Simon Geale

13 June 2022
Topics in this article
  • Cost Optimization
  • Inflation

Inflation, stagflation, does it really matter? We all know that it’s tough out there; supply chains are still volatile, consumer confidence is dampening, and prices for many goods and services remain high, without much respite forecast in 2022. Unemployment is the exception, but behind the statistics, labor markets are subject to their own unique circumstances. The pressure is on.

In short, costs are rising, and not every business can or wants to pass on cost increases to customers. In fact, very few businesses are “price setters,” giving them the freedom to raise prices without consequence, and even those that can do so will be concerned about recession and long-term customer loyalty if they do nothing now to acknowledge the growing financial burden facing customers.

And it’s not just inflation knocking on the bottom line. A good business today may look very different from one or two years ago as risk and reward decouple. Risk is taking center stage as businesses not only need to demonstrate fiscal responsibility but also look to comply with emerging regulations around ESG and embed balanced resilience within supply chains. For many, the gambler’s instinct is taking a back seat as revenue and investment both look that little bit more challenging to come by.

The net effect is that as inflation bites and availability stutters in the short term, mid to long-term priorities are also at risk. Businesses are being forced to move as a collective, resulting in secondary inflationary markets around strategic priorities like decarbonization, wider ESG initiatives, transparency, cloud, and further digitization efforts, to name but some.

Skills will be at a premium as we transform en masse, but the real elephant in the room…? Cost, and who is going to pay for it? Which CFO will voluntarily take the 10%, 15%, 20% (pick a number) hit on the bottom line to do all the things that need to be done now while simultaneously feeling the effects of inflation? Well, I suspect every CFO would, if they could fund it from elsewhere, which is pushing cost management right back into the spotlight.

So, this is Procurement’s time to shine, right?

Right! Although technically, it’s always been Procurement’s time to shine. So, let’s take a different viewpoint; this is the time for teamwork. A time to work hand in hand with other parts of the business (like Finance, Supply Chains, Operations, Sales, etc.) to become super-streamlined and hyper-focused on the task at hand; join up, focus, and act as a collective.

Here are seven inflationary sins, or seven things not to get wrong at all costs!

1. Failing to recognize that things have changed. Einstein is thought to have said that ‘insanity is doing the same thing over and over again, and expecting a different outcome’, but he wasn’t battling inflation at the time. Don’t do the same things that you were doing before and expect the same outcome.

2. Losing sight of what is happening in the marketplace. With markets moving constantly, a roving eye on supply and cost is essential to make smart and fast decisions when they need to be made. Take the blinkers off, look around to secure supply, and not overpay.

3. Being unattractive to suppliers. Suppliers want good customers when they have their own pressures to deal with. Think about you and the wider world through the suppliers’ eyes. What makes you attractive? Perhaps things like good communication, paying on time, and making big, simple commitments in good time? Make it easy for your partner.

4. Failing to communicate more with colleagues. What you do or don’t do when buying impacts up and down the chain. It’s often a bullwhip. Failing to communicate internally in order to plan and re-calibrate where necessary risks layering in even more confusion, disappointment, and waste.

5. Trying to be a hero. Everyone in a business makes decisions daily that cost, and tackling inflation is a team sport rather than a hero’s game. Cost consciousness is something to educate and support on. If you fail to help your people or neglect to put in extra checks and balances around spending, you end up at zero.

6. Not thinking more creatively about value. So, prices are up, we know that, but that doesn’t mean that you cannot architect value. What does your business or your key supplier value now? We’ve moved beyond price savings for this year’s scorecard, so it might be time to prioritize other value drivers.

7. Dreaming small. Now might just be the time for the big, bold ideas. Those that chip away around the fringes probably aren’t doing enough. Be bold. Lots of organizations are still taking significant costs out by daring to think differently.

So how do you get it right

Well, the glib answer is to do the opposite of the above things. But, perhaps we can paraphrase that into ‘doing a few key things a little bit differently,’ on the basis that most procurement and supply chain teams are probably already doing lots of things well, and most businesses are collaborating and communicating better post-pandemic (if indeed we are).

Ultimately success will be guided by how well a joined-up business is able to coordinate the value chain, seamlessly orchestrating the relationships between customers, supply chains, and the business itself to create predictability, reliability, and cost-efficiency. And since most of us don’t yet have transparency at the touch of a button, or machines that can solve all our problems before we know that we have them, that’s going to mean being more curious, better informed, and more connected and collaborative.

It will also mean changing the definitions of value and success. At times it might not always be possible to beat inflation, but it is possible to outperform the chasing pack. Read our thoughts on how here…

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