It is clear that the economic impact of the global pandemic, significant inflation, and the war in Ukraine is accelerating procurement’s transformation from a transactional function to a key enabler of cost management and business growth. In 2020 and 2021, change was thrust upon us all. In 2022 and beyond, companies have the opportunity to own that transformation.
Indirect procurement isn’t a new field. It’s been around for decades, helping to control spending and reliably source the goods and resources internal teams need to do their jobs and keep the business operational.
But, today, it still finds itself in the same position that direct procurement was in up until a few years ago. Perceptions of indirect procurement as a cost-saving, enabling function have caused many organizations to overlook the potential value it can deliver.
It’s a word that everyone from high-ranking executives to the average grocery-store shopper dreads hearing: inflation. As the world continues to experience supply chain disruptions caused by a number of factors—the ongoing COVID-19 pandemic, political crises, changes in production patterns and more—we’re seeing prices for goods and materials climb faster and higher.
Tania Seary is the Founding Chairman of Procurious, an online network for procurement and supply chain professionals. Born and based in Australia, Tania’s fascination and commitment to procurement development began 20 years ago in the United States. After finishing her MBA at Pennsylvania State University, she became one of Alcoa’s first global commodity managers.
Supply chain and procurement professionals are now tasked with the near-impossible: fighting off upstream price increases and obtaining year-over-year cost savings in today’s inflationary environment. For the first time in years, suppliers are in control and cost savings are hard to find. Where does one start? Are cost savings even possible in today’s world? Is cost avoidance the only hope moving forward?
The Hackett Group’s annual working capital research – The Hackett 1000 – shows that the largest public U.S. companies have run a tight ship during the crisis, employing cash and working capital management strategies to increase liquidity and cash on hand as they navigate uncertainty and demand shocks. Nevertheless, those companies collectively had nearly $1.3 trillion of excess cash tied up in working capital at the end of 2020.
2021 was an immensely challenging year for procurement teams across the globe. Not only did most of the challenges of 2020 continue, but many got significantly worse. Between major supply shortages, rising commodity prices and new variants reigniting pandemic-related disruption, teams had to work extremely hard just to keep their organizations operational, let alone achieve their strategic goals.
Inflation is our call to arms.
Born from supply chain disruptions and shortages of commodities, renewed demand, cyberattacks and natural disasters, the annual producer price inflation for final manufactured goods jumped a whopping 7.8% in September 2021, up from 7.2% in August. With U.S. inflation hitting a 30-year high, there is no clear end in sight.
Inflation is a word that has been on the minds of every procurement team in 2021. We are seeing a sustained period of supply shortages and price volatility of the kind that most commercial professionals will not have experienced in their working lives. In one way or another, it is having an impact on virtually every business.