Inflation in Procurement

The current price increases are the result of overlapping developments. Buyers have to avoid requests for increased prices as much as possible in order to minimize cost increases.

 

Ten percent has always been possible – anyone who started out in procurement learnt that in their first few weeks on  the job. It has mostly been like this for the last 50 years. But with inflation starting last year, and currently ranging in the European Union and the United Kingdom from 6.5% (France) to 25.2% (Estonia), the old mantra of cost  reduction by ten percent per year is no longer achievable. We will show you strategies to deal with rising inflation and the tight situation in the commodity markets.

A Herculean Task for Buyers

Sooner or later, price increases will catch up with every company. As they are driven by supply, we do not anticipate weaker demand slowing down price increases quickly. Instead, we expect higher prices to be passed down the supply chain and eventually reach consumers. The Herculean task facing procurement departments in all sectors is to drive back inflationary pressure as much as possible.

This means that buyers are finding themselves in a situation that hardly anyone in work today has experienced. After all, it’s almost 50 years since the oil price shocks, and the manufacturer price rises before the 2008 financial crisis were innocuous in comparison with today’s developments.

 

Procurement teams with the knowledge of all of its cost drivers will find that not every increase is justified. This makes it possible to fend off price increases and look to adapt commercial models to ensure fairness for both sides when commodities start cooling off.

Thibault Lecat, Managing Director and System Leader LAB&F, INVERTO - BCG Company

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Inflation: Paradigm shift in procurement

The current price increases are the result of overlapping developments.