It's fair to say that issues like COVID-19 and the semiconductor shortage have been top of mind for many over the last year. But other issues are looming, and they necessitate ample attention. More specifically: how should the procurement industry respond to inflation caused by supply chain challenges and labor shortages?
Some Shocking Numbers
According to the U.S. Bureau of Labor Statistics, the Consumer Price Index in the United States increased 5.4% in the 12 months leading up to June 2021, reaching its highest level since August 2008. For many current procurement professionals, this is their first encounter with this level of inflation. Additionally, 6.6% of jobs in the United States were unfilled in September 2021, marking the first time we've experienced labor shortages to that degree in over two decades.
Look to the Past to Get to the Future
While some cost components are likely to return to normal, it is safe to say that we will continue to operate in an inflationary environment for some time. However, procurement professionals who have been through this process before would do well to remember that there is a playbook to follow. Seasoned professionals understand that there is no reason to panic. Instead, buyers must pay close attention to underlying cost factors that may contribute to price inflation.
Buyers, Be Wary
Given the current state of the supply chain, many suppliers will view this as an opportunity to justify price increases that are, well…unjustified. To manage this, buyers need to implement tactics like ongoing cost drivers analyses, setting should-cost targets, leveraging future markets, and managing commitment horizons. At least for the foreseeable future, the primary objective is to ensure supply while maintaining price stability, which necessitates aggressive bargaining.
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