There is no one-size-fits-all solution to this challenge, as the path from crisis mode to sustainable inflation control will be highly dependent on the unique circumstances of each industry or region. The following guiding principles can help lead the process:
- Address any immediate crisis: The priority during a crisis should be to stabilise the situation and prevent it from worsening. This may involve implementing measures such as diversifying the supplier base and increasing local sourcing. Others may consider how to make their supply chains more agile and adaptable, such as adjusting inventory management practices or expanding their own production capabilities.
- Repair the damage: After any immediate crisis has been addressed, the next step is to repair the damage that has been done.
- This may involve investment in areas such as digitalisation to help improve efficiency in the supply chain and reduce costs by automating certain processes and allowing for better tracking and coordination
- To reduce the risk of future price volatility, organisations should look to make their supply chains more agile and adaptable. This can be done by diversifying suppliers, reducing reliance on certain markets or products, and hedging against price fluctuations to minimise the risk of unexpected supply chain disruptions in commodities such as raw materials and energy by establishing processes for gather quality forecasting data and then securing appropriate contracts
- Monitor adjustments to consumer demands which may drive a change to sourcing requirements and manufacturing practices to meet varying preferences. It is important for companies to stay attuned to these shifts in order to stay competitive
- Implement sustainable change: It is critical to develop a plan and then implement sustainable change to avoid future crises and maintain a stable supply chain. This may involve passing on inflation to customers while also maintaining a stronger working capital position or possibly changing the levels of inventory reserves and finished goods. It is important to then evaluate the effectiveness of the plan and whether it is successful in mitigating your risk exposure.
- Balancing cost out with procurement resilience: Cost-out efforts can help reduce costs, but it is important to balance these efforts with procurement resilience and ensure that the supply chain is able to adapt to changing circumstances. This may involve diversifying the supply base, strengthening key partnerships, and re-evaluating warehouse and logistic solutions.
Triggered by the pandemic and other geopolitical events, there has clearly been a significant impact worldwide that has led all businesses to reconsider their reliance on “what worked before” and procurement should be driving this activity. Although our research suggests that in many organisations this doesn’t seem to be the case (only 9% from our recent Argon & Co survey); this may be due to a misunderstanding of the function and how it supports overall transformation, or perhaps for many the first thought to mitigate cost is to explore redundancies, but this doesn’t need to be the case.
However, it is important to note that combating inflation necessitates a long-term outlook and a commitment to putting these principles into action over time.