5 MIN READ
At a glance, things seem to be going back to normal. Businesses are at total operational capacity, and everyone is back at the office. But the fight for stability isn’t over yet– because the newest challenge is already unveiling itself.
Inflation. According to Pew Research, America’s inflation is now at 9.1% this Q3 of 2022. This puts America at an all-time high inflation rate since the 1980s. You know what that means: For those in procurement, inflation is equivalent to all-time highs for raw materials and soaring transportation costs and wages.
The pandemic left most companies vulnerable, with little runway left. Adding inflation to this mix could be pushing it. We could be looking at a wipe-out event. So to mitigate this, it's critical to put a good strategy in place. This way, your company can stay resilient.
1. Prioritize data transparency to gain insights into operational insufficiencies.
The first step you want to take when faced with cost-related problems is to check for holes in your boat. Before looking for external solutions or opportunities, take the time to check your procurement operations and understand where you lack and what parts can be improved. Doing this can help you identify cost savings and opportunities within your organization without having to do all the extra external processing.
With documentation software, you’ll be better capable of tracking holes in your organization. At a glance, you can check the differences between past project costs versus current project costs to identify cost savings.
To add, an additional cost breakdown feature can give further insight into where the bulk of your costs go-to for easy analysis.
Of course, all this doesn’t go without properly documenting your project data with the right software.
Remember: the rule of thumb is to work inside your organization. This will serve you better in the long run rather than band-aiding your holes and insufficiencies from the outside.
2. Negotiate using historical data spending to get volume discounts.
When negotiating with your suppliers, going in empty-handed without any cards is not a good idea. When there’s no accountability for your past transactions, it becomes hard to put yourself in a negotiating position.
With a few clicks, you can access any past POs and use the data in these POs as your receipts for your supplier negotiations.
Go over details like frequency of order, lead time, the volume of orders, etc.
3. Go over product cost structures to find savings opportunities and product alternatives.
If your company does manufacturing in-house, you may have noticed that sometimes, there are certain aspects of product manufacturing that costs higher than other stages that tend to consume the bulk of your costs.
And it most likely comes down to the product cost structure. Underneath every product is the costs that it took to make it. Product cost structures are made up of things like labor, factory overhead, or manufacturing costs.
In Fohlio, it's as simple as toggling it on and off to see how much it can add up.
Through this system, you can break down your product's cost structure. Once you’ve identified your culprit, create a workaround that could mitigate this.
When it comes to costing turmoils, every penny counts. Having insight into your product cost structures could make all the difference.
4. Practice strategic sourcing to lower transportation costs.
This seems obvious, but it bears repeating: sourcing location could impact your overhead. Transportation costs accrue and usually account for 10 percent of the total cost of a product. Oh, and don't forget about customs tax, because that's a whole other thing.
That said, re-planning your sources and purchasing from more local vendors with alternate materials that give off the same performance could reduce your transportation costs by half or even more.
You can quickly check your supplier details in your dashboard and see their location.
You can also opt to compare their pricing with the compare quotes feature.
5. Increase team collaboration and responsiveness to resolving time-critical problems.
Time sensitivity is a significant factor in determining your success in mitigating critical adverse events like Covid-19 or inflation. When faced with a strong possibility, timing and responsiveness become crucial factors in how effective your solutions will be. The sooner you work on your problems, the better.
When you have a platform that holds the same information, you can collaborate with people involved in your project internally and externally. You have a tool that can give you real-time feedback on your data and help you identify which stages a project is on.
Identify which stage a project or product is on and sync better with internal and external stakeholders.
6. Improve relationships with suppliers to gain perks.
Another source for potential leveraging is to work on partnerships and collaboration with your suppliers. Long-term relationships with suppliers give you more opportunities for discounts and low-market value products. If it's not through cost reduction, suppliers tend to provide extra services in their contracts for their loyal clients.
7. If you have the resources, make inventory your friend.
In more technical terms, physical hedging is buying and holding inventory. Big companies usually do this as protection against future price increases.
When inflation puts your product pricing at an all-time high, gain a strategic advantage by buying products at low market value and saving them for future projects.
Stay ahead of inflation with the right tool and a workaround strategy. Stay ahead of the competition and keep your operations running smoothly. Happy procuring!
References:
- https://www.mckinsey.com/business-functions/operations/our-insights/responding-to-inflation-and-volatility-time-for-procurement-to-lead
- https://www.cips.org/supply-management/news/2022/june/what-can-procurement-do-about-the-inflationary-feedback-loop/
- https://www.brinknews.com/how-persistent-inflation-is-causing-procurement-to-adapt/
- https://www.procurious.com/procurement-news/inflation-fighting-procurement-tips-you-can-use
- https://www.insightsourcing.com/4-procurement-strategies-for-rising-inflation/
- https://www.mckinsey.com/about-us/new-at-mckinsey-blog/adapting-to-inflation-ask-an-expert
