogether. This could save millions annually, depending on how much work was outsourced before becoming agile. 

Of course, we're talking about business-wide Agile Adoption because Procurement should align with the rest of the business. 

5 - Embracing total cost of ownership (TCO) instead of just price

The total cost of ownership (TCO) is the amount you spend to get a product or service in your hands, and it's a vital component to consider when choosing vendors. 

It includes installation costs and the time you'll need to invest in maintenance. The best way to calculate TCO is by researching what your company has invested historically in similar purchases and then comparing that information with real-time data from other customers who have purchased the same item or service. To bang the Procurement Tech drum, this is something that you can harness Sourcing Procurement Tech solutions to achieve.

6 - Know your suppliers better than they know themselves

As the Procurement Pro, it's your job to know your suppliers better than they know themselves. 

You need to understand their strengths and weaknesses, business model and plans for the future, and goals and ambitions. Typically, this will only be achievable with those Suppliers who obtain Partner/Strategic status as part of your Supplier Segmentation in your Supplier Relationship Management Programme. 

It's essential to keep in mind that if you ask too much from your suppliers—especially if you demand unrealistic improvements in cost or service levels—they may start looking for other options. This relationship breakdown is at the heart of what Supplier Relationship Management looks to avoid.

7 - Localisation and removing risk from supply chains through supplier diversification

Many organisations use a single supplier to meet all their business needs. This can be risky, as there is a risk that this one supplier will make you vulnerable if they go out of business or have issues with the quality of their service. To reduce this risk, you should increase the number of suppliers you use, ensuring that your business is not overly reliant on any of them. However, you need to be conscious not to add too many as managing your Supply Base will become impossible.

To help identify new suppliers, many companies will employ third parties to source for them - either buying products from these third parties themselves or using them as intermediaries between buyer and seller. This is particularly useful with Software Vendors or when entering a new Geography.

They may also hire third-party consultancy services which manage their supply chain on behalf of the company looking for cheaper prices (e.g., wholesalers).

8 - Data-driven decision making

You've probably heard the saying, "the only thing we know for certain is that we know nothing." But it doesn't have to be that way.

Data-driven decision-making is one of the most important skills you can develop as a Procurement Professional. This means taking action on the information you gather from your organisation and its supply chain rather than relying on your gut instincts or past experiences. It's all about collecting data, analysing it and using it to make better decisions in future situations.

Building a data-driven supplier management process

Understanding the benefits is the first step to building a data-driven supplier management process. A data-driven supplier management process can help you:

• Identify gaps in your performance, such as increased missed lead times or service level problems.

• Drive continuous improvement by identifying areas where suppliers are performing well and those that need improvement.

• Improve contract compliance by tracking the number of days between invoices, whether or not they were paid on time and any other metrics important to your business needs.

Once you've identified what needs to be tracked, you'll want to figure out how much data needs to be collected and how frequently it should be collected so that it provides insight into these critical metrics. 

9 - Procurement 4.0 – the future of Procurement as a value creator

Procurement has always been a value creator. 

And, as a value creator, Procurement must take the lead in fighting inflation. 

However, there are some obstacles to overcome. 

Firstly, Procurement's role as a value creator is often misunderstood or misused by companies that want to cut costs without understanding what drives them (business context). 

Secondly, procurement teams don't have access to all the tools needed to create actual value for their companies (data). 

Thirdly and most importantly: Procurement can't fight inflation alone. An organisation can successfully fight inflation by optimising its own processes and working collaboratively with suppliers/partners.

The organisation needs an integrated approach that enables collaboration between functions across different industries—not just within CPOs but also across supply chain partners (technology). This vision is one of a truly connected web of partners, suppliers, and buyers, who work collaboratively together to succeed. Perhaps a little aspirational - but we might need something like this to thrive. Procurement Tech and the Digital Procurement Professional will be at the heart of this.

10 - Procurement must change with the world

As you can see, inflation is already a significant challenge for procurement professionals. It will only get more complex over time. 

Procurement will have to change in line with the world around us. It is time for companies to adopt new methods to ensure their success and survival.

Procurement has long been recognised as an essential part of business strategy. Still, it has often been seen as an afterthought compared to other aspects of company operations like marketing or sales. 

With inflation rising rapidly, however, that mindset must change quickly, or businesses will struggle against rising costs. At the same time, revenues continue declining due to the global economic slowdown and consumer confidence falling at its fastest pace since 2009, according to Reuters/Ipsos poll results. 

11 - Seek Cost Savings

To fight inflation, you must look at supply chain costs. Like Elon Musk is doing with Tesla and SpaceX, your procurement team has to look for ways to save money on every part of the product. Look for cost savings in suppliers, product design, materials and more. I recently read Ashley Vance's book on Elon Musk, who stripped down the Model 3 to assess every single part of it to make cost savings. And yes, whilst I don't consider cost savings to be the most critical aspect of Procurement, I will never deny the vitalness of this approach.

12 - Build Long-Term Relationships With Your Vendors

Building long-term relationships with your suppliers are essential if you're fighting inflation. These relationships can help you gain access to goods at lower prices and ensure better quality control. The Customer of Choice will be a position I want to have achieved with my most strategic Suppliers. We may see more of an emphasis on Supplier Relationship Management throughout 2023.

Conclusion

You want to stay competitive in an increasingly competitive environment. In that case, you must embrace these 12 ways of fighting inflation as a Procurement Pro. Hope these tips help, and get your brain juices flowing as you consider your Procurement Strategy for 2023 and beyond.

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