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Insights

Procurement: The Not-So-Silent Inflation Warrior

November 11, 2023by YCP Consus

For a long time, procurement was viewed as a necessary evil. But with the disruptions of the last few years, procurement has re-emerged as an internal partner who can identify sources of high quality, lower risk, and optimized spend value.

Now that the world’s attention is moving from parts and materials shortages to inflation and recession worries, procurement can build on their new reputation by demonstrating their problem solving capabilities. With macroeconomic headwinds impacting all companies, industries, and geographies, highly effective procurement teams represent a competitive advantage and safeguard for shareholder value.

As procurement prepares to enter the battle against inflation, there are a number of proven techniques they can apply.

Pulling Internal Levers to Increase Efficiency

Spend management is not a new discipline, but many companies still don’t have a clear line of sight into their spend because of fragmented data sets and disjointed technology infrastructure. When data is harmonized across the organization, opportunities for efficiency often reveal themselves. For instance, standardizing price and specifications across business units can drive savings without putting pressure on suppliers. The same can be achieved through supplier and demand rationalization, using in-place contracts to optimize the price paid and the value received. Each price or payment term variance is an opportunity for procurement to deliver savings without having an impact on the business.

Balancing Category and Process Expertise

In order to manage spend strategically, procurement needs access to both category and process expertise, but they don’t need to have both in house. The key is for each team to identify and embrace what they are best at and then secure supplemental help for the rest.  With a comprehensive view of spend data, category expertise and tactical execution can be combined to become a battle plan. There are many different ways to increase spend efficiency – the trick is for procurement to recognize the nuances and determine how to address them.

Maintaining a Broad Sense of Market Direction

Most product categories can be traced back to the commodities that drive their costs. For instance, when dealing with packaging suppliers, it is important to monitor trends in wood pulp pricing. Is the market trending up or down? Are there any logistical issues? Are the costs of sea freight or air freight going up or down? These factors combine to provide procurement with a sense of where the market is going. That way, when they negotiate with suppliers, they know what to expect and why. This knowledge not only keeps suppliers honest, it helps procurement determine who their true supply partners are.

Serving as a Barometer for Customer Value

Procurement plays a vital role in alerting the business that upcoming cost of goods sold increases may affect customer prices. This creates an opportunity for the company to avoid surprises and serve as a source of information instead of bad news. Procurement should be in regular touch with marketing, engineering and sales. Together they can identify ways for customers to address costs, especially in markets with significant pricing volatility or supply shortages. Procurement is the glue that binds all these pieces together to protect customer value.

Procurement has functioned in a silo for too long. With little cross-functional communication, anything that goes wrong can easily be blamed on procurement. It is time to change the script.

As an inflation warrior, procurement should take a proactive approach, first building up a knowledge base and then sharing it with the rest of the company. It is true that shareholder value is most often associated with sales and revenue, revenue and sales. But who will come to the rescue when recession worries loom and budget cutbacks take effect? Who will cut costs and increase earnings per share? Procurement.

 Only procurement can holistically respond to today’s macroeconomic complexities. And once the world returns to business as usual, they will have proven that they are not the enemy. Procurement can sustain the company through challenging times and futureproof the supply chain at the same time.

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