Procurement Rising: The Silent Inflation Tax on Manufacturers

by Doug Keeley

Last year, the Consumer Price Index was the highest it has been in four decades, making inflation one of the most concerning macroeconomic factors facing the business world today. While inflation has eased from 9.1% last June to 6.5% in December and is expected to fall to 3.1% by the end of this year, business and academic economists polled by the Wall Street Journal put the probability of a recession in the next 12 months at 61%.

Manufacturers have unique insight into the state of global inflation – they’re often hit earlier and harder than other industries by increasing overhead costs, from raw materials prices to wages. Consequently, staying on top of these financial trends gives manufacturers a critical edge in predicting their bottom line. Manufacturers can off-set the effects of inflation and avoid passing on price increases to their goods and services by maximizing the efficiency and effectiveness of the procurement function.

Understanding how inflation impacts procurement and then taking action to mitigate its effects is essential for any Manufacturer looking to stay ahead of the game. One way of doing this is by leveraging Source-to-Pay (S2P) solutions, which provide procurement with the tools needed to maximize the value they get from  their supplier relationships, automate and streamline processes,  and identify opportunities for cost savings.

Let’s explore further. 

How Inflation Impacts Procurement 

Inflation affects a number of aspects within the Manufacturing supply chain, including the ability to compete in the market, financial performance, and overall strategy. It also has an impact on procurement teams as they are responsible for managing supplier relationships, identifying opportunities for cost savings, and ensuring that goods and services are delivered on time and within budget. 

Inflationary pressures can cause frustration levels among suppliers due to increased costs or reduced demand from customers, particularly when it comes to repeated orders or fixed pricing contracts. This in turn can lead to suppliers raising prices or refusing orders altogether due to not being able to meet demand at the agreed price point – all resulting in negative impacts for both parties. 

Expectations from customers may also shift due to inflationary changes in the market, meaning that procurement teams must be prepared to respond quickly and adjust their strategies accordingly. 

How S2P Solutions Help Mitigate the Effects of Inflation on Manufacturing     

The right Source-to-Pay platform can provide Manufacturers with 360-degree visibility into all categories of spend, helping them identify opportunities for cost savings through better supplier management techniques, including increased collaboration and  performance review capabilities. The resulting insights allow Manufacturers to better understand their current state of affairs so they can effectively plan ahead and adjust their strategies accordingly during times of high inflationary pressure. Additionally, they can track risk and supplier performance issues in real  time, enabling them to take proactive measures such as looking for alternative sources of supply before experiencing disruption to their supply chains.

Ivalua provides a comprehensive set of integrated solutions that span the entire Source-to-Pay lifecycle. The platform empowers Manufacturers to quickly access spend analysis tools to identify areas for cost savings and benchmark current prices against market trends. The eSourcing solution includes the ability to create RFPs, receive bids from qualified suppliers, analyze supplier performance, and manage contracts all  in one place. 

In addition, our Contract Management module helps Manufacturers to easily track milestones and consumption in real time across multiple agreements. This ensures contracts remain favorable and all stakeholders comply with negotiated terms. The eProcurement solution enables users to create purchase orders quickly and accurately while providing visibility into status updates along each step of the procurement process. Our Invoicing and Payments solutions can help optimize invoicing and early payments, helping your organization to better manage working capital.

Conclusion

In times of high inflationary pressure, it’s essential that Manufacturers take steps towards mitigating its effects on procurement teams as well as other areas within the organization. 

Manufacturers, take charge of your supply chain! By utilizing advanced S2P solutions like Spend Analysis and Supplier Management & Collaboration to gain insight into their spend data, manufacturers can identify cost-saving opportunities to stay competitive during these trying economic times. This proactive approach enables them control over external conditions outside of their control while building strong supplier relationships for long term success.

See Ivalua’s Source-to-Pay Solution in action HERE
Learn more about Ivalua for Manufacturing HERE