Simon Geale

30 March 2022
Topics in this article
  • Cost Optimization
  • Inflation

Proxima’s Supply Chain Barometer, which has launched today, has further highlighted that market uncertainty is having a significant impact on business decisions around the world.

The Barometer reports that from a survey of 2,000 CEOs in the UK and US, the overwhelming majority (91%) are seeing inflation in the goods and services they purchase, and almost half (47%) of CEOs reported that their businesses had raised prices as a direct result. Perhaps more striking, a quarter of CEOs (25%) said that they will delay their plans to decarbonize their supply chain, due to the impact of inflation.

Now more than ever, this means that business leaders must have one foot in rebuilding the present and one foot in securing the future but, perhaps for the first time, suppliers are almost universally seen as a key asset to make this happen. With 75% of revenues being spent on suppliers on average, businesses will be asking supplier partners to enable both cost reduction and a performance boost, helping them to outperform their peers.

Cost pressure is being felt on multiple fronts; inflationary markets, cost of borrowing, and desired investments in ESG, risk and resilience. Businesses should be laser-focused on cost, but also on value. This time of crisis may act as a catalyst to eliminate waste, recalibrate supplier relations and ensure that the money spent is working hard for today’s business priorities.

With prices so unpredictable, it may not always be possible to beat inflation, but it is possible to outperform the chasing pack.

Acceptance: volatility is real and you will win and lose

Many businesses are used to buying in deflationary markets; however, today’s market dynamics are different and require a new approach to managing cost. Shortages, price rises, SLA erosion, slower lead times and potential supply chain failure may all need to be navigated.

It is essential that a cross-business strategy is set up to communicate, collaborate and coordinate business decisions in the face of these challenges. With price savings hard to come by, value must be framed differently so that a connected business can act quickly and with certainty.

Understand how suppliers enable your business and what, if anything, has changed

In times of crisis, it’s essential to know where every cent is going, so it’s obvious what is making a positive difference. It’s therefore important you ask questions, not just what you are spending your money on, but why you’re spending it and why now?

To do this you need to get to grips with your data and challenge what your outgoing spend does, how critical it is, and how at risk it is from market pricing pressure. Try thinking about spend through a different lens; what’s powering growth, driving innovation, or enabling productivity? Where is there waste?

Thirdly, do the procurement basics well

When looking at your current suppliers, check existing contracts to ascertain whether they are still relevant and assess what options you have, to reconfigure goods, services, or commercial terms. Having broken down this data, you must challenge procurement and budget holders to develop a plan from the simple, to the bold ideas to create more value from each $£ spent on supplier relationships.

For more radical action, try putting a ‘stop cost’ program in place. A ‘stop cost’ is enhanced governance, and additional procurement investment to challenge every bit of money before it gets spent. Further, a ‘stop cost’ team will seek to renegotiate and compete more on what is spent, with more suppliers, to get accurate market pricing and relevant terms.

Volatility is a business-wide problem, team up to mitigate

Price increases and shortages are a direct hit on margin. If the teams within a business can anticipate the incoming impact and act accordingly, they can soften the blow. When price deals are being universally felt, outperforming competitors requires total transparency of cost and an agile mindset. This means joining up the business, putting together those who have an understanding, and acting quickly upon the impacts beyond the invoice.

Collaborate with or renegotiate? Manage supplier relationships

Prices may be going up, but there is still enormous value in supplier relationships. Many supplier partners will have resources, ideas, and capabilities that far exceed what a business has inside its own four walls. But which suppliers are they?

Many of today’s business challenges will only be solved through collaboration, specifically, this approach is already proven to speed up (and reduce the cost of) innovation and climate action. Businesses can unlock this potential and create shared value through network partnerships, some of which will be about sharing the pain, others about accelerating the gain.

And finally, be at your best

It’s not just procurement tactics that need to change. It’s also about you, and your team. Difficult times require positive mindsets and different techniques. It’ll be important to provide challenge and guidance to colleagues but also support in times of need. It may not be possible to always beat inflation, but there is value to be created, and it is possible to outperform the chasing pack.

Are you facing volatility and rising costs in supply chains? Complete the form below to download the full report: Outperform: How to buy well in inflationary markets.

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