Procurement teams have an important mission: keep prices in check. But in times of rising inflation, keeping prices low can seem like a daunting challenge. This blog offers tips on how procurement professionals can fight inflation and add value to their company's bottom line.
Inflation is a word that has been on everyone's lips lately. And while it's easy to understand why inflation is bad for you, it's much tougher to see how exactly it affects your company.the Organization of National Statistics (ONS) , UK's inflation rate has surged to a 40-year-high of 10.1 percent in July, and inflation in the eurozone also continues to soar to record highs, hitting 8.9 percent in July.
Commodity Market Trends Fueling Inflation
On the 1st of August 2022, the price of natural gas reached GBP 480.5/100 therm; an increase of 30% week-on-week (w-o-w) and 337% year-on-year (y-o-y). In the last three years, the animal product index has increased by 54%. In July 2022, the European Dairy Mintec Category Index (MCI) continued its upward trend, reaching an average price of EUR 4,882/MT. The index had risen steadily for twelve consecutive months and was up by over 1,635 points from the previous year. That's a 50% increase as compared to the average value of July 2021. The prices of butter, skimmed milk powder, cheddar, and whole milk powder have all increased significantly. Energy prices have increased by 227% over the last three years, which is more than the overall commodity index. The grains and oilseed index has risen by 132.7% over the last three years. The metal index rose 60%, while the plastic index rose by 60.5% over the last three years. The value of soft commodities has increased by over 76.4% during the last three years. The steel index has increased by more than 101% in the last three years. The volatility in commodity prices is currently at 12.04%, which is above the historical average range. If you want to get more information about the commodity market trends, please download the Mintec Monthly Market Mover Report here .
How Can Procurement Fight Inflation and Ensure Stability? With the world economy in a state of flux, procurement professionals are tasked with fighting the ills of inflation by keeping costs and prices within a healthy range. But, it's no small task—with cost of production rising and wages soaring, it seems like everywhere you look there's another product or service going up in price at an alarming rate. So when it comes time to plan for inflation, how are we supposed to keep our heads above water? How do we mitigate its impact.
1. Understand Your Price Changes The first and most important step is to understand how your prices change and corresponding cost changes. This will enable you to prioritize and address the categories, suppliers and items with highest impact on your business.
2. Integrate Currencies to Isolate Foreign Exchange Effect Businesses often source goods and services from different countries, as a result, they are exposed to fluctuating exchange rates. Hence, procurement professionals are always looking for new ways to get the most bang for their buck, and that often means integrating currencies.
3. Benchmark Vs. Inflation or Industry Indices In the last few years, we've seen a lot of price increases across a wide range of categories. In some cases, these price increases have been dramatic—sometimes as high as 200% or more.
4. Compare Specific Commodity Prices Procurement professionals should assess risk and prioritize when it comes to inflation protection. If you want to know more about how inflation impacts specific commodities, compare specific commodity prices, and focus on categories that drive the most inflation risk for their company, such as products with high commodity value and/or those that are likely to face supplier requests for price increases in the near future.
Ignite has partnered with Mintec Limited —world's leading independent provider of global commodity price data & market intelligence—to help companies understand their supplier prices better, analyse spend, and negotiate with greater confidence.
Procurement organizations can use this information to make informed and targeted decisions about how to protect themselves from inflation.
Conclusion The world of procurement has changed. The way we buy goods and services has evolved over the past few years, but the tools we use to do so haven’t kept up.
How does Ignite help Procurement Teams beat Inflation?
Ignite helps procurement teams by providing a single source of truth for all procurement data and enabling them to make faster decisions based on facts.
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