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Inflation-busting supplier management

Jemma Bell, UK Business Executive, Proactis

Companies relying on suppliers to get the best quality products at a minimum cost is a huge challenge. We have seen inflation rising rapidly, shortages of many key raw materials, supply chain bottlenecks, energy (and house) prices shooting up, and even labour shortages in certain key areas and countries. 

Procurement professionals are having to focus strongly on the fundamentals - assuring supply of goods and services for organisations. This includes supplier selection, collaboration and measurement of risk and resilience in supply chains. But it also needs to focus on cost management. Many professionals have never experienced inflation running at around 7% - much higher in certain spend areas - and resisting supplier demands for price increases has been relatively easy through the years, but it will be harder in 2022. Supply management is in uncharted waters.

With a long period of price increases possible, a proactive approach can help Procurement professionals weather the storm.

Prices for many items are already on the rise, and when supply management professionals evaluate how inflation will make their jobs more difficult, from conversations I have had, lost purchasing power is a major concern.

There are, however, some best practices and tools that can help deal with not just uncertainty in demand and supply, but supplier failures, price volatility and supply chain risk.

Being able to easily and quickly define and manage sourcing events, while ensuring best value will be critical, not only to success, but in some cases to survival. One way to achieve this is by improving the effectiveness and transparency of both strategic and tactical sourcing processes, all while reducing administrative time and effort. There are strategic tools available that provide flexible, collaborative, and efficient methods for performing effective sourcing events of all types. Competitive bidding will be encouraged by using one system for a level playing field.

Proactively monitor and manage supplier risk. It’s more important than ever to proactively monitor which suppliers are at risk, and have contingency plans and/or alternate suppliers in place. There are tools available to provide early warning of suppliers who might be in trouble. It is also useful to monitor potential trouble indicators yourself - e.g., a supplier desperate for shorter payment terms or delivery or quality performance issues. Contingency plans are essential, especially when there are few or no alternate suppliers. While building a strong supplier base may not be the immediate main priority at the moment, maintaining your base should be. This can be achieved by structuring and streamlining the entire supplier lifecycle – from initial identification to adoption, approval, transaction and analysis.

Work together with suppliers on how to reduce costs and understand cost structures. Look at options with suppliers, such as different ways of payment and different ways of managing inventory. Don't just keep doing the same thing, just because that's the way you've always done it. These times call for innovative approaches. Procurement professionals need to get much more hands-on about helping to alleviate some of the cash flow issues of critical suppliers. For example, you may agree to shorter payment terms in exchange for discounts, to help suppliers' cash flow.

Working in collaboration with suppliers is imperative. I’d be very interested to hear how you are currently doing this, so please drop me a line – [email protected].