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Tag: procurement strategies

How to Protect Your Procurement Organization From Inflation

Written by Abstrakt user on . Posted in In the News.

Inflation is on the rise. In 2020, inflation rates in the US were at their highest levels since 2008. In 2022, prices rose more than 9% over the course of a calendar year, the largest increase in 40 years. This is due mainly to significant fluctuations in supply and demand since the start of the COVID-19 pandemic.

The impact of rapid inflation has been felt across all industries, with essentials such as gas, electricity, and food becoming much more expensive. These escalations erode your procurement organization’s buying power, making it challenging to stay within budget and obtain quality goods and services at favorable prices.

The Effects of Inflation on Your Procurement Organization

With rising prices and eroded purchasing power, inflation can significantly impact your procurement organization. Understanding these effects is crucial for devising an effective procurement strategy to protect your source-to-pay organization.

  • Increased costs: Inflation leads to higher prices for goods and services, directly affecting your procurement costs. As suppliers pass on increased expenses to customers, your organization may face higher prices for raw materials, components, transportation, and other inputs. This can strain your budget and make it challenging to maintain profitability and competitive pricing.
  • Limited buying power: As mentioned above, inflation erodes your purchasing power. The same budget that previously allowed you to purchase a certain quantity of goods or services may no longer stretch as far. As a result, you may need to make difficult choices, potentially compromising on quality or quantity to align with budget constraints.
  • Supply chain disruptions: Inflationary pressures can also disrupt your supply chain, impacting your procurement processes. Suppliers may face difficulties procuring raw materials, managing production costs, or meeting increased demand. These disruptions can lead to delays, shortages, and increased lead ties, affecting your ability to fulfill orders and meet demands.
  • Supplier relationships and performance: Inflation can strain your relationships with suppliers and impact their performance. Your suppliers may struggle to manage their own rising costs, leading to challenges in meeting delivery schedules, maintaining quality standards, or offering competitive pricing. Maintaining strong supplier relationships becomes even more crucial during high inflationary periods, as it allows you to ensure a reliable supply of goods and services.
Want to learn more about the effects of inflation on your procurement organization? Explore our blog to learn more about how it impacts your supplier contracts and discover new ideas for your procurement department.

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5 Procurement Strategies to Protect You From Inflation

Foster Internal Alignment and Transparent Supplier Relationships

To protect your organization from inflation, it’s crucial to encourage internal alignment between your procurement department and other departments. By working collaboratively, you can align your procurement objectives with overall business goals and strategies. This alignment enables you to anticipate potential inflationary pressures and take proactive measures to mitigate their impact.

Furthermore, establishing transparent, open communication channels with your suppliers is essential for navigating inflationary pressures. Encourage suppliers to share information about their cost structures, such as raw material prices, labor costs, and transportation expenses. This allows you to better understand the factors contributing to price increases and identify areas for negotiation or alternative sourcing options.

Actively Engage Your Suppliers and Perform Quick Bids

Regularly revising and assessing the supplier market is essential for leveraging competitive pricing and protecting your organization from inflation. Conducting sourcing events, such as request for proposals (RFPs) or request for quotations (RFQs), allows you to engage multiple suppliers simultaneously, encouraging healthy competition and driving down costs.

Additionally, implementing a quick bidding process can be an effective procurement strategy. These expedited bidding events focus on urgent requirements or specific categories, allowing you to obtain competitive bids and secure favorable pricing terms quickly. Quick bids are particularly useful during times of inflation when market dynamics and prices fluctuate rapidly.

Negotiate Favorable Contract Terms

Negotiating favorable contract terms is a powerful method for protecting your procurement organization from inflation. When drafting contracts with suppliers, consider including provisions that address price volatility and protect against unexpected cost increases.

One approach to this is to include price ceilings or caps that limit the extent to which prices can rise during the contract period. This helps mitigate the risk of sudden price surges and provides much-needed budget certainty. You can also incorporate inflation adjustment clauses in your contracts, allowing periodic price changes based on inflation indices or specific economic indicators.

Implement Robust Procurement Technology

In an increasingly complex and dynamic business environment, leveraging advanced procurement technology is essential for protecting your organization from inflation. Robust procurement technology solutions provide automation, analytics, and supplier management capabilities that streamline procurement processes, enhance efficiency, and drive cost savings.

By automating your procurement workflows, you can reduce manual effort and human error and enhance operational efficiency. And, with analytics capabilities, your procurement technology provides valuable insights into spending patterns, supplier performance, market trends, and more. Using these insights allows you to make data-driven decisions that mitigate the impact of inflation.

Harness the Expertise of a Procurement Specialist

Partnering with a procurement expert can provide invaluable support in navigating inflation and protecting your procurement organization. These experienced professionals possess in-depth market knowledge, extensive supplier networks, and expertise in optimizing your procurement strategy. By leveraging their knowledge and experience, you can stay ahead of inflationary trends, adapt your procurement strategy, and make informed decisions that protect your organization from rising costs.

Find Your Procurement Solution With Velocity

Ready to protect your procurement organization from inflation and optimize your sourcing practices? Take the next step toward success by partnering with Velocity Procurement, your industry-leading procurement specialist. Our expert team is here to guide you through the unique challenges of inflation, help you streamline your procurement processes, and achieve cost savings.

Get in touch with us today and unlock the full potential of your procurement organization.

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How Investing in the Right Procurement Partner Can Help Avoid Supply Chain Disruptions

Written by Abstrakt user on . Posted in In the News.

Supply chains are intricate, encompassing a complex web of interconnected activities involving suppliers, manufacturers, distributors, and customers. If a link breaks, it can have drastic consequences, leading to delays, increased costs, and even a loss of business. Because of this, it’s imperative to understand the various sources of supply chain disruptions to ensure your procurement department can operate effectively and efficiently.

Here are some of the most common sources of supply chain disruptions:

  • Demand disruptions: Fluctuations in demand, such as sudden changes in consumer preferences or market trends, can pose significant challenges to supply chains. For example, a sudden surge for a particular product can strain your supply chain’s capacity, resulting in delays or shortages.
  • Supply disruptions: Supply disruptions occur when suppliers are unable to meet the required quantity or quality of goods and services. They can be caused by various factors, from raw material shortages to labor strikes. When a key supplier fails to deliver, it can have a cascading effect on the rest of the supply chain, impacting every procurement process downstream.
  • Environmental factors: Environmental disruptions are often beyond the control of businesses but can have a severe impact on their supply chains. These disruptions include a wide range of events, including natural disasters, trade policy changes, sanctions, or geopolitical conflicts. These disruptions can lead to infrastructure damage, transportation disruptions, or regulatory constraints, all of which impede the smooth flow of goods and services.
  • Manufacturing disruptions: Machinery breakdowns, equipment failures, or labor shortages can severely impact the manufacturing process, affecting production schedules, product quality, and lead times. For example, a breakdown of critical manufacturing equipment can result in reduced production capacity, which can cause a ripple effect on the overall supply.
  • Shipping disruptions: Transportation and logistics issues, such as port backlogs, customs hold-ups, labor disputes, fuel cost changes, or shortages in availability, can all cause shipping problems. This can delay packages from reaching their destination on time, hike up transport fees, and lead to discrepancies in stock levels.

 

Not sure of the best way to navigate potential supply chain disruptions? Velocity’s full suite of advisory services allows you to reduce supply chain risk and move forward with confidence. Learn more.

 

Five Ways a Procurement Expert Can Help

Even with so many sources of potential supply chain disruption, there’s hope for your procurement department. Collaborating with an experienced procurement company can help you steer clear of unpleasant surprises and added expenses, allowing you to establish effective procurement strategies that make it possible to adjust to changing conditions. Here are five ways they can support your procurement operations:

1. Creating a Contingency Plan

To avoid supply chain disruptions, you need to take proactive steps that prepare your business for any potential broken link in your supply chain. Your contingency plan should include a comprehensive assessment of your current processes, procedures, technologies, and staff, as well as an examination of potential supply chain risks and their associated costs. Your procurement management partner can help you identify potential weak points within your supply chain and provide you with custom strategies to manage them better. Should your supply chain be disrupted in the future, you’ll already have an effective plan for responding to it.

2. Auditing Your Supply Chain

Once you’ve identified the risks associated with your supply chain, you need to audit it regularly to ensure there are no hidden weak points or areas of vulnerability. An experienced procurement company can provide invaluable experience here, whether through auditing your current supplier base or developing protocols for supplier compliance. Additionally, your partner can help you negotiate improved terms and conditions with your suppliers, which can further reduce risks associated with supply chain disruption.

3. Identifying Backup Suppliers and Diversifying Your Supply Base

Having a diverse supplier base is essential for avoiding supply chain disruptions, as it allows you to pivot if one area of your supply chain experiences an issue. With a reliable procurement management partner, you can identify multiple sources of goods and services that your procurement team requires so that you’re never put into a situation where you don’t have backup options available.

4. Building Up Your Inventory

A dependable procurement company can also help you build your inventory levels to ensure you always have adequate stock available when needed. This helps reduce the risk of running out of material or supplies during a disruption event and creates a buffer stock, which allows you to stay afloat when there’s increased demand or longer than expected lead times from suppliers. Additionally, having extra inventory on hand can reduce costs over time by eliminating the need for rush orders that incur higher prices due to urgency or limited availability.

5. Increasing Supply Chain Transparency and Visibility

By developing a real-time dashboard for tracking materials and orders along every step of the procurement process—from sourcing to delivery—your procurement partner allows you to increase visible visibility across your entire supply chain network. From pricing trends to supplier performance metrics, these dashboards provide you with crucial insight that allows you to make accurate predictions about future trends. This allows you to react quickly to supply chain disruptions or avoid them altogether.

Establish a Resilient Procurement Strategy With Velocity

Supply chain disruptions can create significant challenges for any source-to-pay organization. Fortunately, with support from an expert like Velocity Procurement, you can mitigate the risk of disruption and ensure your procurement department is equipped to deal with anything the market throws its way. We proudly provide advisory services that help you optimize your supply chain network and achieve savings so you can continue moving forward with your business.

Get in touch with us today to start protecting your business from potential disruptions.

Procurement Strategies for Managing Spend During Inflationary Times

Written by Abstrakt user on . Posted in In the News.

In today’s economy, several factors contribute to rising prices. Wage growth, increased demand for goods and services, supply chain shortages, trade tariffs, and world-shifting events like pandemics can all significantly impact the cost of doing business. This puts financial pressure on various business functions and can be particularly frustrating for those responsible for managing spend through the procurement process.

In 2020, inflation rates started to rise. Although gradual at first, inflation rose substantially over the next two years, reaching a peak of 9.1% in June 2022. Since then, inflation has cooled—March saw rates of around 5%—but businesses still deal with bloated prices, making it difficult to run a cost-effective operation.

How Visibility and Collaboration Support Procurement

An effective procurement strategy’s most important aspects are visibility and communication between departments. Your entire organization needs to work in tandem to establish transparency regarding overall spending. By addressing individual components from each department, you can gain greater insight into your total expenditures. This allows you to identify areas where costs could be reduced or improved. For example, it may indicate that you need to introduce alternative suppliers or renegotiate your contracts with existing ones to maintain your bottom line.

Communication is also crucial to managing spend during inflationary periods, as stakeholders in your organization need assurance that their purchases are being managed effectively against budget constraints and price increases. Stakeholders need data-driven insights about any potential risks or opportunities within the supply chain so they can make informed decisions on how to best allocate resources against changing market conditions.

 

Discover how an effective spend management solution can support your strategic sourcing initiative. Explore Velocity’s full-service approach to data, market intelligence, and cost-effective procurement.

 

 

Implementing a Procurement Strategy Framework

With this in mind, it’s essential for organizations looking to reduce their total costs to develop a comprehensive procurement strategy framework that encompasses both visibility and communication initiatives across various departments within the organization, including finance, operations, legal, and HR. It should also include your suppliers.

A successful procurement strategy framework should include clear objectives that work toward achieving total cost savings. Some of these objectives should include:

  • Strategic sourcing of goods and services at competitive rates
  • Minimizing risk exposure
  • Supply chain relationship management
  • Benchmarking processes
  • Performance metrics
  • A comprehensive data strategy
  • Employing automation

Five Essential Strategies for Effective Procurement During Inflationary Times

Here are a few key strategies that source-to-pay organizations should consider when implementing a successful procurement strategy framework:

1. Leverage Data Analytics

During inflationary periods, organizations need enhanced visibility into pricing trends across multiple channels—such as direct and indirect spend—to compare market rates versus internal benchmarks. Effective use of data analytics will provide insight into where your costs originate from as well as any potential opportunities or risks associated with price fluctuations. This enables you to respond to economic challenges quickly and effectively. For example, thorough analytics may reveal opportunities to consolidate suppliers in certain spend categories, allowing you to lower costs in that area of your supply chain.

2. Establish Clear Supplier Management Processes

Having visibility into strategic supplier performance metrics enables your organization to identify areas where improvement is required—whether that be the quality of materials, delays in delivery, or discrepancies with quotes supplied—so that they can be resolved before they disrupt your operations. Building strong supplier relationships based on trust and mutual understanding can lead to more favorable terms when rate hikes might occur due to rising resource costs.

3. Automate Workflows

When it comes to optimizing cost efficiency during times of heightened financial pressure, automation technologies can offer significant advantages over manual processes. Automated invoicing, payment processing, PO approvals, and more can all help improve your efficiency by enabling teams to prioritize more mission-critical tasks. This ultimately leads to faster resolution timeframes and lower administrative costs.

4. Monitor Contract Compliance

Regularly reviewing your contracts with existing suppliers is especially important during inflationary times. Key terms such as rate hikes might not have been negotiated upfront, which can lead to higher-than-expected costs down the line. Having robust contract compliance controls in place helps you ensure adherence to contractual terms while maintaining healthy, sustainable relationships even under challenging economic conditions.

5. Empower Your Employees

To mitigate the effects of inflation, it’s essential that you utilize training programs and tools that enable employees to understand supplier capabilities, purchasing policies and procedures, and industry trends to optimize your organizational buying power. Taking this proactive stance not only helps you navigate economic challenges and keep costs down but helps you stay ahead of the competition.

Develop Your Procurement Strategy With Velocity

At Velocity Procurement, our goal is to align your people, processes, and technology with your overarching business strategy so that you can experience continuous improvement, even during times of inflation.

We understand the challenges of sourcing materials and services during high inflationary periods. That’s why our team of procurement professionals is here to help you navigate these difficult times and develop a comprehensive procurement strategy tailored to your unique needs. We’ll collaborate with you every step of the way, from developing an integrated procurement network to establishing robust supply chain management practices.

Get in touch with us today to start your journey.